CDFI Research Symposium

Presenter: Destiny McLennan, Pacific Community Ventures 

Ample evidence suggests entrepreneurship is a critical pathway to reducing racial, gender and socioeconomic wealth gaps. Further, BIPOC entrepreneurship catalyzes multiple economic benefits in underestimated LMI communities, including the availability of essential services and “good jobs” opportunities – while contributing to overall economic productivity and competitiveness through innovation. While such socioeconomic determinants of entrepreneurial outcomes are well-documented, and CDFI support through capital and mentorship addresses critical needs, a more nuanced perspective of entrepreneurs’ relationship to wealth-building is required to drive solutions supporting entrepreneurs in meeting their self-determined goals.  

This research utilizes a mixed-methods approach to explore the intersectional dynamics between race and business ownership, highlighting how entrepreneurial motivations such as freedom, long-term stability, and community impact shape diverse perspectives on wealth-building among entrepreneurs of color. We broaden the definition of wealth to be inclusive of the unique values, lived-experiences, and aspirations of BIPOC entrepreneurs, providing actionable recommendations for CDFIs to enhance their impact measurement and reporting by shifting focus from solely traditional business performance metrics to a more culturally responsive approach that aligns with the distinct needs and self-determined goals of entrepreneurs of color. 

Presenter: Seva Rodnyansky, Occidental College 

Community Development Financial Institutions (CDFI) are mission-driven organizations with the potential to bridge financing gaps for groups, individuals, and projects that may have difficulty obtaining funds through conventional means. Credit enhancements are one vehicle through which CDFIs expand the credit box or offer more flexible terms. Prior research on CDFIs has focused on impacts on communities where projects are funded. While the community is an eventual beneficiary of the projects funded by CDFIs, the borrower entity is the immediate beneficiary. And often, it is both the community and the entity that have difficulty obtaining conventional financing, especially BIPOC-led borrowers. Few studies focus on the impact of lending on borrowers and their entities. This research examines borrower-level outcomes on financial indicators before and after loans are initiated, from a 5-year dataset of loans made by a large, diverse CDFI. Pre-loan and post-loan financials are compared over time, controlling for loans that were credit enhanced and loan and borrower characteristics. This financial analysis is supplemented by qualitative interviews with loan officers and borrowers to uncover the mechanisms by which CDFI lending affects borrowers. The study results advance research and practical understanding of CDFI impact on borrowers. 

Presenter: Kara Ward, Falcon Capital Advisors 

This initial section of the study provides quantitative analysis of current CDFI activity in the single-family, owner- occupied mortgage market by non-bank lenders. It identifies the non-depository CDFIs in the single-family mortgage market today, the volume of loans made in the most recent economic cycle (2021-present), and initial observations about the mortgage products being offered, the geographies served, among other details.  

These preliminary finds are intended to inform the larger study which will identify the CDFIs in the market today, their relationship with government-related programs, the products offered, the borrowers served, and the geographies where lending takes place. Supplemented by quantitative information collected directly from the CDFIs who are single-family mortgage lending, this study will uncover current sources of capital and the sources that may be available but are unused for various reasons. 

This research may uncover gaps in funding or disparate impacts, which will be valuable information for regulators and lenders alike as they seek to achieve affordable housing goals and design future products (including Special Purpose Credit Programs) to lend to underserved markets. In the opposite direction, it will be important to develop a solid factual, quantitative benchmark to use against any scoundrels in the market who may be abusing the CDFI certification to make unsustainable loans, use unsafe and unsound underwriting, or employ discriminatory practices. 

Presenter: Sonja Karnovsky, Baker Tilly 

This research examines how local-level partnerships can facilitate inclusive community development by increasing CDFI lending in US geographies that have not traditionally seen high levels of CDFI investment. Bipartisan Federal interest and investment in CDFIs have helped scale up this grassroots industry for the last 30 years, accelerated during the pandemic, yet most transactions happen at the community level. The role of CDFIs in revitalizing cities requires partnerships between lenders and local leaders. This paper introduces the CDFI Friendly model, developed by CDFI Friendly America (CFA), and shares how this intervention bridges lending gaps between cities and CDFIs to increase deal flow. Local partners provide start-up resources and local knowledge, while CFA supplies industry expertise and relationships with a broader network of CDFIs. Local CDFI Friendly organizations act as matchmakers to connect under-resourced individuals and businesses with mission-driven lenders looking for new markets. This ethnographic study included all four cities and one region that currently have a local CDFI Friendly entity. Data collection included in-depth interviews, business plan analysis, and researcher industry experience. In-depth interviews were conducted with CDFI Friendly Executive Directors, board members, and partners from local governments and community organizations. The research team benefited from insider knowledge as former city staffers responsible for launching CDFI Friendly South Bend. 

Presenter: Mike McCreless, Impact Frontiers 

Many CDFIs consider what borrowers would be able to obtain “but for” the CDFI’s lending and/or non-financial engagement. This aligns with the impact management concept known as “investor contribution” — investor actions that cause or are expected to cause a change in outcomes for end-stakeholders and/or the natural environment, which would not have likely occurred in the absence of those actions. The question motivating this project was: how can CDFIs and their capital providers use the concept of investor contribution to increase their positive impacts via loans and/or non-financial engagement? Since these organizations face significant trade-offs when tasked with devoting additional resources to impact measurement and management, we worked with CDFIs and their capital providers to practical develop tools to help simplify — while also strengthening — the process through which they assess their expected impacts. The tools are designed to help measure, increase, and report on investor contribution to impact. They include: due diligence questions; an investor contribution rating scale; and a template for evaluating and expressing the investor contribution for a loan. These resources can augment CDFIs’ existing practices and help them to increase their impact. 

Presenter: Paul Hoffman, Pathway Lending 

This research project examines the impact of CDFI lending and how its communicated value influences investment decisions. Focusing on Pathway Lending’s Tennessee Small Business Jobs Opportunity Fund (TNSBJOF), the first phase of the study analyzes the survival rates of over 300 businesses that received loans from the fund since its launch in 2011. By comparing these businesses’ performance with state and national averages, we assess the tangible impact of Pathway Lending’s flexible loans and technical assistance, offering insights into how CDFI lending fosters business resilience. These findings inform how we communicate value to stakeholders, including potential clients and funders. 

In the second phase, we explore how banks receive and utilize this information in assessing investments in CDFIs like Pathway Lending. Through interviews with investment officers and bank executives, we evaluate whether these investments are primarily CRA-driven or influenced by other strategic considerations. This analysis sheds light on the factors that motivate banks to partner with CDFIs and underscores their role in supporting underserved communities. 

Presenter: Liz Rogers, Tern Strategies 

Community Development Financial Institution (CDFI) Investment Note Offerings (“notes offerings”) represent a unique, tested and growing pathway for individuals and institutions to invest in communities throughout the U.S. Yet, little research has been conducted into how many offerings exist, the scope and scale of investment through these vehicles, what their characteristics are, what investors think about them, and how they drive desired impact at the local level. The increasing visibility of CDFIs as effective channels for community investment creates enormous potential to attract a greater share of private placement investment dollars. Yet only about 15% of certified CDFI loan funds sponsor notes offerings. Through this research, Stepping Stone Partners and Tern Strategies seek to understand the landscape of notes offerings from the perspectives of issuers and investors, and identify opportunities to unlock significant capital that is controlled by individuals, asset managers, faith-based and nonprofit organizations, and foundations whose values and goals align with the mission and work of CDFIs. The researchers will investigate existing notes programs, catalogue the scale of current offerings, and identify what is working and why, and what challenges remain. In addition, the research will examine the motivations and experiences of individual and organizational investors in CDFI investment notes.