How CDFIs Can Transform Rural Economies: Lessons From East Texas

The team behind a small business called Farmscapes in Texarkana, Texas. (Photo courtesy of PeopleFund.)

How do we build thriving rural communities in the 21st century? The labor-intensive, extractive industries paradigm that has long powered rural economies—think agriculture, manufacturing, mining, timber—has fundamentally changed due to automation and globalization, and the search for new rural development models is coalescing around a new vision.

Starting from a deficit framework and searching for externally derived, ill-suited, copycat solutions is a strategic dead end for rural regions. Decades of results are clear and felt by families across rural America, and rural regions cannot keep playing a losing game. Instead, rural places must build internally on the assets and comparative advantages—natural beauty, strong social capital, and quality of life—they already have. When you combine these advantages with solid infrastructure, including accessible broadband, safe and reliable water, adequate housing, and a dynamic rural entrepreneurial ecosystem, then rural places can become magnets for opportunity.

What does shifting to this new model require in practice? In philanthropy and investment-scarce rural regions, squeezing the potential impact out of every dollar is crucial, so catalytic partnerships, those capable of leveraging and securing new resources, become fundamental. Enter community development financial institutions (CDFIs). Whether patiently coaching and mentoring rural entrepreneurs who fall through the cracks of the traditional banking sector, finding creative solutions to help small businesses grow, supporting water and wastewater systems with financing options, or even managing a multi-state donation and delivery of scoreboards, CDFIs are capable of acting as Swiss Army knives for rural development. CDFIs leverage, braid, package, and bundle investments driven by local priorities. As such, they are essential institutions for resource-constrained rural regions and indispensable entities for creating minimum viable rural ecosystems.

Unfortunately, many rural communities do not have access to CDFI services, including dozens of counties and multiple regions across East Texas in 2020. This lack of access spiraled into a crisis, as the pandemic shined a glaring light on the structural barriers facing rural communities, including the lack of broadband access and how it impeded rural communities’ shift to online financial transactions and lending. These stark disparities compelled action, and the T.L.L. Temple Foundation, a place-based private family foundation, created the Rural Opportunity Catalyst for East Texas (ROC-ET) Initiative. The ROC-ET Initiative supported two existing CDFIs, Communities Unlimited and PeopleFund, to establish physical office locations and services in rural East Texas.

The results to date have surpassed expectations and directly refute common misperceptions of rural as a synonym for stagnation. Since first opening the doors of their new offices in 2022, Communities Unlimited and PeopleFund have collectively made 47 loans to deploy more than $1.8 million across 13 counties in East Texas
stretching from the Texas-Arkansas border to the Gulf Coast. Through these investments, the ROC-ET Initiative has created or retained 258 jobs. The CDFIs have also provided one-on-one intensive consulting to another 51 entrepreneurs to help them grow or turn around existing businesses and convert ideas into successful start-ups.

As the ROC-ET Initiative’s initial phase ends, it’s important to share the accomplishments, lessons, and next steps. Underserved rural regions seeking on-ramps and partners for new rural development strategies, philanthropies interested in investing in rural revitalization, and CDFIs pursuing pathways to better engage and serve rural communities may find insight and direction from the budding success of the ROC-ET Initiative in East Texas.

Preconditions

Lesson 1: Overcoming the Dominant Rural Narrative of Opportunity Deficits and Scarcity

Efforts to launch and scale CDFIs must overcome the dark cloud of negativity about opportunity in rural places. Popular rural narratives drive out, rather than drive in, interest and investment. Relying on these common expectations of rural failure, fellow leaders in finance told PeopleFund they would “get burned” with setting up an office in rural East Texas. The T.L.L. Temple Foundation was advised that there are reasons that CDFI offices are not based in East Texas, the main reason being that there is simply not enough entrepreneurship activity or business opportunities to sustain their operations. Not only are there enough entrepreneurs and striving small businesses in rural East Texas, but the current loan delinquency rates for loans in the area is less than 3 percent, which is below the average for all portfolios across Texas, including metro areas. As a sector historically averse to risk, philanthropy must fight through pessimism, and catalytic partners like CDFIs must provide tangible options for pursuing transformational rural development models.

There’s also the internal narrative told to successive generations of rural people that success equals leaving your home to follow opportunity in burgeoning metro areas. Investing in CDFIs takes this inertia narrative head-on by providing the local support and financing on-ramps for potential entrepreneurs and small business owners to chase their visions in their rural hometown. The ROC-ET Initiative has kickstarted a spiraling-up process that recognizes and counteracts the downward opportunity spiral narrative that burdens rural development investments. By bringing technical assistance resources alongside the capital solutions that CDFIs provide, rural entrepreneurs are not forced to leave their businesses to access training and consulting services.

Lesson 2: The Necessity of an Anchor Funder

There is so much need, and so little philanthropic support, in rural communities, that directing attention and resources toward launching new institutions, like CDFIs, rather than concentrating on immediate needs is a difficult pivot for place-based rural-serving foundations. Health and educational disparities, food insecurity, broadband inaccessibility, and deteriorating infrastructure are among the urgent challenges facing rural communities. There is simply not enough focus by philanthropy on rural America to solve any one of these inequities.

Recognizing this mismatch between the supply of and demand for rural philanthropy forces funders to consider alternative strategies that supplement efforts solely aimed at tackling immediate needs. This search spurred the T.L.L. Temple Foundation’s identification of CDFIs as necessary to create minimal viable rural ecosystems in East Texas, and the ROC-ET Initiative was the mechanism for achieving this aim. Expanding CDFI services in rural regions will require more place-based anchor funders to move upstream and commit to long-term rural ecosystem building.

Lopez Notary and Tax Services in Lufkin, Texas. (Photo courtesy of PeopleFund.)

Designing for Rural Success

Lesson 3: Prioritizing Rootedness in Place and Aligning Grant Structure, Timeline, and Geographic Scope

The T.L.L. Temple Foundation structured the ROC-ET Initiative grants to Communities Unlimited and PeopleFund for operational adaptability and long-term regional success. The grant agreements were for three years and required Communities Unlimited and PeopleFund to open physical offices in rural East Texas. These conditions allowed Communities Unlimited and PeopleFund time, space, and resources to make important early decisions about launching services, such as office location and staffing, uninhibited from pressures to deliver immediate, short-term results.

From the grant’s outset, the T.L.L. Temple Foundation connected the CDFIs to the regional nonprofit and financial sector networks that the foundation had developed for more than 60 years since its founding in 1962.. Partnership building happens at the speed of trust, and the CDFIs were empowered to engage the community to establish their trustworthiness across East Texas. This emphasis on trust-building influenced key processes like referrals, wherein regional partners, relying upon the foundation’s local credibility, could reliably link potential lending clients to the new CDFIs.

Adequate attention to start-up steps combined with bridging social capital and flexible grant support for staffing, operations, and lending were vital for the ROC-ET Initiative’s effective launch. Ultimately, the long game must be prioritized from the beginning, with success defined as establishing community-driven CDFIs rooted in rural communities and local partnerships for the next 100 years, not short-term results measured over a period of 12 months.

Lesson 4: Orienting Scale for Rural Initiatives

The emphasis on scaling social impacts and the perceived difficulty of getting to scale in rural communities can be an impediment to securing rural investments. Often conversations about scale are shorthand for absolute numbers of people impacted, which inherently disadvantages low-density rural communities. The ROC-ET Initiative attempted to overcome this rural barrier by expanding the service area to include 22 rural counties across multiple rural regions, rather than a small cluster of local towns or remote areas. This regional platform has expanded the number of potential people impacted by the CDFI services and is forcing innovations in outreach to outlying, isolated rural communities that are most often left behind.

Communities Unlimited and PeopleFund have adapted to this larger service area by developing regional referral networks, setting up local “office hours” where staff are scheduled regularly on-site in multiple locations, and participating in community events to increase awareness and engagement. To date, ROC-ET Initiative loans have been made across 13 counties in East Texas, stretching distances of more than 250 miles apart. Effectively tailoring CDFI services across wide rural geographies will remain a persistent challenge, and more innovations will need to come as the ROC-ET Initiative continues to learn and adapt community engagement and lending models.

Lesson 5: Recognizing the Power in the Diversity of CDFI Services

Whether in organizational designs, strategies, or services, CDFIs are not a monolith. Each CDFI is shaped by its history of filling the capital gaps and target markets it sets out to serve. The ROC-ET Initiative intentionally attracted two CDFIs pursuing different strategies in order to layer their capital and better manage risk.

PeopleFund, with total assets of $75 million, can lend up to $5 million to a qualified borrower using microloans as well as multiple U.S. Small Business Administration loan programs. Through its BIPOC Small Business Accelerator, PeopleFund provides technical assistance, loan capital, and grants to early-stage entrepreneurs from all backgrounds. For larger projects, PeopleFund leverages its own net assets into loan pools with capital providers interested in underserved areas that need jobs and economic revitalization and New Markets Tax Credits from the U.S. Department of Treasury.

Communities Unlimited, on the other hand, has $29 million in assets focused on microloans, working capital investments up to $100,000, and contract financing up to $200,000. In addition to hiring a local small business lender in East Texas, Communities Unlimited also hired a local management consultant who works with entrepreneurs in the ideation stage, start-up businesses, and existing growth businesses. This technical assistance allows Communities Unlimited to de-risk otherwise high-risk start-up loans and working capital loans where there is insufficient collateral and low credit.

By bringing both CDFIs into East Texas, the ROC-ET Initiative is providing a full suite of solutions, both creating on-ramps for the entrepreneur who wants to test an idea and also supporting existing businesses ready to take the next big leap. Rather than overburdening a single CDFI, the initiative is harnessing the resources, tools, and approaches from multiple CDFIs, creating a more dynamic platform for innovation and adaptation customized to rural communities.

Lesson 6: Measuring and Sharing Impact

Ensuring access and opportunity for all rural people, particularly those who have been left out of the traditional financial sector, is the motivating purpose of the ROC-ET Initiative. Therefore, the grant agreements crafted measures to track whether CDFI services were reaching populations historically excluded by race, place, gender, and socioeconomic status. To date, the typical ROC-ET Initiative loan recipient is low to moderate income, more likely to be a woman and/or a person of color, and overwhelmingly lives in a rural community with a population under 50,000.

Inclusive business development in rural spaces requires intentionality to make micro-loans to businesses that cannot carry large amounts of debt because of the industry they are in or their revenue size. It requires intentionality to utilize intensive technical assistance as a means of managing risk on the front end of a loan when a borrower has insufficient collateral and no or insufficient credit. In addition to collecting key data, the T.L.L. Temple Foundation has created a ROC-ET Initiative dashboard to transparently share progress. Providing a single source of easy-to-access, simple-to-interpret, and consistently updated data every quarter, the dashboard has helped overcome initial skepticism and strengthen the initiative’s momentum. The dashboard has shifted the conversation from “Is anything happening?” toward “How much and where?” This distinction helps stakeholders buy in to the initiative’s possibilities and break through to higher level considerations, such as how to improve rural outreach, how to create appropriate lending products, and how to analyze geographic and sectoral lending trends.

The Next Phase: Rural Emergence

Lesson 7: The Non-Linear Trajectories of a Dynamic Rural Economic Ecosystem

In addition to launching new programs in rural East Texas, such as the PeopleFund BIPOC Accelerator, the ROC-ET Initiative has also supercharged nascent entrepreneurship programs that existed prior to the launch of the CDFIs. Pitch IT! Texarkana, for example, is a Shark Tank-like platform started in 2022 where local entrepreneurs compete for cash prizes by presenting their business concepts to a panel of judges. This year, for the first time, the CDFIs participated in the Pitch It! event, connecting with a new pipeline of entrepreneurs and growing the impact from a one-off annual competition to a starting point for follow-on technical support and lending. When CDFIs offer loan capital and technical assistance support to all businesses in a competition, rather than just the few who win top prizes, the community benefits from an expanded pool of plugged-in entrepreneurs to drive local economic development.

(Photo courtesy of Communities Unlimited.)

Further reinforcing this momentum, the region’s first business accelerator, The Assembly Line, is opening in downtown Texarkana in 2025 with Communities Unlimited and PeopleFund as two of their anchor partners. These new economic ecosystem building strategies signal tangible pathways to retain young regional talent and create opportunities for historically underserved and rapidly diversifying populations, so risk-takers who want to do big things are no longer forced to leave for metro areas.

Partners from other sectors, like higher education, are figuring out how to integrate CDFIs into their core services. This year Lamar State College Port Arthur has created a new program that links rural students pursuing regionally relevant technical credentials in high-demand, high-wage fields to Communities Unlimited and PeopleFund for entrepreneurship and small business coaching and lending. Now young students have a clear pathway to not only earn a high-value credential but to launch their own businesses with lending support for equipment, vehicles, or other start-up costs.

The emergence of the ROC-ET Initiative as a dynamic investment platform also includes leveraging place-based philanthropic investments to secure external funding that would not otherwise land in rural regions. By investing in the CDFI ecosystem, not just one deal or project but rather operations and revolving loan funds, the initiative has secured and deployed millions in outside public and private investment into East Texas, including money from the U.S. Department of Agriculture, the Economic Development Administration, Truist, Starbucks Community Resilience Fund, Resource Rural, and Trust for Civic Life. Locally embedded CDFIs with a regional platform are serving a two-way intermediary function: from the top-down, guiding state and national investors to opportunities in underserved rural communities, and from the bottom-up, opening previously cut-off rural communities to new sources of investment. The next frontier for rural East Texas involves unlocking more capital through previously unavailable tools, such as New Markets Tax Credits and equity investments for rural start-ups.

The Critical Role of CDFIs in Rural Economic Ecosystems

In the absence of CDFIs, it’s difficult to bridge gaps and inequities in rural communities already struggling with relative economic decline. But we are confident that a better future is possible for all who call rural America home.

The ROC-ET Initiative partners are learning that instead of tired stereotypes and old approaches, rural communities are replete with eager entrepreneurs and community leaders who need the right tools, capital, timelines, and trust-based partnerships to succeed. The initiative represents a new model with initial impacts spreading across historically underserved populations in rural East Texas. As we set off on a new development trajectory, continuing to discover innovative ways to combine, align, and intensify our partnerships, it’s time to expand CDFI services to reach every rural community across the country.

Read more stories by Jerry Kenney, Ines Polonius & Gustavo Lasala.