CNote | Investor Contributions

Unlocking Investor Contribution: How CDFIs Can Enhance Impact Through Capital Deployment

The CDFI industry has grown significantly in the past decade, in both the number of CDFIs and the capital providers helping supply the industry with crucial lending capital. For CDFIs and capital providers, scarce resources require them to consider investment decisions carefully. Determining investor contribution can help CDFIs and capital providers target their capital most effectively. To support this work, CNote recently partnered with Impact Frontiers in an Investor Contribution Pilot to help CDFIs and Capital Providers understand the less familiar concept of investor contribution and test simple tools to assess investor contribution as part of lending decisions.

CNote | Investor Contributions
What is Investor Contribution?

What is Investor Contribution? Impact Frontiers “Investor Contribution Toolkit for CDFIs and their Capital Providers” defines it as “investor actions that cause or are expected to cause a change in outcomes for end-stakeholders and/or the natural environment that would not have likely occurred in the absence of those actions.”

CNote was thrilled to have several of our community financial institution partners, including CDFI banks and credit unions, as well as CDFI loan funds, participate in the Impact Frontiers pilot alongside CNote, demonstrating their commitment to continuous learning.

As Maryanne Sorese, the Impact Measurement and Compliance Officer with Leviticus Fund noted

“We want to move beyond our current more reactive posture of collecting output data to meet compliance reporting obligations, and toward a more proactive position of identifying the kind of data that can inform our lending program development and alignment with Leviticus’ mission and values.”

And Kathleen Clark, VP/Chief Strategy Officer with Alternatives Federal Credit Union indicated that their initial interest in the pilot stemmed from its overlap with AFCU’s efforts to ensure the consistency and integrity of their data and emphasized the value of peer learning in the pilot,

”By connecting with peers and building on shared ideas through the pilot, we made progress much faster than we would have if we had tried to develop a program independently.”

Impact Frontiers Investor Contribution Pilot

Participating institutions reviewed tools developed by Impact Frontiers for understanding and assessing investor contribution. Separate tools were developed for CDFIs as well as their capital providers. Pilot participants then tested different investor contribution measurement approaches and shared in peer learning sessions about their process, reflections, and recommendations. Impact Frontiers incorporated the feedback and recommendations into an Investor Contribution Toolkit, which is due for release this year on the Impact Frontiers Website.

As Erica Quin-Easter, Genesis Fund’s Director of Lending noted,

“The Impact Frontiers conversations have been helpful in highlighting how we can best communicate the impact of our flexible financing and the specific roles CDFIs play, focusing not only on beneficiaries but on the borrowers themselves (e.g. building organizational capacity, providing financing opportunities they would not otherwise be able to access from other sources, and making projects possible that would not work without Genesis involvement).”

Leviticus Fund also noted that drilling down into the factors that affect the outcomes of lending was an important learning from the pilot. As Sorese explained,

“The “but for” is not always so clear. We pride ourselves on the flexibility of our lending terms and pass along the value of awarded grants in the form of lower interest rates when possible and pro-bono legal services that help lower costs for our borrowers, but we need to track this more to see if our objectives align with reality.”

Now What?

Pilot participants reported an array of next steps they were taking after the Investor Contribution pilot wrapped up:

  • Alternatives Federal Credit Union will build on the impact assessment process developed during the pilot program by incorporating feedback from front-line staff to streamline their contributions, enabling Alternatives to scale the process across all lending departments.
  • Genesis Fund will be focusing on how they document and communicate the contributions they make to their borrowers.
  • Locus Bank has joined Impact Frontiers Strengthening Impact Management cohort and is revising their internal impact assessment tool to include investor contribution factors.
  • Leviticus Fund is reviewing their internal assessment screening tool to consider how to factor investor contribution in and is exploring different scenarios to gather investor contribution data as part of their lending process.

The delicate balance of learning and reporting burden

And with all learning and research agendas in the CDFI space, it’s crucial to think about how to balance learning questions with the data and reporting burden put on CDFIs and their borrowers. Maryann Sorese has excellent guidance for navigating this tension.

“Set your IM framework to your own organization’s capacity and make sure the data you are collecting aligns with your mission and organization’s values. Is it “nice to know” or “need to know’ data”? Go with the latter.”


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