The tool was designed to help financial institutions consider highly impactful loans that may otherwise be overlooked.
By Erica Sweeney
Pacific Community Ventures (PCV) recently funded a loan to a Black-owned security business that they might not have underwritten without the African American Equity Impact Scorecard.
“On paper, if you just looked it purely from an underwriting standpoint, it wasn’t the strongest deal — even with the underwriting that we use, which is not traditional and is designed to be inclusive,” says Robert Porter, PCV’s managing director of small business lending.
Using the scorecard, the loan ranked “incredibly highly, and it was a loan that we definitely wanted to do from an impact standpoint,” he says.
“It’s a good possibility that we may not have funded that deal without the scorecard,” Porter explains, even though the Oakland, California-based CDFI has been devoted to impact investing since it was founded in 1998.
The scorecard was developed by the African American Alliance of CDFI CEOs as a “learning tool designed to combat the growing racial wealth divide,” says Chavelle Sangokoya, the alliance’s vice president of programs and initiatives.
“It helps community development financial institutions, other mission-driven lenders and grantees evaluate the impact that a project, business or venture has on Black wealth creation and economic mobility,” she adds.
The tool measures and scores a financial institution’s activities that support Black communities in 32 metrics across five areas, including wealth building, leadership support, access to land, culture and place-keeping, and racial equity.
It launched in June, but some community lenders and CDFIs like PCV have been piloting the tool since last year.
Bulbul Gupta, PCV’s president and CEO, says the scorecard is helping the CDFI improve its impact measurement, which “is central to our DNA.”
“We’ve been continuously improving our entire measurement around racial equity, and so we saw it as an opportunity to learn, see what else we could consider adding to our measurement, and what else we could learn from this community,” she says.
In its second year of using the scorecard, Porter says PCV has already improved its scores in equity lending. “The loans we’ve invested in this year have been much more impactful than they were last year,” he says.
During the pilot phase, Sangokoya says the alliance learned how much community financial institutions need data to better understand their lending decisions. Using the scorecard can help them uncover how information flows through their organization, as well as opportunities for more impactful lending.
“Just unpacking that has made us realize more and more how much there isn't a standard and how much a standard would be greatly appreciated by a number of these alliances,” she says.
The goal of the scorecard is to help drive more capital to Black-led initiatives and Black wealth-creation activities, Sangokoya says.
It also strives to shift how financial institutions evaluate businesses, projects and ventures for investment, she adds. “That’s rethinking traditional risk evaluation systems and how we think about value, financial analysis and impact overall — and shifting thinking towards racial equity and wealth creation versus the traditional return on investment.”
Another element is creating a standardized approach for measuring and reporting on equity. In the future, Sangokoya says they hope to identify trends in lending and impact and influence policy.
“We aim for organizations to start to look at trends across the projects, businesses and ventures within their portfolio and start to tell a much deeper story so they can start to say things like, ‘We as a CDFI in this region are having a tremendous effect on equity within the scorecard,’” she adds.
The alliance also invites lenders using the scorecard to meet monthly to share case studies of high-scoring projects or ask questions about how others are implementing the scorecard within their organizations.
Financial institutions wanting to use the scorecard can sign up for a demo on the alliance’s website.
“It’s been a really good learning experience,” Porter says. “The hope is to be able to really impact the CDFI community with more intentionality of design for racial equity outcomes with less guesswork and interpretation.”
This story is part of our series, CDFI Futures, which explores the community development finance industry through the lenses of equity, public policy and inclusive community development. The series is developed in partnership with Next City.