Community development financial institutions (CDFIs) provide financing to underserved communities, businesses, and households to foster economic opportunity and revitalize neighborhoods. CDFIs include loan funds, credit unions, banks, and venture capital funds, and like other mission-driven organizations, they are under increasing pressure to demonstrate their effectiveness.
How do you measure the effectiveness of financing activities that are not served well by the traditional market capital? Participants at a recent roundtable discussion convened by the Urban Institute, including several CDFIs, investors, foundations, and the CDFI Fund, had six suggestions.
- Nurture a learning culture. CDFIs need to move from a compliance culture to a learning culture. Too often, data are collected simply because a funder requires it and not because the CDFI is using the information to learn and grow. CDFIs should remember that the first audience for their measures must be themselves. To paraphrase one CDFI leader, CDFIs need to design a data system that first works for them and second for funders, not the other way around.
- Track outcomes, not just inputs. CDFIs need to do a better job tracking their activities and their users’ experiences and investment outcomes. Knowing what a CDFI is doing is important, as is understanding how that work affects the conditions the CDFI is working to improve.
- Take advantage of research. CDFIs don’t need to measure everything at every time in every place. They can rely on literature about the effects of the types of projects and activities they support. As one CDFI leader pointed out, there is already evidence about the effects of high-quality early childhood education; CDFIs don’t need to prove this each time they invest in a child care center. But they do need to learn to use high-quality research to create credible ways to measure and communicate their own impact. Resources include information about how to create a performance measurement strategy and common output and outcome indicators for different program areas as well as recommendations for navigating several software systems.
- Measure future outcomes. Change takes time, especially for the communities and beneficiaries that CDFIs serve. Measurement needs to take into account the way the benefits of investing in children and adults may only be observable in the long run. In many cases, research allows the use of proxies, or leading indicators may exist.
- Tailor your information for different audiences. CDFIs need to differentiate measurement and evaluation processes and products for different audiences. Investors don’t always need the same level of evidence as traditional foundations. But CDFIs must navigate audiences and reporting requirements beyond these groups. Many report somewhat overlapping information to the CDFI Fund, Opportunity Finance Network, and AERIS.
- Invest in measuring outcomes. Measurement and evaluation is expensive, so CDFIs must strategically invest to build this core capacity. CDFI funders need to support this work directly through grants and indirectly by providing low-cost debt and equity capital.
For CDFIs to expand their impact, they need to look at their current efforts and outcomes. They need to demonstrate that they are investing in strategies that have proven to bring lasting change and that their investments are sufficiently concentrated to help disinvested communities access traditional sources of capital. CDFIs also need to show that they are investing in their own learning and making hard choices to reform and redesign in a way that best meets the needs of their customers and their communities.
The Urban Institute is collaborating with JPMorgan Chase over five years to inform and assess JPMorgan Chase’s philanthropic investments in key initiatives. The roundtable on which this post is based was held as part of this collaboration.