AltCap, Carolina Small Business Development Fund partner to create new CDFI impact evaluation framework
AltCap and the Carolina Small Business Development Fund (CSBDF) are proud to share a new theoretical framework to help community development financial institutions (CDFIs) better evaluate their impact.
The CDFI industry has grown sevenfold in the last 25 years but has historically struggled to establish impact measurement techniques or program evaluation initiatives. CDFIs rely on credit access and development services as a tool for community development, however, this can encourage broader economic growth instead of equitable growth for CDFIs’ primary constituency: marginalized populations.
This enduring challenge has unintentionally created a misalignment between how CDFIs were designed to function versus how they are incentivized to operate.
Jamie McCall, the former Vice President of Economic Development Policy for the CSBDF, Nora Anzawi, AltCap’s Impact Data and Reporting Manager, and Miles Zeller, AltCap’s Policy and Research Associate, collaborated on the report, which they hope will help CDFIs improve their impact evaluation methods.
While they acknowledge there are no easy ways to resolve this tension, the researchers argue for a new evaluation framework that emphasizes individual welfare at the systems level. That also means a model that enables CDFIs to use their evaluation methods to better identify which potential borrowers will have the greatest macro-level impact on their communities.
“We propose an alternative framework that prioritizes changes in individual welfare which foster economic autonomy and improve relationships with community institutions,” McCall said. “Our framework is admittedly theoretical, and further iteration will be required to operationalize it into a workable concept. We conclude with suggestions to ‘move the needle’ by using incremental policy shifts as catalysts for larger change.”
Anzawi noted that CDFIs fill a critical gap within the world of financing that helps communities move forward.
“CDFIs are a unicorn in the community development and financing spaces,” she said. “The ability to function with a larger profit margin than a non-profit, without the regulation and revenue chasing of traditional banking, showcases that CDFIs can be at the forefront for equity-oriented interventions for capital access.”
With this new theoretical framework, Zeller said that CDFIs can better measure their positive community impact and make better financing decisions.
“CDFIs are in a tough position: they are constrained to using similar methods of financing as traditional financial institutions yet are expected to have much better results for our low- to moderate-income communities (LMI),” Zeller said. “The purpose of this report is to acknowledge that finance is a tool that can both uplift and destroy communities. As a result, we theorize that more meaningful impact evaluation can help CDFIs not only prove the positive impact they have on LMI communities but also use that measurement to guide future lending decisions and create the most positive impact possible.”
The report represents the beginning of a collaborative effort between AltCap and the CSBDF, which both work to foster economic development in underserved communities through access to capital.
Read the full report here: Growth, Equity, & Individual Welfare — A Theoretical Framework for “Moving the Needle” on CDFI Impact Evaluation
About AltCap
Founded in 2005 with a mission to provide fair access to capital, AltCap is a critical source of alternative debt financing for communities and entrepreneurs that fall outside the financial mainstream. To date, AltCap has deployed nearly $250 million in capital, financing small businesses and real estate development projects that were overlooked by traditional financial institutions.
About CSBDF
Founded in 1990, Carolina Small Business Development Fund is a nonprofit and certified Community Development Financial Institution (CDFI) that fosters economic development in underserved communities through access to capital, technical assistance, and policy research to light the way for small businesses. Since 2010, CSBDF has contributed more than $98.4 million through 1,133 loans and 1,602 grants to dedicated small businesses across North Carolina, helping to create or retain more than 4,700 full-time jobs.
