Community investors in the US play an active role supporting small businesses to access finance and other non-financial support in underinvested communities. Community Development Finance Institutions (CDFIs) have grown in significance since their inception in the 1970s, and now manage $150 billion AUM across small business lending, affordable housing, community banking and credit unions. As a result, the US provides a wealth of lessons for the UK as it looks to significantly scale its community lending activity.

I’m pleased to launch this report looking at the lessons learned from a visit in Autumn 2018 with five CDFIs to New York City that was supported by Citi. The report draws on the perspectives of 9 US CDFIs and 16 organisations that either represent, fund or support the policy agenda of CDFIs.

We recognise that US community investment operates in different market conditions and that the sample of organisations we spoke with weren’t representative of the whole of the country. Furthermore, the report brings together the reflections from the attendees to outline some practical lessons and does not offer an academic approach which is well reflected in the 2015 Harvard Kenny School report However, we believe there are practices that UK CDFIs and social investors can learn from, as well as representative bodies, local and national government and investors.

 

The report explores lessons across four themes:

CDFI business models – The CDFI’s lending approach and the value-add they provide through technical assistance to the way they reach, retain and move-on clients.

Evidence, visibility and representation – The way the US is evidencing social, economic and financial impact of CDFIs lending, how this is used in marketing activities and how CDFIs are represented to politicians, policy makers and investors.

Role of the public sector – US CDFIS have strong support from federal, state and local government, which brings out some lessons for the UK around funding and broader support the public sector can provide.

Investment models – The context for investing in CDFIs in markedly different in the US when compared to the UK, however lessons can be learnt on the role of different types of investors and the emerging product innovation.

 

Some of these lessons are already being used. Frederick’s Foundation who joined the visit are beginning to consider specialising their lending in a limited number of sectors to maximise their efficiency, reach and importantly their social impact. The hope is that others will reflect on their practices too with these lessons in mind.

The lessons from this report complement the evaluation that Sheffield Hallam University are undertaking and will help build the evidence base for UK CDFIs to achieve social and economic impact for underserved small businesses in disadvantaged areas.

 

View the full report – Community Investment: Lessons learned from the USA.

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