This post by Andrea Longton of Opportunity Finance Network is part of a series in which IEN members share their thinking about intentional investing in the face of the global pandemic. Follow along to get insight into the new challenges and opportunities we as a network are facing.
Andrea Longton, CFA, Senior Vice President of Financial Services at Opportunity Finance Network
For an institutional investor with social equity objectives, discovering America’s network of Community Development Financial Institutions (CDFIs) is like spotting the light switch after exploring a dark room with a small flashlight. Once you turn on the light, a world of possibilities opens before you – over 1,000 organizations dispersed throughout the country, ready to absorb and deploy capital to people and places that are often overlooked and underestimated by traditional investors.
I’ve had the privilege of showcasing dozens of CDFIs to prospective investors. From my perch, there are two questions that investors consistently ask:
1. What is a CDFI?
CDFIs are financial institutions certified as the US Treasury Department as both financially sustainable and impact-forward. CDFIs can be banks, credit unions, loan funds, or venture capital funds. The unifying force and rallying cry of all CDFIs, regardless of corporate structure, is to drive non-predatory capital to low-wealth communities across the country.
- CDFIs know how to stretch every dollar into maximum impact: For every $1 in Federal grants received, CDFIs deploy $12 in non-predatory loans.
- CDFIs prioritize BIPOC and rural communities: CDFI borrowers are 85 percent low-income, 58 percent people of color, 48 percent women, and 26 percent rural.
- CDFIs outperformed their FDIC-insured peers during the Great Recession: CDFI loan loss rates were a cumulative 0.73% from 1999-2017 that outperformed the 0.92% loan loss rate of FDIC-insured institutions in that same time period.
With over 1,000 CDFIs dispersed throughout the country, dozens of investment approaches may be tailored to align with your particular Investment Policy Statement.
2. What’s their secret sauce?
CDFIs define their success like any other financial institution: they know their clients, excel in customer service and keep an eye on long-term sustainability. CDFIs understand that living outside the economic mainstream does not make one uncreditworthy. When assessing people and places that have been shut out from mainstream financial tools like FICO scores and home appreciation, CDFIs consider alternative, though no less predictive, underwriting approaches like savings accumulation rates and history of rent and utilities payments.
CDFIs define their success by the success of the communities they serve. By partnering with people within the community, CDFIs discover how to set up their borrowers for success, no matter the economic circumstances. CDFIs have 40+ year track records in cheering on their borrowers to success; a repaid loan is a happy byproduct.
If you have any questions on how investors may engage with CDFIs financing justice throughout the United States, please do not hesitate to reach out to us at Andrea Longton at OFN or Kaede Kawauchi at Intentional Endowments Network. We would be delighted to assist you in identifying CDFIs that best meet your specific social equity return objectives.
Andrea Longton, CFA is a social justice investor dedicated to investing in the potential of people. She has raised over $350 million for social justice investments in the United States by driving capital to low-wealth communities across the country. Andrea currently serves as Senior Vice President of Financial Services at Opportunity Finance Network (OFN), the national network of CDFIs dedicated to driving capital to low-income communities across the United States. She is also the author-administrator of The Social Justice Investor.