Community Development Financial Institutions (CDFIs) are organisations that provide affordable lending to individuals, businesses and social enterprises that are typically underserved by traditional banks and financial institutions. CDFIs usually have a mission to support community development and economic growth through lending, investing, and other financial services.
How do CDFIs tell their impact story
CDFIs produce strong evidence of the impact on individual borrowers using case studies and stories. They also measure some key statistics, albeit most of these are outputs rather than outcomes or impacts[i]:
- Who received the loan (demographics including gender, ethnicity, parental status, household income, employment status, geographical location etc.) and for business and social enterprise lending what industry they are operating in.
- Number of jobs created/safeguarded.
- What the loan is used for.
- Calculating the cost savings of a CDFI loan versus using a high-cost alternative/loan shark/BNPL option.
- Connecting their lending to the Sustainable Development Goals (SDGs).
- Additional finance/funding leveraged by businesses and social enterprises.
- The social value or social return the lending generates.
Here are a few examples of how CDFIs are sharing their impact in reports, case studies or other formats. What all of these are doing is combining the numbers (quantitative data) with the stories and feedback (qualitative data) because one without the other is only half the impact story.
SWIG Finance’s Impact Report – this has lots of detailed information on who they lend to and links this to the SDGs.
BCRS Case Studies – one of their recent case studies, Beacon Barkers Pet Centre has also been turned into a podcast.
BEF’s Impact Report – they’ve included a “the year at a glance” summary and also have some interesting maps of “Up North” to show where they’re lending.
Responsible Finance’s Impact Report – covering the impact of its members and has lots of useful statistics and facts about the impact of CDFIs as well as case studies.
Purple Shoots Videos – lots of great short videos telling individuals’ stories.
Lendology’s Impact Report – lots of facts and figures about the different types of lending alongside stories.
Social Investment Scotland – links their delivery to the wider impact of achieving an impact economy, and includes lots of facts, figures and case studies.
Salad Money’s Impact Report – again lots of facts, figures and stories – and also a ‘call to action’ section. They’ve also been using their open banking data to gain insights (such as their recent harmful gambling report).
Key Fund’s Impact Report – a useful presentation of the report on their website including a summary and links to fuller case studies.
Pushing the boundaries further
Pushing the boundaries of impact measurement further is vital if CDFIs are to develop a more compelling case for policy change, increasing awareness and championing of the sector, as well as securing additional investment so they can lend more and generate more impact. This requires impact measurement to shift from outputs to a deeper focus on the ‘So what?’. This is broken down into three areas:
1.Capturing and using the impact data: If a CDFI says yes and provides a loan what is the short-term outcome rather than output? For individuals this may be increased financial literacy, reduced debt to income ratios, improved credit scores. For businesses and social enterprises this may be jobs created or safeguarded, ability to pay suppliers on time, getting a new product or service to market. If a CDFI says no what happens to that individual, business or social enterprise? CDFIs shy away from the not so positive outcomes and don’t look at the consequences of saying no. Where might CDFIs be having less than optimal impact, and what could they do with this information and data insights (whether that be geographical data, types of borrowers etc.)?
Having both sides (the Yes and the No) of the impact story will support CDFIs to use their impact data to drive innovation and change including identifying areas where they could improve their services or operations, testing new models and approaches that could lead to greater impact, and engaging with policymakers, funders, and other stakeholders to advocate for better policies, wider awareness and greater investment in the sector.
2.Thinking about long-term impact: What is the long-term impact of CDFI lending? This builds on the first area above and moves CDFIs further from outputs and short-term outcomes to understanding how CDFIs change entire families and communities, support financial inclusion longer-term and develop economically vibrant places. Measuring impact takes time and commitment to really understanding the consequences of lending beyond the short-term glory of the outputs and initial outcomes. This is the future – where CDFIs can evidence what their lending has done for whole communities; how it has shifted sections of the community closer to financial inclusion.
3.It’s not linear or single impact areas: CDFIs’ impact is interconnected covering four impact areas – social, economic and environmental impacts, alongside wider community impacts. Having a more sophisticated approach and understanding of how these impacts interrelate would support CDFIs to tell a richer and more compelling story. This would involve building on existing impact measurement frameworks that incorporate qualitative and quantitative data about singular outcomes and impacts to capturing how they are interconnected and contribute to one another.
The White Paper: CDFIs Impact Measurement and Reporting: Challenges and Solutions, provides further guidance on what to measure for CDFIs that lend to individuals, businesses and social enterprises.
In conclusion, CDFIs currently use impact measurement and storytelling to demonstrate their effectiveness, build trust and to advocate for greater policy support, championing of CDFIs and investment. To push the boundaries further CDFIs can focus more on understanding their positive and negative outcomes; using their impact data as part of continual improvement and development processes; exploring the long-term impacts they create and looking at the interconnectedness of impacts. This will create an even stronger, richer and more compelling impact story for CDFIs so they can continue to play a vital role in increasing financial inclusion and building stronger communities.
[i] For a definition of outputs, outcomes and impacts as well as other terminology visit: https://makeanimpactcic.co.uk/news/social-value-dictionary/