Editor’s note: This article is part of a partnership between ImpactAlpha and Mission Investors Exchange, or MIE, to present new ideas and perspectives in impact investing. The MIE 2026 National Conference takes place April 27-29 in Atlanta. If you are a foundation or other mission-driven asset owner, learn more about MIE and the National Conference here.

Place-based investing is about tapping into the resources and partners you have to create localized solutions. These are not magic solutions — it will rarely work to transfer an approach that was successful in one community and apply it to other communities for the sake of “scale.” 

Why? Communities differ. Their markets, institutions, histories, assets and barriers differ. The future of place-based investing, then, will be built by strengthening the local systems, relationships and intermediaries that can translate capital into outcomes. 

The future of place-based investing is intrinsically tied to the future of community development financial institutions, or CDFIs.

CDFIs are more than lenders. They are translators between capital and community conditions. They understand local markets, local borrowers and local barriers. They know where conventional finance falls short and what it takes to move a project, business, or development from idea to execution. 

If we want more locally driven impact investing, we need strong local intermediaries that can source deals, structure capital, absorb risk and support borrowers over time. In many communities, no one is better positioned to do that than a CDFI.

But as the social, political and financial landscape changes, CDFIs are being asked to play new roles beyond project finance. This includes stabilizing local markets, supporting and bridging government action, funding emerging asset classes, providing ever-increasing technical assistance, lobbying and advocating for the social sector, and crafting financial services reform. 

Those expanded roles require more than traditional CDFI loans alone can provide.

What philanthropy can offer

Too often, philanthropy approaches community finance with a favored instrument already in mind. But if the goal is to help CDFIs respond to real conditions on the ground, the work has to begin with the constraint, not the funder’s preference.

The question is not, “What tool do we prefer?” but “What problem are we trying to solve?” That shift in posture matters. 

So, while the tools haven’t changed much, the context has. Here’s what philanthropy can offer now:

• Grants remain essential for capacity, staffing, technology, borrower support, market-building and policy work. These uses may not always be as visible as a closed deal, but they are often what make lending possible in the first place.
  
• Guarantees and other forms of credit enhancement matter when risk-sharing can unlock larger flows of capital or overcome structural barriers like bonding requirements, particularly where there are asymmetric risks and the upside potential is much greater than the downside loss. In these moments, philanthropy can help make the market legible to other investors and reduce the friction that keeps capital on the sidelines.
  
• Patient, risk-tolerant term loans have traditionally been used to buy down rates and take on more risk. They are increasingly needed to provide risk capital to new emerging asset classes and to attract non-traditional investors. As CDFIs move into newer sectors and more complex forms of financing, this kind of flexible capital can help them test, prove, and scale new approaches.
  
• Bridge financing has historically been used to bridge public sources like tax credit equity or tax non-traditional collateral as security. It can also be used to validate new public- and private-sector interventions for proof-of-concept.
  
• Knowledge sharing is also a critical part of the picture. Place-based CDFIs often feel disconnected from other peer organizations and seek support in network building and knowledge sharing. Philanthropy can play an important role in helping practitioners learn across markets, connect around common challenges, and avoid reinventing the wheel in isolation.

Community alignment

CDFIs, for their part, can approach philanthropy with the same practical, problem-first posture. They should define the constraint clearly, then ask for the tool that matches that constraint, rather than defaulting to the tool funders know best. Is the challenge staffing capacity? A need for credit enhancement? Early-stage risk capital? A market-building gap? The clearer the diagnosis, the more useful the partnership can be. Place-based investing is often about market formation, not market reshaping, so flexibility and iteration are key.

This approach also means working with the local funding community with humility and deference. They know the local ecosystem best and have often been working on these problems for a very long time. They also are better positioned to maintain trust with local partners and identify pitfalls early when partnering with a national philanthropy on an impact investing strategy.  

Where the relationship starts is not where it needs to end, but our experience has taught us that our most successful place-based investments are done in collaboration with the local funding network, and we move at the speed of our local partners. 

Supporting a local CDFI ecosystem has become a cornerstone of the way we approach place-based investing at The Kresge Foundation. CDFIs can’t do it all, but they are an incredibly important piece of the puzzle and not just because of the flexible capital they provide.  We’ve come to think of them as an enabling condition to many of the outcomes we seek. 

When the local CDFI ecosystem is healthy, more transactions are getting done, more people are working together and building trust, and the public sector is steadier in its community development priorities because progress is being made across administrations. 

This moment asks philanthropy to invest deliberately in the intermediaries that make place-based investing work. By backing CDFIs, funders can help build the systems that provide durable benefits for local communities.

Aaron Seybert is managing director of social investment practice at The Kresge Foundation