In the wake of federal stimulus packages that saw an explosion of loan disbursements to small businesses throughout the countries, community development financial institution’s (CDFIs) found a problem. Because their technology platforms are not up to date with what the banking industry broadly employs, they were unable to get cash-strapped small businesses the loans they needed as efficiently as traditional institutions. This made CDFI leaders realize that they need to advance their technology infrastructure, not only to keep up with broader industry themselves, but to ensure that their customers aren’t left behind.
CDFIs give capital to people who have often been shut out of the traditional banking system. That customer base is disproportionately found in communities of color, who were largely left out of traditional institutions due to historical racism. If CDFIs fall behind, they only widen the wealth gaps that already exist between white people and people of color. Investing in better technology for CDFIs will also invest in the future of a more diverse field of entrepreneurs and create more equitable opportunities for aspiring business owners.
Robert F. Smith is one of the most prominent voices on CDFIs in the country. He helped thousands of small businesses owned by people of color secure loans through the CDFI system and has also called on CDFIs — which he calls “capillary banking systems” — to undergo a fintech revolution. A technology overhaul would help remove the systemic barriers that have stood in the way of entrepreneurs of color and aid in closing the racial wealth gaps that still linger in our society.
Read more about how CDFIs are improving their technology to close racial wealth gaps here.