The impact investing sector is experiencing remarkable growth, with assets under management nearly doubling from $129 billion to $249 billion in recent years among those surveyed by the Global Impact Investing Network. For community development financial institutions (CDFIs) — mission-driven lenders delivering affordable capital to low- and moderate-income communities — this presents a huge opportunity to scale. And for impact investors, both institutional and retail, CDFIs offer stress-tested vehicles for delivering positive returns to communities through investments in small businesses, affordable housing, and more.
Unfortunately, even though CDFIs have a proven track record of generating positive impacts, they have struggled to attract investments in a competitive and crowded marketplace. This gap stems not from a lack of performance, but from the limited resources that CDFIs have to spend on things like marketing or data analysis to communicate their value proposition to potential investors.
It’s also difficult for impact investors to accurately assess the risks and returns of investing in CDFIs. Because CDFIs have traditionally developed products that serve the needs specifically of their local communities, there is a lack of standardization across the industry. Investing in a single CDFI can be a costly, time-intensive process, requiring extensive manual data collection. That makes it difficult for treasury teams unfamiliar with community lenders to engage at scale.
This disconnect persists at a critical time for community lending. America is experiencing an entrepreneurial boom, with low-to-moderate income communities driving much of this new business creation. Three out of four CDFIs report increased demand for their financial products, yet only 40% can fully meet this surge — with nearly half of CDFIs citing insufficient lending capital as their main constraint. And with uncertainty around federal funding from the Community Development Financial Institutions Fund, CDFIs are looking to diversify their capital sources.
To unlock the growing volume of impact-driven capital and funnel it toward CDFIs, we need standardized reporting systems to help impact investors better understand the CDFI industry and centralized platforms where investors can find and compare CDFIs. But building out these resources requires complex coordination across a fragmented CDFI ecosystem and specialized expertise — something that’s difficult for a resource-constrained industry.
This is where philanthropy can bridge the divide. At Mastercard Strive USA – a program that connects small businesses with the resources they need to thrive – we are funding grantees that are building sector-wide platforms to enhance CDFI data and storytelling capabilities with the goal of accelerating impact investment in the sector.
Better data for increased capital
One grantee, Aeris, is using funding from Mastercard Strive USA to build a comprehensive data repository for the entire CDFI loan fund sector. This platform moves beyond fragmented Excel spreadsheets to create standardized, accessible performance data and analytics that speak the language of institutional investors without contributing to the reporting burden already experienced by CDFIs. Aeris also provides in-depth analyses and ratings on CDFIs’ financial strength and impact management capacity, which can increase their appeal to impact investors. From 2017 to 2023, median total assets for Aeris-rated loan funds grew by $70 million versus less than $20 million for loan funds that only report data, demonstrating how better data can directly translate into increased capital access.
On the investor side, Aeris’s platform helps decision makers better understand how the CDFI sector is able to take risks in its lending while remaining reliable stewards of capital. Many potential investors still harbor misconceptions about the sector. Aeris’s platform helps educate decision makers at large financial institutions by providing credible, longitudinal data that proves CDFIs can be both impactful and investable. One institutional lender said they would not be able to grow their investment program in CDFI loan funds without the data and analyses that Aeris provides.
Impact storytelling
Another innovator, CNote, has used funding from Mastercard Strive USA to support an impact reporting system and create a first-of-its-kind, scalable, needs-matching system that connects impact investors with CDFI investment and deposit opportunities. CNote’s new platform has already directed $390 million in social impact investments to community financial institutions, increasing the impact investing directed by CNote to community lenders by 365%. Nearly 90% of investors making investments through the platform were making their first-ever impact deposits.
CNote’s approach has yielded impressive success in attracting impact investors to previously untapped CDFIs, with 96% of their partner CDFI banks and credit unions that received deposits through the platform saying it is the first impact investment they have ever received. These results demonstrate clearly how the right tools can unlock new capital flows. Instead of seeking out investors one by one, CDFIs can present their impact to a broad range of investors while also spending far less time on data input and reporting.
For investors, CNote’s approach combines compelling impact narratives with hard data that counters common misconceptions about CDFIs. While some assume that investing in mission-driven financial institutions comes with financial tradeoffs, CNote helps dispel this notion by providing transparency into the competitive rates and historical financial strength of CDFIs.
Potential investors can connect to over 2,500 mission-driven financial institutions through CNote’s needs-matching platform, filtering options based on their unique financial parameters and impact targets. Storytelling on CNote’s website allows investors to go beyond the numbers, delving into the human impact their investment generates — like how funding through Justine PETERSEN, a St. Louis-based CDFI, helped a local entrepreneur open her business, Good Shepherd Preschool and Infant/Toddler Center.
Recycling balance sheets
A third creative approach comes from Momentus Securities, which has used funding from Mastercard Strive USA to launch a loan securitization platform for small business loans. The platform provides a replicable template for loan securitization, replacing the bespoke structures that are prohibitively expensive for smaller lenders.
Through the platform, lenders can recycle balance sheet capacity to deliver more capital to small businesses in need. Institutional investors are typically not set up to provide direct capital to small business lenders, but the securitization structure provides a familiar vehicle, making it easy for them to invest. While the program is new, it is poised to kick off with a $20 million transaction in small business loans in the coming months and scale dramatically in coming years, with a potential incremental market size of $5 billion annually.
While better data, storytelling, and centralized platforms alone won’t solve all the challenges facing CDFIs, these innovations supported by Mastercard Strive USA are proving that they can meaningfully accelerate investment in the sector. As we seek to support historic levels of entrepreneurship, particularly in low-to-moderate-income communities, strengthening these connections between impact investors and CDFIs is increasingly vital.
The future of community lending may well depend on our ability to bridge the gap between impact capital and community lenders. Through improved data collection, standardization, and storytelling, we can help ensure that CDFIs have the resources they need to support the next generation of American entrepreneurs.
Sandy Fernandez is the vice president for social impact at the Mastercard Center for Inclusive Growth and the head of Mastercard Strive USA.
