Community development banks promote economic development in less affluent areas, often offering microfinance services. They focus on areas with limited banking activity and may aim to make a profit or simply break even. In the US, they are certified by the Fund for Financial Institutions for Community Development. Internationally, they exist under different names and structures, such as microfinance institutions and credit unions. Legal regulation varies by country.
A community development bank is a type of bank that operates as a business, but also has the goal of promoting economic development in less affluent areas. Internationally, such banks often offer microfinance services to help people start businesses. In the United States, a community development bank is certified under a specific scheme backed by the Treasury.
The primary focus of a community development bank is to provide services in areas where banking activity is otherwise limited. This is usually because such areas are home to people with lower incomes who are not seen as attractive to major banks. This tends to be a comparative rather than an absolute measure of wealth. For example, areas in major developed nations that are served by community development banks may be considerably better than areas in poorer nations, but the residents may be relatively poor and not served by banks.
The profitability of a community development bank can vary widely. In some cases the bank remains a business operation aiming to make a profit. In other cases, the goal is to make a small profit or simply break even, making financial services more accessible. For example, in some structures the bank can get away with offering low cost loans paying low rates or even no rates to savers. This is because such savers are often unable to obtain an account elsewhere or are willing to accept low interest rates in order to access loan facilities when needed.
In the United States, a community development bank is formally classified as a community development financial institution. As such it must be certified by the Fund for Financial Institutions for Community Development, which is part of the US Treasury. The fund provides both financial assistance and information and advice to banks.
Internationally, the concept of a community development bank often exists under different names and structures. For example, in developing countries such services are often known as microfinance institutions because they offer loans to small businesses that would not be considered useful for a large bank. In developed countries, there is a variant known as a credit union that offers affordable savings accounts and loans to people with lower incomes. Technically a credit union is not a bank as it is legally owned by the people using the services. The legal regulation of community development banks and similar institutions can vary widely from country to country.
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