CDFI, LID, and MDI: What’s the Difference?

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If you have been around the credit union industry a bit, it’s possible you’ve encountered one of these acronyms before: CDFI, LID, and MDI. (Credit unions love their acronyms.)

As we continue to explore our own financial literacy—it’s not just for members!—we will take a deeper look into each of these acronyms, what they stand for, and their relevance to the credit union industry.

Supporting our underbanked communities

Credit unions pride themselves on serving their local communities, bringing access to important financial services that the disadvantaged may not otherwise be able to acquire (or afford) from large banks. That is, after all, how credit unions got their start.

Serving these communities can be challenging though. Thankfully, funding is available to credit unions from a variety of sources. The community development financial institution (CDFI) designation is administered by the U.S Treasury Department. Alternatively, credit unions can seek a low-income designation (LID) designation from the National Credit Union Administration. And credit unions that can be defined as a minority depository institution (MDI) are also privy to benefits.

Each of these designations, which aren’t mutually exclusive, provide the credit union with access to resources, both monetary and in the form of training, that can make a big difference in how they serve their community. But what are the eligibility rules?

Community development financial institution

The CDFI Fund was established in 1994 as part of a bipartisan effort to support low- and moderate-income communities through investment and assistance. As part of the Riegle Community Development and Regulatory Improvement Act of 1994, the Fund would be formed with the mission of expanding “economic opportunity for underserved people and communities by supporting the growth and capacity of a national network of community development lenders, investors, and financial service providers.”

To accomplish this, the CDFI Fund supports its certified institutions through the provision of grants, tax credits, awards, technical assistance, and other direct contributions. Per the CDFI Fund’s website, it has awarded more than $5.2 billion to CDFIs since its inception through its various award programs (as well as an additional $66 billion in tax credit allocations).

To become certified as a CDFI, credit unions need to go through an application process run by the CDFI Fund. Though the devil is in the details, the basic requirements are that the organization applying:

  • Be a legal entity;
  • Is mission-drive to promote community development;
  • Provides financial products and services;
  • Serves one or more defined target markets;
  • Maintains accountability to those markets;
  • Provides financial well-being and development services; and
  • Is not controlled by the government.

Easy enough. But the credit union must also be able to show that 60% of their service is given to “low- to moderate-income” individuals, which the CDFI Fund defines as 80% or less of median family income.

Fortunately for credit unions, there are many resources available and many organizations willing to help credit unions prove that they serve a large enough contingent of economically distressed individuals. They will help the credit union collect all the necessary charters, mission statements, and geographic or service data needed to successfully attain certification.

Once certified, maintaining that status is a little simpler, but must be done annually or the credit union has to start all over.

Low-income credit unions

Alternatively, or additionally, credit unions have a more exclusive option: the low-income designation as administered by the NCUA. Like the CDFI certification, gaining a low-income designation does provide the credit union with opportunities to apply for and attain grant funding and low-interest loans, in this case from the Community Development Revolving Loan Fund (CDRLF). But it also comes with a few other perks: an exception from the statutory cap on member business lending; the ability to accept non-member deposits from any source; and authority to obtain supplemental capital.

Receiving your LID and becoming a LICU is a matter of proving that a majority of the credit union’s membership falls below an income threshold. But where CDFI requires 60% of services are going to low- to moderate-income people, NCUA requires a simple majority (50.01%) meet certain low-income thresholds.

NCUA further simplifies the process by itself determining a federal credit union’s qualification status based on data it obtains during examinations. If the credit union qualifies, the NCUA notifies you. If they don’t, however, not all is lost. Credit unions that believe they should qualify can still submit supporting documentation.

While the CDRLF is not as extensive as the CDFI Fund’s annual grants, it will still administer more than $3.4 million to LICUs in 2024. NCUA recently announced that the application period for grant requests will open May 1st. Grants fall under five primary categories, with a maximum award of $50,000—the ceiling differs by category. LICUs can apply for funds for underserved outreach, MDI capacity building, consumer financial protection, digital services & cybersecurity, and training.

Minority depository institution

Independent of the CDFI and LID programs is the existence of the minority depository institution designation.

Though institutions such as these have long existed, the term was introduced as a part of the Financial Institutions Reform, Recover, and Enforcement Act of 1989 (FIRREA), the legislation defined these as financial institutions “in which a majority of its current members, its board of directors, and the community it services, as designated in its charter, fall within any of the eligible minority groups” (Black American, Asian American, Hispanic American, or Native American).

The law set goals specifically for the Federal Deposit Insurance Corporation (FDIC) of preserving and encouraging the development of MDIs, protecting the “minority character” in the cases of mergers, and providing technical assistance, training, and education programs.

This was further enhanced with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which made the NCUA (among others) also responsible for preserving MDIs and encouraging their development.

Meaning, the NCUA now submits a report to Congress annually demonstrating its efforts to that effect.

While the NCUA identifies LICUs (or accepts applications from credit unions that believe they qualify), the NCUA expects credit unions to self-designate at an MDI through its quarterly profile and call report.

Because this is a Congressional requirement of the NCUA, it established the Minority Depository Institutions Preservation Program through its Office of Credit Union Resources and Expansion to support credit unions that qualify as an MDI. Per the NCUA, this comes in the form of “technical assistance; training; chartering assistance; and, if the credit union also has a low-income designation, access to grants, loans, and the agency’s MDI mentoring program”.

(Though in 2024, this does not include access to the CDRLF grants, which NCUA had previously opened to MDIs without an existing low-income designation.)

Which is right for my credit union? 

There’s no right answer to this question! All three designations come with some perks and access to funds. And while credit unions are certainly capable of operating without access to those grants, CDFI, LID, and MDI resources can make a difference in how they serve the distressed and underbanked.

Author

  • Esteban Camargo

    As a supervising editor of CUSO Magazine, Esteban reviews and edits submissions, assists in the development of the publishing calendar, and performs his own research and writing. His experience provides CUSO Mag with a seasoned writer and content curator, able to provide valuable input to contributors, correspondents, and freelance journalists. Esteban has worked at CU*Answers since 2008 and currently serves as the CUSO's content marketing manager.

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