Getting to scale: lessons from the US

By Bob Annibale, Citi Global Director of Community Development and Inclusive Finance

29.04.2014

In February, I had the opportunity to be a judge in the UK’s inaugural Citi Microentrepreneurship Awards. In partnership with the Community Development Finance Association (CDFA), the awards offered a chance to shine a light on the innovative work the UK’s CDFIs were doing to strengthen communities. As we reviewed the finalists, I was struck by the quality, diversity and geographic spread of the entries.

For instance, one of the winners was Big Issue Invest (BII) – part of The Big Issue Group – which offers loans and investments to social enterprises and ventures that help tackle poverty and inequality.

In 2012, working in partnership with the credit bureau Experian, BII launched the Rental Exchange, a pioneering program that enables social housing tenants to build a credit history, through sharing rent payment data. By adding rental payment data, the typically low scores of social housing tenants will be pushed into a higher bracket giving around one million people potential access to mainstream lending.

The CDFI field in the UK is clearly not lacking innovation, the challenge is how to get that to scale. Here, there may be lessons to learn from the U.S.

Central Government Leadership – Established in 1994 by the U.S. Treasury, the CDFI Fund provides that support in the form of investments, bond guarantees, tax credits and training for the CDFI industry. Since 1994, the Fund has awarded over $1.7 billion to CDFIs and allocated Tax Credits that attracted private-sector investments totalling $33 billion.
Access to Capital – Diverse sources of capital from the private and philanthropic sectors are also essential to ensuring CDFIs get the right financing to support their varied missions. In 2010, Citi launched the Communities at Work Fund, a $200m CDFI loan fund that has created over 2,700 new jobs but there are many other sources of funding available in the US.
Industry standards –The CDFI Assessment and Rating System (CARS) is an independent rating agency that provides third-party assessment of a CDFI’s impact, financial strength and performances. CARS’ transparent, simple and efficient assessments of CDFIs have become industry standards, enabling potential investors to monitor CDFI performance and evaluate risk which in turn has increased the flow of investment in CDFIs.
Industry infrastructure – Getting to scale means making more loans to more organizations. Building the infrastructure to manage this volume is therefore vital. ACCION USA, the largest microlender in the US, used support from Citi Community Development, to develop Microloan Management Services (MMS), a web-based, comprehensive solution for business loan origination. MMS has enabled CDFIs to double loan volumes while improving portfolio quality through standardized risk assessment.

One note of caution – Despite these advances, there remains a significant small business credit gap, in low-income communities especially. There is still much work to be done to ensure that CDFIs have broad and deep impact on both sides of the Atlantic.