In his article two years ago – CDFIs: The Next Alternative Financial Institutions – Next Street Founder Tim Ferguson posited that Community Development Financial Institutions (CDFIs) could become the next wave of alternative financial institutions, with the power to deliver transformative change to underserved communities across America. In order to do that, he argued, these organizations would need to become market makers, reach new levels of scale, establish a financial and social risk/return profile, provide integrated capital, and seek new technology and talent.
Tim’s argument was informed by Next Street’s nearly 15-year history. Our mission is to revolutionize the way capital, customers, and services are delivered to small businesses and entrepreneurs across the country. On the heels of the COVID-19 pandemic and amid the renewed focus on the Black Lives Matter movement, that mission has never been more important.
With the recent announcement of an alliance between CDC Small Business Finance and Capital Impact Partners we all saw an example of what this can actually look like. This alliance represents an opportunity for impact in underserved communities across the US that is greater than the sum of its parts, addressing the myriad issues related to our country’s widening wealth and equity gap.
Next Street had previously been providing business counsel to each organization separately and felt there was great promise in introducing them. We were proud to work alongside these two leaders as they crafted this innovative approach to drive transformative change within the CDFI and small business sectors across several themes.
Bringing impact capital into communities at scale
Together Capital Impact and CDC Small Business Finance have a team of more than 200 lending, community and economic development professionals, a combined 80-year history, nearly $3 billion under management, and a reach that spans from California to New York. This unprecedented alliance will allow the two organizations to greatly increase the amount of capital they are able to connect to communities that need it most.
Delivering a full suite of lending products and programs that support economic empowerment and equitable wealth creation
Creating generational wealth, especially within communities of color is a key pillar of developing successful, equitable communities of opportunity. This alliance brings together CDC Small Business Finance’s spotlight on small business lending and job creation with Capital Impact’s broader community development efforts spanning affordable housing, education, health care, and inclusive food systems.
Overlaying hyper-local and national efforts
The combination of local knowledge and relationships with national perspective and resources – the ability to provide hi-touch community development at scale – makes for a powerful approach. The alliance will pilot this combination in three cities – Los Angeles, Detroit, and Washington, D.C. In each pilot city community members will direct emphasis to unique local challenges, against which the organization will be able to apply their knowledge and resources from working at a national scale.
Building a market maker
Capital Impact and CDC Small Business Finance’s combined track record and scale give them the opportunity to access capital markets and transform how the current community and economic development finance industry meets the needs of communities through their complementary capabilities. There is a $4.5T investment need in over 50 community and economic development models and $11.6T of US assets that incorporate ESG criteria. Too often though, funders and investors aren’t close enough to communities to ensure this investment is done in a way that supports community created solutions. The new alliance positions the organizations to be a conduit to close that gap between the supply and demand of impact capital.