As a financial institution, we think about risk frequently. LEAF is not a bank or a traditional investment vehicle like a mutual fund, but we do consider many of the same risks, plus a few extra ones, such as the effects our advice and lending have on economically vulnerable communities.
Risk is not a bad word–it’s about finding the right balance. Assuming risks allows us to innovate and provide pathways to wealth for workers and communities. Too much risk, or too concentrated a risk, and we fail to maintain the confidence of investors and grantmakers that we need to continue our work. Too little risk, and we fail to rigorously pursue our social mission. In light of recent federal cuts to CDFIs (and obstacles to some of our borrowers such as food stamp pauses, tariffs, and loss of immigrant workers), many have asked, “are CDFIs just too risky right now?” History suggests not. 
The Global Financial Crisis of 2008 and COVID-19 pandemic of 2020-2023 were both periods of great upheaval when the CDFI industry’s decline was predicted, but ultimately overblown. In fact, research shows “CDFIs may be countercyclical during recessionary times “¹ due to increased interest from government (including state and local) and philanthropic sources in supporting low-income communities. Research has shown CDFIs’ failure rate is similar to that of mainstream, regulated banks. CDFIs’ net write-offs have a long-term average of just 0.6% (2.2% for small CDFIs and 0.2% for larger ones–LEAF is near the border of these two categories), while traditional commercial banks’ comparable average since 1992 is 1.9%.²
This past year, LEAF grew in revenue and net assets while also increasing its provision for capital losses (think of this as our rainy-day fund for when borrowers cannot repay, even after our interventions to help). For every $1 of assets, only 65¢ is borrowed money from investors meaning our capitalization is strong, and we have diversified our funding sources to include more local government programs and new philanthropic partners.
At the core of our risk mitigation strategy is portfolio quality. Over the past two years we have significantly bolstered our loan policies to ensure the delicate balance described above in secured vs unsecured loans, degree of flexibility in payment modifications, start-up businesses financed, and industry exposures. Each quarter, we perform a loan-by-loan review to update risk scores and action plans for helping struggling borrowers get back on track.
Lastly, nonfinancial risks such as lending ethics and reputation, financial malfeasance, and cyber attacks are a growing focus for many CDFIs, including LEAF. We are spending much of 2026 implementing new, more secure technology and training staff to scale our impact without taking uncompensated risks.
¹ “Risk and Efficiency among CDFIs: A Statistical Evaluation using Multiple Methods” by Fairchild, Gregory B.; Jia, Ruo. August 2014. Office of Financial Strategies and Research Community Development Financial Institutions Fund U.S. Department of the Treasury.
² “The Financial Performance of Impact Investing Through Private Debt” April 2018. Global Impact Investing Network. https://s3.amazonaws.com/giin-web-assets/giin/assets/publication/research/financial-performance-of-impact-investing-through-private-debt-web-march-2018.pdf