To meet demand, Native CDFIs pursue alternative sources of lending capital

Native Community Development Financial Institutions (CDFIs) serve as financial backbones for their communities, but limited access to capital constrains their ability to meet growing demand for their services. To address this, some Native CDFIs are looking beyond traditional sources of lending capital to expand their balance sheets.

The Center for Indian Country Development (CICD) conducted interviews with several industry experts—including Native CDFI practitioners and investors—to better understand how Native CDFIs are exploring alternative sources of capital. The perspectives these experts shared offer concrete examples of how Native CDFIs are navigating capital constraints. These recent interviews add to CICD’s body of Native CDFI research, which helps illuminate opportunities to address capital and credit gaps in Indian Country.

This research, and all of our work related to access to capital in Indian Country, contributes to CICD’s mission to advance economic self-determination and prosperity of Native nations and Indigenous communities through actionable data and research that inform public policy discussions.

As demand for services grows, Native CDFIs face scarcity of capital

Demand for Native CDFI products and services is rising, but insufficient access to capital limits Native CDFIs’ ability to meet that demand. CICD’s analysis of data from the Federal Reserve’s biennial CDFI survey found that in 2023, Native CDFIs were 25 percentage points more likely than non-Native CDFIs to report that demand for their financial services increased over the past 12 months, and 19 percentage points more likely to report they expected an increase in demand over the next 12 months. At the same time, Native CDFIs were 12 percentage points less likely than other CDFIs to say they could fully meet that demand.

In another survey of Native CDFI loan funds, CICD found that while most perceive their work to have had positive client and community outcomes, more than half (52 percent) report scarcity of capital as one of their biggest challenges. The same survey found that Native CDFIs’ primary source of operating and lending funds is the U.S. Department of the Treasury’s CDFI Fund.

Despite the constraints, Native CDFIs appear poised to access new sources of capital. Average credit scores in communities with a high share of Native Americans have been rising since the early 2000s, especially in communities located on reservations.^* Still, traditional banks may be reluctant to provide financial services in these communities if they view operating on a reservation as cumbersome or complicated.

“Credit scores are improving across Indian Country, and economic development opportunities are growing exponentially. Trusted partners are needed all over Indian Country to supply additional lending capital for the Native CDFI industry,” said Krystal Langholz, head of impact and innovation at investment firm Calvert Impact and a former CICD Leadership Council member.

Jael Kampfe, president of Indigenous Impact Co., which supports the Mountain | Plains Regional Native CDFI Coalition, a group of nine Native CDFIs in Montana, South Dakota, and Wyoming, provided a specific example of Native CDFIs’ capital readiness: “The coalition’s report shows 468 percent growth in asset size and 558 percent growth in portfolio size from where we started in 2019 to 2025. Our loan deployment has gone from $4.6 million in 2019 to over $39.2 million in 2025, with a loan default rate of 0.56 percent. But we could do a lot more with access to more funding. We’re seeing exactly what we’ve always said: If there were access to external sources of capital, there would be more than enough good deals.”

For CDFIs, opportunities to access the secondary market are limited

In theory, the secondary market—where assets such as stocks, bonds, property, and funds that have already been issued are bought and sold between investors—has the potential to free up capital for lenders such as Native CDFIs to extend their reach. In practice, CDFIs’ secondary-market activity is concentrated among a small number of CDFIs. Nearly 75 percent of the loan volume sold on the secondary market by CDFIs in 2022 was originated by the 10 most active CDFIs based on portfolio size, according to a study by the Federal Reserve Bank of New York.

Both Native CDFIs and non-Native CDFIs face barriers to attracting capital-market actors to fund their community investments directly. The New York Fed identified six issues that have hindered the expansion of a secondary market for CDFI loans, including differences in the types, terms, and servicing of loans offered by CDFIs compared with those typically seen in capital markets. Some of these differences get to the heart of CDFIs’ community-oriented missions and the ways CDFIs think about their clients and businesses—ways that emphasize flexible lending approaches that serve clients in credit- and capital-challenged environments.

As relationship lenders, Native CDFIs face additional challenges

Native CDFI stakeholders told us about additional barriers that Native CDFIs face in the secondary market. The first concerns Native CDFIs’ role as relationship lenders that factor their knowledge of their clients into their lending practices.

In traditional secondary-market transactions, a third-party company manages loan pools sold to investors. This company oversees daily loan administration, including payment collection and paperwork processing. If a borrower defaults, the loan’s servicing rights are typically transferred to a loan servicer that will work to resolve the issue or begin foreclosure proceedings. This third-party dynamic can conflict with Native CDFIs’ philosophy of working directly with their borrowers to find flexible payment solutions. All of our interviewees expressed, in their own words, that losing full servicing control would jeopardize what makes Native CDFIs unique and effective at addressing credit needs in Native communities.

“Native CDFIs are relationship lenders. They devote significant time to their clients, helping them understand and repair their credit and make informed financial decisions for themselves and their families. Native CDFIs use culturally appropriate financial education curricula and one-on-one coaching to help individual families understand the home-buying process and how to achieve the dream of homeownership. So, retaining servicing rights is intrinsic to their business model,” said Jamie Olson, chief lending officer for Native CDFI intermediary Oweesta Corporation.

Langholz put it this way: “Asking Native CDFIs not to service their loans is a challenge. Flexibility is one of the things that makes them unique.”

Lakota Vogel, executive director of Four Bands Community Fund, a Native CDFI based on the Cheyenne River Sioux Reservation in South Dakota, expressed a similar sentiment: “Secondary markets feel more Western and capitalistic than almost anything else CDFIs engage with in the world of finance. The markets are buying and selling future payments, divorced from the people and communities behind the loan.”

Perceived risk and unfamiliarity with Indian Country are also at play

For Native CDFIs, external lenders’ lack of familiarity with Indian Country, combined with complexities associated with tribal lands, can pose additional challenges in the secondary market. “They are CDFIs themselves, which generally have not been able to access a whole lot of the secondary market. And on top of that, a lot of Native CDFIs are dealing with the complexities of Native lands and the smaller size of their individual transactions,” said Jim Baek, senior vice president of impact investment services at Locus, a nonprofit that houses a family of community and economic development organizations, including two certified CDFIs.

Most land within reservations is tribal trust land, which cannot generally be sold or conveyed without the approval of the U.S. Secretary of the Interior, making it challenging for a lender to place a lien on trust land as collateral. For example, in order for a borrower to place a mortgage lien on trust land under the Section 184 Indian Home Loan Guarantee Program—the U.S. Department of Housing and Urban Development’s mortgage program for Native home buyers—the tribe must receive federal approval.

Lenders’ lack of familiarity with Indian Country markets, tribal sovereignty, and federal Indian Country policies may also heighten concerns about lending risk. Lenders may be uncertain about how to address legal, regulatory, cultural, and operational considerations related to lending and investment in Indian Country. For example, tribes have the authority to license and regulate commercial transactions that non-tribal citizens engage in with tribal members on tribal lands. This has implications for dispute resolution that can affect lenders’ readiness to operate in Indian Country.

According to interviewees, uncertainties around investing in Indian Country persist even though investors have successfully addressed perceived lending risks and complexities associated with tribal laws and regulations in many cases. Examples of the steps some investors have taken include forming partnerships with Native CDFIs or investing time and resources to become acquainted with the Native communities where they do business.

According to Northwest Area Foundation Program Officer Nikki Foster, the risk conversation often gets in the way of efforts to unlock new sources of capital for Native CDFIs—and the prevailing risk narrative can be difficult to break. “People are, at times, surprised by the low default rate of Native CDFI loans, even though Native CDFIs were created to have people think differently about the financial strength of residents in Native communities.”

Geographic incentives affect potential credit under the CRA

One opportunity for Native CDFIs to access the secondary market is when banks purchase loans to satisfy Community Reinvestment Act (CRA) requirements to meet credit needs in their communities. But to receive CRA credit for work in Indian Country, those loans need to take place within the bank’s assessment area, a defined geographic area that the bank’s locations serve.

“Most banks want the loan to count toward their overall CRA performance, so they want it to be in their assessment area. The buyer market gets really small, really fast,” said Brett Simmons, an entrepreneur and former CEO of Scale Link, a nonprofit that purchases small business loans from CDFIs and bundles them for banks to purchase. “In most places where Native CDFIs are active, finding banks in those footprints that may actually want to purchase loans can be difficult.”

Beyond banks, other CDFIs with excess liquidity to deploy may be interested in purchasing Native CDFI loans, but such deals may not result in a strong infusion of capital. “Other CDFIs purchase Native CDFI loans at or slightly below nominal value,” Simmons said.

Native CDFIs explore alternatives to the secondary market

Given the barriers they face in the secondary market, some Native CDFIs are developing a broader array of funding mechanisms to deepen and secure their capital base. The industry stakeholders we interviewed described several alternatives to traditional secondary-market practices. We share their examples not as endorsements, but as creative solutions that may illuminate possibilities for others facing similar barriers to addressing capital constraints.

Example 1: Leveraging federal funding to expand access to capital

The U.S. Department of the Treasury’s State Small Business Credit Initiative (SSBCI) program provides funds to state and tribal governments to increase access to capital for small businesses and entrepreneurs. In their administration of the program, tribes are also finding ways to strategically leverage SSBCI funding to build Native CDFIs’ lending capacity.

Casey Pearlman, executive director of the Affiliated Tribes of Northwest Indians Economic Development Corporation (ATNI-EDC), gave an example. Pearlman’s organization manages SSBCI funding for a regional consortium of 36 tribes that use the participation-lending and loan-guarantee products available under the program. ATNI-EDC is the hub of the Northwest Native Lending Network, a community of practice that supports Native CDFIs and other lending institutions serving Native entrepreneurs in the Pacific Northwest. The network’s lending institutions make up “a group that’s the natural partner for the matched lending program,” according to Pearlman.

“SSBCI changed the way our member lending institutions work with each other,” she said. “We’re all now really interested in how we can do more loan-participation deals with each other. The conversation shifted from what members are doing to what deals can be fed through our SSBCI consortium. SSBCI has basically greased the wheels. Native CDFIs can now benefit from this external source of liquidity.”

Example 2: Securing loans through a Native CDFI intermediary

Native CDFI intermediary organizations are also exploring alternatives. Case in point: Oweesta has provided lending capital to Native CDFIs since 2006, offering low-cost, long-term loans. Oweesta raises capital from a variety of investors to provide financing to Native CDFIs and other tribal or nonprofit loan funds. These borrowers can, in turn, use the funds to make any loans in their self-identified target markets.

“What was out there was not working for us,” Olson said. “We needed to create something that works. Native CDFIs are bringing new opportunities to the communities they serve, and we’re ready to support them.”

According to Olson, Oweesta’s capital loans are unsecured—meaning they don’t require Native CDFIs to offer collateral—and are limited to 30 percent of the Native CDFI’s asset size. Example capital loan products include a 10-year loan with a 2 percent annual interest rate and, since 2020, a 15-year loan at a 1.7 percent rate.

“Our loan program differs from what an institution may obtain in a traditional secondary market,” Olson said. “But our Native CDFI borrowers have been able to achieve some very good results. They’re educating people within their target markets, helping them to become home-buying-ready, and working with them to improve their credit profiles.”

Example 3: Forging strategic partnerships with other Native CDFIs to bundle small business loans

Scale Link frees capital for Native CDFIs and other community lenders by purchasing their small business loans (microloans) and pooling them for banks to purchase. In a traditional secondary-market transaction, loan sellers give up servicing rights. In the Scale Link model, the Native CDFIs selling loans retain servicing rights and, by extension, the ability to cultivate relationships with their clients and provide them with financial-development services.

“We developed a trust-based approach with CDFIs in order to share additional secondary-market income,” said Scale Link CEO Jonathan Brereton. “With Native CDFIs, we’re applying that trust in new ways to ensure we share the ‘harvest’ of entrepreneurial [activity] and loan repayment differently.”

For example, a couple of interviewees associated with the Mountain | Plains Regional Native CDFI Coalition described how the coalition is working with Scale Link on an agreement in which coalition members can sell loans to Scale Link while retaining servicing rights. “This approach fits the coalition’s goals and values of co-creation and reciprocity of leadership,” said Vogel of Four Bands Community Fund, which is a coalition member.

According to Vogel, predicting the optimal time and manner for selling loans in any given year can be challenging. Still, Scale Link provides members with tools, analyses, and guidance to help them understand when it would be a good time to sell loans.

Example 4: Providing platforms to help Native CDFIs succeed in the secondary market

Rather than providing an alternative to the secondary market, Fahe—a Kentucky-based CDFI and regional housing and community development intermediary—helps Native CDFIs develop the knowledge and tools they need to operate in the secondary market.

According to Susan Hammond, Fahe’s Native CDFI relationship manager, insufficient capital, combined with the complexity of the mortgage process, can make it difficult for small rural CDFIs—especially Native CDFIs—to offer mortgage products. Based on a needs assessment, Fahe determined that helping Native CDFIs access the secondary market could make a difference.

Fahe’s lending resources include a network of 200 brokers in 20 states. Native CDFIs can facilitate client loans through Fahe, which underwrites the loan and sells it to an investor, without the Native CDFI having to process the mortgage or raise the capital. “The Native CDFI can engage in the loan process and with the client borrower as much as they choose,” Hammond said.

For Native CDFIs seeking to build their own mortgage capabilities, Fahe is creating an online educational program on accessing secondary mortgage markets. “I’m seeking to build on that with a credentialed, A-to-Z, comprehensive training model that incorporates individual and organizational licensing and lending regulations, developed with current partner Oweesta and additional Native housing practitioners,” Hammond said.

Example 5: Designing social enterprise programs to enhance Native CDFI liquidity

Native-led social enterprise Great Plains Housing Initiative designed the nationwide Native Impact Fund program to boost Native CDFIs’ liquidity for mortgage lending. “Native Impact Fund is a first-of-its-kind financing model that puts Native CDFIs in control of the capital process,” said Great Plains Housing Executive Director Desmond Bruguier.

The fund purchases individual and bulk housing loans, with the Native CDFI in the driver’s seat of which loans to sell. Unlike in the traditional secondary market, the fund underwrites the Native CDFI itself rather than its loans. In this way, the Native CDFI lender retains servicing rights and underwriting control, preserving its ability to take a relationship-based approach to lending.

Scaling operations in community- and relationship-based ways

While varied, the secondary-market alternatives shared by our interviewees leverage strengths commonly associated with Native CDFIs’ work with their borrowers, including Native CDFIs’ ability to build relationships and manage risk. In these examples, interviewees described leveraging these attributes on behalf of the broader institution—forging relationships with investors and philanthropic organizations and deploying strategies to manage perceived risk of investment in Indian Country.

Native CDFIs’ approaches to building capital vary depending on the type of capital targeted, such as mortgage lending, small business loans, or consumer capital. And in some cases, Native CDFIs leverage multiple approaches, combining partner funding with other capital sources to meet their communities’ needs.

As part of our efforts to advance understanding of Native economies, CICD will continue sharing research-based insights and expert perspectives on strategies to strengthen access to capital and credit in Indian Country, including the work of Native CDFIs.

Endnote

* See analysis of credit-records data by Matthew Gregg and Maxine Xu in Credit Access in Native American Communities, a forthcoming working paper from CICD.