More and more, funders of nonprofits are approaching grant making the way an investor approaches a financial transaction. Both seek information that will help them evaluate the likelihood that their “investment” will have the intended return. At a minimum, this involves ensuring that the grantee or investee has the financial discipline to use the funds in a responsible and effective manner.
Community development loan funds have a thirty-plus year track record of taking capital from investors and re-lending that money in underserved markets. Our organization, CARS Inc., came into being a decade ago to provide a third-party rating of these loan funds. (Some think of us as the Moody’s for our field.) We believed that voluntary steps toward transparency and accountability would be key to driving more capital to low-income people and communities.
Over the past few years, we learned that our investors needed more. They wanted timely data in a standardized format that enabled ‘apples-to-apples’ comparisons. Our industry has responded with a coordinated effort to deliver. Opportunity Finance Network, the leading national network of CDFIs, created Performance Counts to develop industry standards and best practices around CDFI financial statements and financial management. CARS Inc. built a cloud-based system—with funding from the Citi Foundation, Ford Foundation, and others—that loan funds and investors are using to share these standardized data.
We have already seen transparency and standardized data bring more funders to the table. As an added benefit, access to these
data have helped executives manage their organizations in the context of what others are doing—reducing the need for decision making in a vacuum.
Others in the social sector have launched similar initiatives, such as Strength Matters’ work with affordable housing developers and
the FIELD Program at Aspen Institute, which works with microfinance institutions on collection and standardization of social impact data. To our minds, the increased funding and improved decision making resulting from this shift toward transparency can only be a positive development for nonprofits as they pursue their missions.
The preceding is a guest post by Paige Chapel, President & CEO and Karen Seabury, Director of Ratings at CARS Inc. Paige has led CARS Inc. since May 2007, during a transformative period in its history. Under her leadership, CARS Inc. became an independent corporation, increased ratings volume by eightfold, and expanded into customized risk and impact assessment services. Paige has worked in finance and community development for more than three decades. She joined ShoreBank Corporation in 1987 as one of the founders of ShoreBank Advisory Services (SAS) and served as CEO beginning in 1991. Paige was one of the founders of ShoreBank Pacific, a federally regulated depository, and in 1997 joined the Bank's management team and board of directors. Prior to CARS, she led a national consulting practice focused on market-based strategies and innovations in development finance. Paige received her B.A. from Northwestern University.
Karen has a decade of experience working with CARS Inc., first as an analyst and then joining the organization full time in 2013. As an independent consultant, her practice included strategy development for program-related investment (PRI) and grant programs and financial and program analysis of PRI investments and grant candidates. Prior to consulting, Karen worked as a Program Officer at the MacArthur Foundation (1997 – 2002) and Director of Finance and Lending at the IFF (1995 – 1997). Karen received her MBA from The Wharton School at the University of Pennsylvania and her BS from Miami University of Ohio.