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Overview and Findings of CDFI Program Impact Evaluation Reports

Overview and Findings of CDFI Program Impact Evaluation Reports. PRESENTED BY Greg Bischak PRESENTED ON February, 2015. Overview of CDFI Program Impact Evaluation Reports. The CDFI Fund commissioned the CDFI Financial Assistance (FA) program evaluation:

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Overview and Findings of CDFI Program Impact Evaluation Reports

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  1. Overview and Findings of CDFI Program Impact Evaluation Reports • PRESENTED BY • Greg Bischak PRESENTED ON February, 2015

  2. Overview of CDFI Program Impact Evaluation Reports • The CDFI Fund commissioned the CDFI Financial Assistance (FA) program evaluation: • The research was conducted by two consulting groups: • Carsey School report analyzed the financial and social performance of the FA program and its financial assistance awardees; • Socratic Solutions report analyzed regulated CDFIs to assess their systemic risk of institutional failure and their operational efficiency relative to mainstream financial institutions. COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND // www.cdfifund.gov

  3. Carsey School Study Methods • Analysis of the types of borrowers and communities that FA awardees are serving, and the types and terms of financing. • Assess the extend to which CDFIs act to fill market gaps not served by mainstream lenders. • An exploratory analysis of the neighborhood impacts of concentrated CDFI lending activity by FA awardees. • A statistical analysis of the impact of FA awards on the subsequent growth and health of CDFI loan funds. • Structured interviews with staff leadership of 22 CDFIs addressing their impact evaluation activities, organizational challenges and opportunities. COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND // www.cdfifund.gov

  4. Carsey Study’s Key Findings • CDFIs are concentrating lending activity in census tracts with high poverty or unemployment rates, much more so than conventional lenders. • CDFI lending does not appear to have attracted mainstream lending into these areas but rather fills market gaps for key underserved low-income populations. • The CDFI industry has grown substantially, leveraging investment and increasing lending even during the recession and changed financial environment; COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND // www.cdfifund.gov

  5. Carsey Study’s Key Findings (continued) • Generally CDFIs have maintained a sound financial condition. • CDFI awards have played an important role in growing assets and lending. • Many CDFIs appear to struggle meeting market needs for longer-term loans, a dynamic that may be related to the lack of access to long-term capital in the sector. • The diversity of missions among CDFIs presents a challenge for developing shared impact measurements. COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND // www.cdfifund.gov

  6. Socratic Solutions Studies of CDFI Depositories Risk and Efficiency • The first part of the study examines whether there are statistically significant differences in the systemic risks of failure by CDFIs relative to mainstream financial institutions (MFIs). • The second part examines whether there are statistically significant differences in operating efficiencies between CDFIs and MFIs. COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND // www.cdfifund.gov

  7. Findings for Institutional and Mortgage Interconnectedness Risk: CDFIs vs. MFIs There were three primary findings: • CDFI credit unions and banks were found to have no more risk of financial failure than other financial institutions. • Compared to mainstream banks there is less risk for CDFI banks that tend to dominate their markets. • For Credit Unions, neither the degree of network connectedness or dominance in their market influenced the likelihood of risk of institutional failure. • The latter finding raises an interesting research question about the potential institutional benefits associated with being certified as a low-income credit union. COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND // www.cdfifund.gov

  8. Efficiency Model Key Findings • The efficiency study found that there were a few pre-recession years where regulated CDFIs were less efficient than MFIs; • However, once socioeconomic factors were included in the model, regulated CDFIs had virtually the same level of performance. • Overall, the study found that the mean efficiency (i.e. for both CDFIs and MFIs) showed considerable volatility over the decade analyzed, and that mean efficiency was generally declining over time. • In some years, however, regulated CDFIs were more efficient than MFIs. COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND // www.cdfifund.gov

  9. Next Steps • Data collection on all certified CDFIs (underway). • Standardize definitions around key impact measurements. • Research on strategies to support growth of CDFI industry and emerging opportunities for technological innovations. • Consider a CDFI Infrastructure and Innovation Fund. COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND // www.cdfifund.gov

  10. Appendix I: Institutional and Mortgage Interconnectedness Risk among depository CDFIs, 2002-2011 • This study examined the systemic risk of institutional failure of CDFI depositories using key financial ratios to separately model and predict for CDFI banks, and credit unions, the likelihood of failure or merger within two years of operation. • Models used Home Mortgage Disclosure Act data, and statistical measures of the degree of a depository institution’s market interconnectedness in the event of a mortgage market collapse. • Three variants of the model were run to test a series of interactions among the variables so as to ensure a better understanding of these complex relationships. COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND // www.cdfifund.gov

  11. Appendix II: Efficiency Model methods, data, and objectives • The efficiency model examines regulated CDFIs and MFIs ability to transform key financial inputs into outputs or outcomes: • Inputs: measured by the costs of funds, equity to asset ratio, and total assets in a given year • Outputs or outcomes: measured by the number of loan applications received, value of originated loans, performing assets, and rate of return on assets. • The model includes socioeconomic variables that measure the environment within which the firms operate: • Median income, percent in poverty, and unemployment rate; • Controls to examine low-income markets effects on efficiency. COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND // www.cdfifund.gov

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