Ending Persistent Poverty in Rural America: The Role of CDFIs

Rural America is far more diverse than how it is portrayed in media and popular culture. This article introduces a new series, titled Eradicating Rural Poverty: The Power of Cooperation. Coproduced by Partners for Rural Transformation, a coalition of six regional community development financial institutions, and NPQ, the authors highlight efforts to address multigenerational poverty in Appalachia, the rural West, Indian Country, South Texas, and the Mississippi Delta.

For decades, community development financial institutions have delivered capital into communities and regions that otherwise suffer from disinvestment. CDFIs strengthen local economies, generate wealth that sticks, and foster agency and power among local people to determine their destinies. This is true in urban areas and, critically, rural communities.

In 2014, six CDFIs located in regions of rural America beset by persistent poverty formed a coalition to remedy longstanding underinvestment. Guided by a vision of a nation where persistent poverty no longer exists, these six regional CDFIs—come dream. come build., Communities Unlimited, Fahe, Oweesta Corporation, HOPE Credit Union and Enterprise Corporation, and Rural Community Assistance Corporation (RCAC) formed Partners for Rural Transformation together. Over the past decade, PRT members have deployed over $2 billion in loans and technical assistance grants, reaching millions of people.

This article introduces our series Eradicating Rural Poverty: The Power of Cooperation. Spoiler alert: there is still a ton of work to do. But here we offer stories of how community groups organize to build wealth in persistent poverty counties in rural America.

A Brief Overview of the Problem of Rural Poverty

Perhaps nowhere else in the United States is the structural exclusion by race and place more self-evident than places labeled as persistent poverty areas. Home to over 20 million Americans, these areas are named so because the poverty rate has remained above 20 percent for three consecutive decades. Of these 395 counties and parishes, 80 percent are rural, and 60 percent of residents are people of color.

Persistent poverty did not just happen to these areas. Instead, it was policy choices that facilitated the acquisition of wealth and power among a select group through the enslavement of Africans and African Americans in the Mississippi Delta and Black Belt, the taking of land and life from tribal nations and Latinx people throughout the country and along the US-Mexico border, and the extraction of natural resources from Appalachia. This has led to high unemployment, a lack of access to banking services, a lack of affordable housing, and unsafe drinking water. As a result, many of these communities face higher rates of premature death and worse health outcomes than the rest of the country. According to the County Health Rankings, 81 percent fall in the least healthy quartile.

Three Critical Rural Investment Gaps

Regions with large concentrations of persistent poverty need more resources invested in strategies to promote community and economic development. These gaps can be seen in philanthropy, banking, and federal policy.

Philanthropy: A report by the National Committee on Responsive Philanthropy and Grantmakers for Southern Progress found per capita grantmaking in many regions where coalition members work—the Mississippi Delta, the Black Belt, Appalachia, the South Carolina Low Country, and the Rio Grande Valley—to be among the lowest in the country. From 2010 to 2014, grantmaking in those regions was around $50 per person—compared to amounts ranging from about $2,000 to over $4,000 per person in New York City and San Francisco. In Indian Country, philanthropic support is even lower.

Federal agencies can…use their convening power to encourage the development of peer networks to bring about sustainable change.

Banking: Banks invest in communities directly through the physical placement of branches and the associated deployment of financial services. Bank branches catalyze investment, and there is less lending in their absence. A bank branch also provides an incentive for bank lending through the Community Reinvestment Act (CRA), which requires banks to lend, invest, and provide services in assessment areas defined by the physical locations of bank branches. Unfortunately, impoverished rural communities are not targets for bank branch locations and often face branch closures. The Housing Assistance Council reports that three out of four counties that lost at least 10 percent of the county’s branches are in rural areas.

Federal Policy: To remedy the inequity in funding and scale to meet the evident need, federal agencies must commit to investing in persistent poverty areas and ensure that regional and local institutions that primarily serve these places oversee implementation. Only then can these communities build the assets and wealth needed to bring about meaningful change.

Federal support is needed because markets in these communities routinely fall short. Given endemic market failure, the federal government must adjust to this reality. This is one key reason why persistent poverty counties need more access to federal funds (and without conditions like excessive match requirements that can get in the way). One way to do this is to target new and existing federal programs to support rural persistent poverty areas. Federal agencies can also build partnerships with regional and local organizations and use their convening power to encourage the development of peer networks to bring about sustainable change. Comprehensive CRA reform that makes bank investment in rural poverty communities a CRA-qualifying activity even if the bank does not have a branch in the area is an additional important step. Another important reform would be extending the requirement that 10 percent of agency funding go to counties that have had 20 percent poverty over the past 30 years—the so-called “10-20-30” formula—across all relevant rural agencies, instead of just applying the formula to a few.

Victories and Continuing Challenges 

We must enact sound, infrastructurally rebellious, and enduring solutions.Although the challenges of rural poverty may seem overwhelming, solutions exist. For decades, CDFIs have been addressing the employment, housing, banking, and infrastructure needs of some of the most economically distressed regions of the country. CDFIs strengthen local economies, generate wealth that sticks, and foster agency and power among local people to determine their futures.

In places of great need, financial capital is critical. Small business loan programs can support jobs. Affordable housing programs enable individuals and families to own their own homes. Capital increases access to financial services that set up credit pathways and savings. Infrastructure development provides clean drinking water. Collectively, these strategies create wealth that stays in communities.

Our coalition members have over 200 years of collective experience addressing these challenges. We must enact sound, infrastructurally rebellious, and enduring solutions to improve the welfare of the communities our members serve. Here are a few vignettes of how this works:

Supporting Entrepreneurship: Back in 2018, a nurse practitioner with over a decade’s experience opened an urgent care facility in her hometown of Clarksdale, MS. When committing to opening the clinic, she was ready to invest her savings to open the facility, but she had no idea it would be so difficult to obtain the rest of the necessary financing. She had a strong business plan and the medical skills to succeed, but still faced difficulties getting banks or state agencies to back her. When she finally got a loan approved, the loan conditions included putting a second mortgage on her home, which she agreed to do. But home values in Clarksdale were so low that her house fell short of the minimum appraisal value, and the loan fell through.

This is where Communities Unlimited stepped in, providing a small loan and technical assistance. Now, the urgent care center employs nine people and pays good wages in a community with low incomes and high unemployment. Moreover, the business provides critical services to an area with few healthcare options.

Opening Roads to Financial Capital: With a population of about 2,000, the town of Moorhead in the Mississippi Delta is 89 percent African American and has a poverty rate of over 40 percent. Regions Bank was its only financial institution. The local bank was a critical resource for the community. Still, the bank’s business model did not allow it to offer a full range of financial products and services. Fortunately, Regions saw an opportunity to meet the community’s financial needs through a CRA partnership with HOPE. Regions Bank donated its branch facility to HOPE Credit Union and provided startup capital for branch operations. Today in Moorhead, HOPE helps residents meet identified community goals—such as supporting high-quality affordable housing, recreational activities for children, getting rid of blighted buildings, and saving a local school.

Building Homes and Creating Homeowners: Countless studies refer to the Rio Grande Valley as among the nation’s poorest areas. Most residents have low credit scores. For over 40 years, cdcb has actively supported affordable housing in this region. Its MiCASiTA program was designed to meet local families’ needs and was informed by an in-depth analysis of community members’ household finances. In response, the CDFI uses a phased modular construction approach to meet immediate housing needs with the flexibility to “grow” as a family’s financial situation improves, or their house size needs to increase.

Regenerating Healthy Communities: Data from 2013 show that Appalachians suffer from a life expectancy gap with the rest of the country that has widened since 1990. The headlines were damning—hospital closures, cancer, meth, and opioid overdose deaths. In Appalachia, men ages 25 to 44 experience a 72 percent higher overdose mortality rate than men in other parts of the country. The rate for Appalachian women ages 25 to 34 is 92 percent higher. In response, Fahe has become a leading community advocate for recovery care, helping to secure funding for four new recovery centers, which provide beds for 500 patients in the state of Kentucky.

A CDFI Action Agenda

For decades, CDFIs have sought to address these challenges. Some policy recommendations from our coalition include the following: 1) develop a $1 billion fund, backed by philanthropy to provide a mix of equity, debt, and operating support to CDFIs operating in regions of concentrated, persistent poverty; 2) amend CRA rules and regulations to attract more bank investment; and 3) develop targeted federal investment programs that can support robust local efforts already underway.

The articles in this series will detail the extensive work happening in communities across the country. As you will learn, community building stories in rural America are impressive and inspiring. I hope you join us on this journey.