May 5, 2010; Source: Bloomberg BusinessWeek | Although the headlines have described Citigroup’s new $200 million program as focused on loans to small businesses in low-income areas, we think the intriguing aspect of the announcement is the fact that Citi is going to run these funds through Community Development Financial Institutions (CDFIs).

Citi’s Communities at Work Fund partners with the Calvert Foundation, a financial institution entirely dedicated to investing in socially responsible businesses and funds, and the Opportunity Finance Network, an association that represents many of the nation’s CDFIs. Calvert and OFN are charged with picking the CDFIs and Citi will handle the loan underwriting and risk management.

Citi isn’t the first to do this. Not long ago, Goldman Sachs committed $250 million in loans and $50 million in grants through CDFIs to invest in small businesses. The Communities at Work Fund moneys will be loaned to CDFIs as 5-year loans at 4.3 percent interest (minimum size $200,000, maximum $20 million), and the CDFIs will then re-lend to small businesses and nonprofits.

This appears to be both a worthwhile investment by the bank in its own right and an excellent example of investing in and through a part of the nonprofit sector that has long proved its mettle.—Rick Cohen