Samira Salem

MDIs and financial inclusion

Minority depository institutions create opportunities for underserved communities.

October 23, 2019

Minority depository institution (MDI) credit unions play a critical role in advancing financial inclusion and the economic well-being of people of color, and underserved and low-income communities. They form an integral part of the credit union movement and represent an important way in which credit unions fulfill their mission.

The tradition of credit unions serving a specific minority group goes back to the African-American credit unions of the early 20th Century, established to provide financial access to communities which had been excluded from the mainstream financial system.

The typical black and Hispanic/Latinx household in the U.S. is more likely to experience wealth and income disparities than white and Asian households, according to data from the Census Bureau and Federal Reserve.

These disparities increase the likelihood of their financial exclusion.

In this context, millions of people of color choose MDIs. By definition, more than 50% of MDI credit union boards and member-owners or potential members must come from a specific minority group.

Because directors of MDIs reflect the communities they serve, these institutions are well-positioned to understand their communities’ challenges, build trust with those who may distrust financial institutions, and provide tailored products and services that help their members and their communities prosper.

Further, MDIs are more likely to have branches and lend more in diverse neighborhoods, which often lack access to the capital needed to prosper and build wealth.

Today, MDI credit unions represent approximately 10% of all credit unions and serve nearly four million members, representing 3% of all credit union memberships.

As of March 30, 2019, MDI credit unions outnumbered MDI banks by a 3-to-1 margin (535 vs. 148).  They represent 10% of the total number of credit unions compared with 3% of banks.

These MDI credit unions hold 3% of loans and 3% of total credit union assets, while MDI banks hold 1% of total bank assets.

Most MDI credit unions (87%) are small institutions with assets of $100 million or less and hold the low-income designation (80%). They are well-capitalized as a group, with 95.1% reporting a net worth ratio of at least 7%.

Member impact

MDI credit unions provide significant benefits to their members, contributing to their financial security.

CUNA estimates that during the 12 months ending March 30, 2019, MDI credit unions provided approximately $324 million in direct financial benefits to their members (equivalent to $85 per member or $179 per household) due to lower rates on loans, lower and fewer fees, and higher rates on deposits compared with banks.

While substantial, these figures underestimate the benefits MDI credit unions provide to their members and communities because they don’t consider the benefits of tailored products and services they offer. These include financial education and counseling, small-dollar loans for borrowers with poor or no credit as alternatives to payday loans, and bilingual services.

MDI credit unions clearly are vital actors in the credit union movement, especially when it comes to advancing financial inclusion and security for people of color, and traditionally underserved and low-income members and their communities.

Despite field-of-membership restrictions, the relatively large number of MDI credit unions compared with banks underscores our movement’s commitment to financial inclusion and diversity, equity, and inclusion more generally.

SAMIRA SALEM is senior policy analyst for CUNA.