The Financial Assistance (FA) awards provided by the CDFI Fund offer much more than funding—they can serve as strategic tools to reduce organizational risk. By thoughtfully deploying FA capital, CDFIs can strengthen operations, stabilize portfolios, and build long-term resilience.
How FA Capital Helps Reduce Risk
FA capital is flexible funding designed to help CDFIs expand lending and financial services in underserved areas. When used strategically, it can address multiple risk categories:
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Operational Risk: Use FA capital to invest in staffing, training, or technology that enhances internal controls and reduces errors.
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Credit Risk: Strengthen loan loss reserves or build risk-sharing loan pools that protect against borrower default.
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Liquidity Risk: Improve your liquidity position by increasing working capital, smoothing cash flow, and preparing for economic downturns.
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Market Risk: Diversify your lending portfolio or expand into more resilient markets using the stability FA capital provides.
Examples of Risk Mitigation Using FA Capital
A CDFI might use FA funds to hire a portfolio manager to improve underwriting quality, or to implement a data system that reduces compliance reporting errors. Others apply funds to create credit enhancements or build capital buffers for new lending products.
These are just a few ways CDFIs implement risk mitigation using FA capital while staying aligned with the CDFI Fund’s mission and requirements.
Make Your FA Strategy Work for You
To get the most out of FA capital, CDFIs should align funding use with their risk management strategy and long-term business plan. That means identifying your biggest exposure areas and using capital intentionally to strengthen those points.
1. What types of risks can FA capital help mitigate?
FA capital can help reduce operational, credit, liquidity, and market risks by strengthening internal systems, supporting reserves, and stabilizing financial operations.
2. Can FA funds be used to improve staffing or technology?
Yes. One of the most effective ways to use FA capital is by investing in staff training, portfolio management, and technology upgrades that support more accurate underwriting and reporting.
3. How does FA capital improve liquidity for a CDFI?
FA funds can increase your working capital, allowing your organization to manage cash flow more effectively, respond to borrower needs, and weather financial disruptions.
4. Are there restrictions on how FA capital is used?
Yes. FA capital must be used in accordance with your CDFI Fund-approved use plan, and it should support activities aligned with your mission and award agreement.
5. Where can I find support for deploying FA capital strategically?
You can access tailored technical assistance and guidance on risk mitigation using FA capital to ensure your strategies are both compliant and effective.