Community Finance Backers Alarmed by Trump’s Potential Cuts (1)

Backers of community-based financial institutions are raising concerns that an executive order from President Donald Trump targeting federal support for their operations would harm vulnerable customers, even if funding levels remain intact.

The Community Development Financial Institutions Fund was among seven small entities targeted by Trump’s March 14 order instructing them to eliminate “non-statutory functions” and “reduce the performance of their statutory functions and associated personnel to the minimum presence and function required by law.”

The CDFI Fund provides financial awards and technical assistance to accredited small banks, credit unions, venture capital funds, and other recipients to promote small business and real estate projects in low-income areas—the majority of which fall in Republican-controlled House districts.

Congress created the CDFI Fund in 1994 and re-upped its federal funding at $324 million in the fiscal 2025 continuing resolution that Trump signed into law hours before his executive order.

If the Trump administration elects to keep the funding Congress allotted, the only cuts left would be to the agency’s small staff of around 100 people.

And that could be just as damaging for CDFIs, particularly the smaller ones that rely on the federal fund for help with annual certifications and grant applications, executives at several community-based institutions said.

“You may have a statutorily mandated mission, but if you don’t have the staff to carry out that mission, the mandate isn’t going to be fulfilled,” said Carlos P. Naudon, the president and CEO of Ponce Bank, a Bronx CDFI.

Bipartisan Support

CDFIs drew an outpouring of bipartisan support after Trump signed his executive order.

Sens. Mark Warner (D-Va.) and Mike Crapo (R-Idaho), the co-chairs of the Senate CDFI Caucus, called for full funding of the CDFI Fund.

A group of 23 senators, including 10 Republicans, sent a letter to Treasury Secretary Scott Bessent urging the administration to maintain the program’s funding.

House Financial Services Committee Chairman French Hill (R-Ark.) “knows the impact CDFIs can have on communities, particularly in rural areas,” a spokesperson for Hill said in a statement. “Our Committee looks forward to learning more from the administration.”

Senate Banking Committee Chairman Tim Scott (R-S.C.) was more measured in his response.

“Chairman Scott has long supported efforts to increase access to capital in underserved communities and will continue to work with his colleagues and the Trump administration to unleash both private and public investment in areas across the country that need it most, whether that’s through the CDFI Fund or other programs,” a spokesman for Scott said in a statement.

Bessent told Bloomberg News last week he supports CDFIs but acknowledged that some cuts are likely coming.

The Treasury Department didn’t respond to a request for comment for this story. But it submitted a report to the Office of Management and Budget on March 21 stating the CDFI Fund is “performing its statutory functions as required by law,” Bloomberg News reported Thursday.

Treasury will look for ways to “enhance efficiencies,” the report said. The CDFI Fund is part of the department.

The public support from Republicans who have largely avoided criticizing Trump heartened many in the CDFI industry.

But the worry remains that the Trump administration may move to cut off funding even if Congress mandated it, as happened with the US Agency for International Development and other agencies.

“We are seeing a lot of decisions right now across agencies that I would say step across traditional understandings of what was traditionally thought of as congressionally mandated,” said Brett Theodos, a senior fellow at the Urban Institute.

Size Differences

Many CDFIs can survive a loss of federal funding, even if it means rethinking some programs, said Darrin Williams, the CEO of Southern Bancorp, a CDFI with $2.8 billion in assets and branches in Arkansas and Mississippi. But a loss of funding for larger CDFIs would have a downstream effect on smaller institutions, he said.

“We’re going to have to think about our support for the smaller loan funds we support,” said Williams, who’s also the chairman of the Community Development Bankers Association’s board.

Even if the funding stays, eliminating technical assistance will make it harder for CDFIs—particularly smaller institutions such as loan funds operating out of church basements and the smallest credit unions—to access government funding, Williams said.

They rely on assistance from CDFI Fund staff members, said Graham Steele, the former assistant Treasury secretary for financial institutions in the Biden administration.

“The fund itself is already under-resourced for the amount of demand there is in the industry right now,” he said.

Filling Needs

At stake is around $6.3 billion in grants, tax credits, and guarantees the CDFI Fund issued last year to more than 1,400 financial institutions across the country.

About 60% of CDFIs are in House districts held by Republicans, according to the CBDA.

That funding is often boosted by investments in CDFIs from the biggest banks, philanthropic organizations, and other institutions.

For every $1 of public funding, bank-based CDFI programs can leverage $8 of private funding for programs benefiting urban and rural communities alike, Williams said.

“It’s a public-private partnership,” said Dennis Ammann, the CEO of Peoples Bank based in Mississippi. “It’s really just one of the best uses of government funds.”

Ammann said he’s used the CDFI Fund to develop a small-dollar loan program where half of the money goes into savings and then customers receive a monthly payment.

The program has a 10% charge-off rate that would be too high to support without assistance from the CDFI Fund, but it benefited some customers, he said.

Peoples Bank also used the CDFI Fund’s New Market Tax Credit program to help fund a school for autistic people.

The CDFI Fund supports community projects that bigger banks can’t or won’t fund, said Aissatou Barry-Fall, the CEO of the Lower East Side People’s Federal Credit Union in New York.

Without that support, vulnerable communities will be hit hard, she said.

“It may open these communities to check-cashing companies again,” Barry-Fall said. “It’ll just make them poorer.”