Understanding CDFI Financial Data: A Primer for New Investors

Abstract

Community Development Financial Institutions (CDFIs) are gaining broader recognition as effective conduits of capital to underserved communities. As a result of the diversity of CDFI business models and their unique approach to blending different capital sources, these mission-driven capital providers have varied and often complex financial structures, and their financial statements can be difficult to understand for those not familiar with the sector. As interest in the sector from prospective investors has grown, so too has the need for broader understanding of how to assess CDFI financial health and soundness. This brief highlights sector dynamics that provide important context for any analysis of individual CDFIs, and shares suggestions for both the CDFI industry and investors new to the sector for how to improve understanding of CDFI financial metrics. Key takeaways • CDFI loan funds are unique entities relative to other financial institutions, and measures of financial health typically used for traditional financial institutions often do not readily map onto the CDFI sector. • Heterogeneity in the sector makes CDFI loan funds difficult to assess at an industry level; institution-level evaluations are likely to be more fruitful. • Efforts around standardization of financials have been undertaken by the sector itself in the past but more can be done (both by CDFIs and investors) to increase the understanding of CDFI loan fund financial data by mainstream financial actors