Analyzing the Wealth Gap: Black-led vs. White-led CDFIs and the Role of Federal Programs

To understand the racial economic disparities in the United States, it is imperative to consider their historical roots. Slavery legally classified Africans as property, laying the foundation for lasting systemic inequalities. Subsequent eras, including Reconstruction, Jim Crow laws, and mid-20th century discriminatory policies, further entrenched economic disenfranchisement among African Americans. These historical injustices have created a persistent wealth gap, evident in the exclusion of African Americans from opportunities for homeownership and quality education. Community Development Financial Institutions (CDFIs) were established in the 1960s to address these disparities. They received additional support from the Community Reinvestment Act of 1977 and the CDFI Fund in 1994. Despite their mission and potential, Black-led CDFIs often receive less capital and representation compared to White-led counterparts in programs like the CDFI Fund’s Financial Assistance (FA) Program, New Markets Tax Credit (NMTC) Program, and Small Dollar Loan (SDL) Program. The inequities in federal funding awards to Black-led institutions significantly impact the African American community. While the wealth gap is complex, targeted policy recommendations can promote community empowerment and sustainable development, leading to economic justice.

This research will analyze these funding disparities and propose actionable policy changes to bridge the gap.