Do Community Development Financial Institutions Promote Economic Growth in Neighborhoods? A Multi-Metro Area Analysis of Home Values Public Deposited

http://ir.library.oregonstate.edu/concern/graduate_projects/9g54xp33p

2017

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  • Adequate access to financial markets is crucial for healthy communities. Some communities within the United States have historically been excluded from financial markets due to factors of geographic isolation or racial discrimination. The mechanism behind households and individuals lacking access to financial products and services is due to credit rationing by conventional lenders stemming from production externalities of market information. Community Development Financial Institutions (CDFIs) provide a means to bridge the financial services gap between financial institutions and traditionally underserved populations. CDFIs are financial institutions that are primarily focused on providing access to financial services to populations that have been historically underserved by conventional financial institutions such as minority and low-and-moderate income individuals and communities. Many of the past studies on CDFIs have focused on the immediate outcomes of CDFI operations, with only a modest number analyzing potential broader community impacts. To answer the question of do CDFIs have a measurable community wide impact, specifically on home values in the communities they serve, this study used an array of multivariate regression estimators to analyze the relationship between CDFI lending activity and the level of CDFI lending with census tract median housing values, controlling for community socioeconomic and demographic variables. The study used transaction level data of certified CDFIs from the CDFI Fund merged with Census Bureau data on census tracts in Atlanta, Chicago, Dallas, Los Angeles, Minneapolis, New York, and Portland over the years of 2000-2014. Results of this study suggest that CDFIs target their transactions to worse off communities, and would need to provide loanable funds and investments of over $30,000,000 in a census tract over a five-year period to significantly raise the tract’s median housing value. To foster industry support of CDFIs and community reinvest efforts, this paper suggests that the Community Reinvestment Act (CRA) be updated to better meet community financing needs and increase collaboration between CDFIs and conventional lenders.
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