Though some banks feel hassled by financial reporting requirements, at least one industry views such reports favorably.
CARS Inc., a nonprofit that provides data, analysis and advisory services to community development financial institutions, is planning to launch a reporting system similar to call reports. CARS hopes making financial data easily accessible will entice investors to give CDFIs a second look.
"I think this is a turning point for" CDFIs, says Brandee McHale, chief operating officer at the Citi Foundation, which provided the lead philanthropic funds for the reporting system and is a longtime CDFI supporter. "This is taking it to the next level."
CDFI loan funds are unregulated, and investors often struggle to gain timely and accurate data, says Paige Chapel, president and chief executive of CARS. The nonprofit provides ratings for such funds to make research easier for investors, including banks looking for credit under the Community Reinvestment Act. CARS has ratings and data available for institutions that manage about 55% of all CDFI assets.
CARS realized more was needed to entice "investors that like what CDFIs are from an impact perspective but don't understand the risks," Chapel says. The nonprofit worked with a firm to build a data-collection system where CDFIs can upload quarterly financials. The system formats the data to comply with generally accepted accounting principles. Investors pay a fee to access the information, which includes analytical ratios and portfolio performance. "CDFIs have a long track record of being 100% impact focused," Chapel says. "Losses to investors have been very small."
The system also helps CDFIs. Institutions can see several years of data rather than sorting through various audits, says Suzanne Aloi, corporate controller at The Reinvestment Fund, a CDFI that supports neighborhood revitalization. The fund, which worked with CARS as it launched the reporting system, has more than 50 creditors that require regular reports. The system makes it easier to provide data.
"CARS is our attempt at what would normally be encouraged by a regulator," says Michael Crist, The Reinvestment Fund's chief financial officer.
Investors looking at Partners for the Common Good have asked whether it was CARS rated, says Jeannine Jacokes, the CDFI's CEO. Providing ratings and making the reporting system available removes guesswork, she says.
"The more CDFIs that participate in the reporting system makes the whole system stronger," Jacokes says.
More work is needed to make things easier for investors, Chapel says. Later this quarter, CARS plans to add more features, such as a real-time peer analytics.
"Our goal is to see the CDFI industry get to where it is self-sufficient and reduces the need for philanthropic capital," McHale says. "It is getting pretty close."