Conclusion, References and Appendices

Conclusion

Discussion of Common Challenges: Lessons From Hardship

Throughout the case study interviews conducted for this research, particular challenges arose repeatedly across partnerships. The three most common challenges navigated by every partnership profiled are:

1. Trust-building
2. Lack of capacity and resources
3. Sustained engagement and activity

The case study interviews also revealed that a need to clearly define the roles of partner organizations underpins all three challenges. If roles are clearly defined within the partnership, trust-building can move forward, resource needs can be defined and addressed, and partners have a deeper sense of commitment and responsibility. However, a lack of clear role definition may stall trust-building, limit access to resources and contribute to disengagement. These three challenges are examined in more detail below — within the context of the case study partnerships — to help similar existing and future collaborations understand how others have navigated these potential hurdles.

Trust Building
The partnerships studied exhibited varying levels of trust when they began. On one end of the spectrum are those partnerships that arose organically from high levels of existing trust among CDFI leaders working in a common target area. At the other end of the spectrum, however, are areas that acknowledge the potential benefit of strategic collaboration, but have experienced past breaches of trust. While a high level of existing trust is, of course, preferable, case study interviewees across the board emphasized that the partnership needed to be explicitly established as a neutral ground where all member CDFIs — regardless of size or prominence — were given an equal voice.

Several of the case study partnerships found that this atmosphere was most effectively achieved through the convening power of a third party, although some geographic areas with a high level of preexisting trust were able to convene and communicate effectively without a third party. The importance of trust has been emphasized in past research on CDFI partnerships, but bears repeating here simply because it is so foundational to any other goals the partnership may hope to achieve.¹ Particularly in a trust-deficit environment, effective partnerships explicitly focus on building trust both on a personal and professional level.

Capacity and Resource Deficits
By their nature and mission, CDFIs run lean operations, and rarely — if ever — do they have the capacity to devote significant resources to a partnership. The case study partnerships provide an array of solutions to this challenge, be it the provision of resources by a larger partner CDFI, convening by a third party, member cost-sharing or some combination of these  strategies. However, in addition to providing solutions, the case studies also point to challenges that come from capacity and resources deficits, including difficulty with robust and regular impact assessment. The most significant resource-related message that came through the case study interviews was that regardless of the entity providing operating resources, the partnership structure needed to match the vision and capacity of the partner organizations. Like the CDFIs they are comprised of, CDFI partnerships need to be lean and efficient entities that focus on the highest priority goals of their member  organizations.

Sustainability
The final challenge brought up repeatedly by multiple case study partnerships was sustained, long-term engagement and activity of member organizations. Partnership organizations may naturally have varying levels of commitment and engagement over time depending on their individual leadership and strategic focus. One interviewee noted that this ebb and flow of collaboration is a natural occurrence as leadership transitions and new needs and opportunities arise. But this ebb and flow has to be balanced against the strategic foresight to have the necessary capacity and preparation in place to capitalize on new policy and business opportunities.

Within the case study partnerships, those that exist as legal entities generally reported a stronger ability to weather changes in engagement and commitment. Those without a legal structure cite the importance of a third-party organizer and/or national party with the capacity — and explicit commitment — to convene the group. Additionally, the member organizations need to understand the strategic benefit of their active participation and have the foresight to identify future opportunities where collaboration results in a competitive edge.

Key Learnings from the CDFI Partnership Case Studies

Many of the themes that have arisen in past research around CDFI partnerships made an appearance in the case study interviews, which reinforces the importance of certain core principles over time. In particular, “CDFI Collaborations: Keys to Success” (2015) identified the following seven factors that contributed to successful CDFI partnerships:²

1. Business opportunity and mutually beneficial goals
2. Leadership from within
3. Roles and responsibilities
4. Performance metrics
5. Trust
6. Funding sources
7. Organizational  structure

Our case studies revealed that the partnerships generally followed these leading practices, with performance metrics being the most notable exception. Outside of the one-on-one partnerships that were organized around clear business opportunities, the CDFI partnerships seemed to struggle with collective performance metrics and impact measurement — a challenge that many tied back to the resource constraints that their organizations collectively face.

In addition to those best practices for partnership that are already well-established, several additional key recommendations arose from the case study interviews:

1. Be realistic about how membership composition impacts partnership goals.

Beyond simply establishing explicit goals for the partnership, these goals must be grounded in the specific competitive advantage the partnership generates by joining together multiple CDFIs. Partnership interviews made it clear that the composition of members at the table can either enable or limit what a partnership can hope to achieve. For instance, if a partnership is developed to execute a business deal (or set of deals), the business models of the partner CDFIs must be additive rather than duplicative. Conversely, a partnership that primarily focuses on influencing local economic development and policy — perhaps with deal referrals happening on an informal, ad hoc basis — may have a broader set of partner organizations, some with duplicative business models and areas of expertise.

2. Adopt an operating structure based on the needs of the member CDFIs.

Of the eight case study partnerships, two exist as formal nonprofit entities and one is weighing the costs and benefits of obtaining 501(c)(3) status. The two partnerships with legal structure — South Carolina Community Capital Alliance and the Native CDFI Network — have a variety of reasons for obtaining nonprofit status. In particular, the ability to raise funds from external sources, merge existing legal entities and hire designated staff are all driving   factors that make a legal structure worthwhile for these partnerships. However, beyond these examples, the partnerships interviewed largely felt that the   costs of obtaining and maintaining a legal structure outweighed the benefits. Numerous interviewees emphasized that the benefits of collaboration can be reaped with a lean structure, particularly when relationship-building and trust are central tenets of the partnership.

3. Proactively seek a role in shaping local, state and federal policy.

A final theme echoed throughout this work is the fact that CDFIs naturally operate at a critical intersection of policymakers, foundations, financial institutions and community groups. This unique position allows CDFIs to inform policy decisions at all levels of government, particularly when they are organized in  a way that maximizes their voice. Partnerships should approach their influencing role intentionally and look for ways to help shape policy and development decisions. Concrete examples of the ways in which CDFI partnerships proactively influence decision- making include the Detroit CDFI Coalition and the Maryland CDFI Roundtable partnering with respective city offices to help guide economic development, and the St. Louis CDFI Coalition and South Carolina Community Capital Alliance working at the state level to inform proposed Opportunity Zones.

Recommendations for Future Research and Action

The landscape of the CDFI industry is changing as CDFIs respond to competition from online lenders, experience leadership turnover and develop ways to remain competitive in an increasingly resource- constrained and technology-driven arena. As CDFIs continue to pursue collaborations for competitive advantage, future research efforts can continue to track the partnerships and understand long-term strategy and impact. Within the specific context of this work, several of the case study partnerships are in the midst of strategic changes — be that potential expansion of the partnership to new geographic areas, consideration of a new legal structure or a more significant role in advising local community development. Future research may track these developments and work to document the decision- making processes these groups go through as they evaluate new opportunities. Furthermore, given the relative dearth of assessment metrics for the partnerships in this piece, researchers may look to develop ways for CDFI partnerships to easily measure and communicate their collective impact.

As the Richmond Fed and our partner Federal Reserve Banks continue to play an active role in convening and researching leading practices in the CDFI industry, we plan to expand our biennial Survey of CDFIs beyond the Southeast region of the United States. The 2019 iteration of the survey is anticipated to be a national survey of CDFIs, and that survey tool will be used to gather additional information on existing CDFI partnerships nationwide.

CDFIs play a critical role in the community development sector and beyond, and their strength is essential for the economic stability of low- and moderate-income communities. As the industry grows and changes, strategic collaboration becomes ever more important for the vitality and prosperity of CDFIs and the communities they serve.

Acknowledgments

Thank you to Will Lambe, Chris Thayer, Michou Kokodoko, Mike Eggleston, Jeanne Milliken Bonds, Emily Wavering Corcoran, Jen Giovannitti and Peter Dolkart of the Federal Reserve Banks of Atlanta, Minneapolis, St. Louis and Richmond for their case study authorship. Additional thanks to the case study interviewees — listed in Appendix A — who generously gave their time to help us understand their work. Finally, thanks to Jack Cooper, Aaron Steelman, Matthew Martin and Shannon McKay for their careful review and insightful comments.

Note on Authors

At the time of publication, several authors are no longer with their respective Federal Reserve Banks. Will Lambe and Chris Thayer are no longer with the Federal Reserve Bank of Atlanta, so any questions on their case studies may be directed to Karen Leone de Nie. Jen Giovannitti is no longer with the Federal Reserve Bank of Richmond, so any questions on her case study may be directed to her.

References

“Approaches to CDFI Sustainability.” The Aspen Institute Economic Opportunities Program. July 2008.

“CDFI Collaborations: Keys to Success.” Opportunity Finance Network. 2017.

Corcoran, Emily Wavering. “Resilient Legacy, Connected Future: CDFIs in the Southeast.” Federal Reserve Bank of Richmond Community Scope Vol. 5 Issue 2. 2017.

Corcoran, Emily Wavering. “Community Development Financial Institutions in the Southeast: Surveying the Social Investment Landscape.” Federal Reserve Bank of Richmond Community Scope Vol. 4 Issue 1. 2016.

Erickson, David. (2010). “Building Scale in Community Impact Investing Through Nonfinancial Performance Measurement.” Federal Reserve Bank of San Francisco Community Development Investment Review Vol. 6 Issue 1.

Nowak, Jeremy. “CDFI Futures: An Industry at a Crossroads.” Opportunity Finance Network. 2016.

Ratliff, Gregory A., Kirsten Moy, Laura Casoni, Steve Davidson, Cathie Mahon and Fred Mendez. “New Pathways to Scale for Community Development Finance.” Federal Reserve Bank of Chicago ProfitWise News and Views. December 2004.

Theodos, Brett, Sameera Fazili and Ellen Seidman. “Scaling Impact for Community Development Financial Institutions.” Urban Institute. June 2016.

Appendix A: Case Study Interviewees

Diego Abente, Vice President of Economic Development Services & President of the International Institute Community Development Corporation, International Institute

Oswaldo Acosta, Director of Small Business Services, Latino Economic Development Center

Bill Ariano, President and CEO, Baltimore Community Lending

Dave Clark, Executive Director, Woodlands Development Group and Woodlands Community Lenders

Robin Danner, President and CEO, Council for Native Hawaiian Advancement

Tanya Fiddler, Executive Director, Native CDFI Network

Grace Fricks, President, Access to Capital for Entrepreneurs

Yonina Gray, Director of Business Development, Reinvestment Fund and Atlanta Neighborhood Development Partnership

Don Hinkle-Brown, President and CEO, Reinvestment Fund

Carol Jackson, Secretary, Mid-Ohio Valley Regional Council

Robert James II, Senior Vice President, Carver State Bank

Marten Jenkins, President and CEO, Natural Capital Investment Fund

Gerard Joab, Executive Director, St. Ambrose Housing Aid Center

Mary Seaberg King, Senior Vice President, Invest Detroit

Maria Langston, Assistant Vice President of Community Development, St. Louis Community Credit Union

Michelle Mapp, CEO, South Carolina Community Loan Fund

Bernie Mazyck, President and CEO, South Carolina Association for Community Economic Development

Deborah McKetty, President and CEO, CommunityWorks Carolina

John O’Callaghan, President and CEO, Atlanta Neighborhood Development Partnership

Dan Reitz, Executive Director, First MicroLoan of West Virginia

Nancy Wagner-Haslip, Chief Investment Officer, Reinvestment Fund

Tahirih Ziegler, Executive Director, Detroit LISC

Appendix B: Case Study Methodology and Questionnaire

The case studies in this publication are based on interviews conducted using the case study questionnaire that follows. The structure of the CDFI partnership dictated the relevant interviewees, but, in general, the case study author interviewed three to four partnership leaders. These leaders included the current president/ED of the partnership, the presidents/CEOs/EDs of the most active partner CDFIs, the leading staff member of the convening/funding organization (if different than the partner CDFIs) and/or the founding president/ED of the partnership. Once all interviews were complete, the case study author then objectively synthesized responses to the case study questions into sections that mirror the case study questionnaire sections.

Case Study Questionnaire:

I. CDFI Partnership Genesis and Structure

1. When and how did the partnership begin? Were any non-CDFI organizations (e.g., CDFI Fund, OFN, a Federal Reserve Bank, foundation, etc.) involved in the creation of the partnership?
2. Who were the founding partner CDFIs?
3. How was the formation of the partnership funded?
4. What were the driving factors that motivated the creation of the partnership? Did any of the   partner CDFIs use additional alternative methods to help achieve scale and sustainability prior to or following the creation of the partnership?
5. What partner CDFIs actively participate? Are these organizations certified or is the partnership open to noncertified CDFIs?
6. Does the partnership have a legal structure (including 501(c)(3))? If so, what is it?
7. What is the leadership structure of the partnership? How frequently and by what means do partner organizations communicate and meet?
8. Does the partnership have dedicated staff? (Staff resources may be provided by the partner CDFIs or by an external organization.)

II. Goals and Achievements

Consider providing alternate questions depending on partnership goals.

1. What were the partnership’s original goals and mission?
2. What accomplishments have been made toward those goals?
3. What are the partnership’s goals today? How does the partnership plan to achieve these goals?

III. Financing and Nonlending Activities

1. What financing activities, if any, do partner CDFIs pursue together? What nonlending activities, if any, do partner CDFIs pursue  together?
2. Does the structure of the partnership allow partners to have increased access to capital, or increased ability for capital deployment? If so, how?
3. Does the partnership include features that help maintain financial sustainability, such as a loan loss reserve fund?

IV. Impact and Assessment

1. What impact and assessment activities do partner CDFIs undertake together? What are some ways the CDFI partnership assesses its impact? (This question is meant to capture collective impact and assessment activities, rather than the activities of each individual partner organization.)
2. How is impact communicated to internal and external stakeholders?
3. What additional metrics, if any, would benefit the partnership?

V. Challenges, Opportunities and Leading Practices

1. What challenges, if any, has the partnership faced? (Note: This question is intentionally broad, and can cover both internal and external challenges.)
2. Does the partnership have a strategic plan? If so, how frequently is it updated?
3. Does the partnership have a succession plan for its leadership? What happens if a strong partner exits the partnership?
4. Is the partnership open to new CDFI or non-CDFI partners? If so, does the partnership have a recruitment strategy for new partners? (The recruitment strategy may differ for CDFI and non-CDFI partners, e.g., partner CDFI recruitment vs. advisory board recruitment.)
5. What opportunities do you see for the future of the partnership?
6. Are there additional ways that the partner CDFIs have worked toward scalability outside of the partnership? If so, what are they?
7. At what point, if any, would the partnership be disbanded?
8. What practices have benefitted the creation and work of the partnership? What insights would you provide CDFIs that are interested in partnership creation?