The following is a guest blog co-authored by Gina Harman, CEO, U.S. Network, Accion and Luz Urrutia, CEO, Opportunity Fund
Small business lending CDFIs have filled a critical economic gap for decades, but we’re only recently coming into our own with evaluating and demonstrating our impact in a comprehensive way. When Accion and Opportunity Fund started lending in the U.S. more than two decades ago, our primary means of evaluation were limited to loan portfolio health. Low default rates indicated that, contrary to traditional banking systems’ standards, CDFI clients were not necessarily high-risk; instead, a more personal approach sets underserved entrepreneurs up for success.
Over time, with support from organizations like the Aspen Institute, we have been able to evaluate borrower outcomes such as business survival, revenue growth, and job creation. These measurements helped to move the needle on making the case for investment in underserved entrepreneurs. However, we knew that our impact went beyond these data points alone: individual client stories painted a more complete picture. Yet, we knew that these anecdotes did not equal data. That’s why Accion and Opportunity Fund set out to design a study that could illuminate the holistic impact of our lending and advising services, over a longer time horizon. This research, conducted by Harder+Company Community Research, was made possible through lead funding from the W.K. Kellogg Foundation and JPMorgan Chase & Co., with additional support from S&P Global.
More than six years after we first discussed the idea, we hope to move the conversation forward with results from a longitudinal, mixed-methods study of 350 borrowers in 26 states over the course of nearly three years. The findings are rich and nuanced, including an exploration of unique goals, journeys and impacts among five typologies of entrepreneurs. A key theme that rises to the top for mission-based lending as a field is that evaluation of our work can celebrate both the breadth and the depth of our impact.
Celebrating deep and lasting impact
Results from this study complement the measures of breadth we previously had available to us, such as portfolio numbers and business outcomes, with academic analysis of the more personal impacts of our services. Through never-before-measured metrics and rich qualitative data, the research enables our industry to further demonstrate what we already knew to be true on an anecdotal level: that our services have the power to transform quality of life for our clients, their families and their communities.
Impact on confidence
Maintaining a holistic approach, the study addressed the psychological impact of mission-based lending through quantitative and qualitative means. For example, more than two years after receiving a loan, 63% of small business owners said their experience working with Accion or Opportunity Fund increased their confidence to reach their entrepreneurial goals. That information alone breaks ground for the field’s impact measurement, but accompanying qualitative data sheds light on the entrepreneurs’ experience even more:
“I’ve definitely grown and I feel a lot more confident now. [I am] much more confident in my skills and in my ability to work with clients.”
“The biggest thing has been the confidence that I’ve gained in myself. I’m really proud of it.”
Impact on financial stability
Most borrowers in the study reported improved personal financial stability, and 54% of respondents attributed this improvement to their experience with Accion or Opportunity Fund. The number of entrepreneurs reporting anxiety about finances decreased by a statistically significant 13% over the course of the study. These positive effects were reported more than two years after receiving a loan, which demonstrates the lasting impact of a CDFI loan.
“Ever since we got that loan...we started to have cash flow. So, we grew economically and personally and the business settled down more."
These personal impacts add depth and nuance to the conversation and to spotlighting CDFI success. Job creation and other large-scale metrics tell an impactful story for the industry, but these qualitative measures add more dimension and meaning to the success of our work.
Impact on employees
The impacts of study participants’ success also extended beyond the borrower. Nearly half of participants added employees during the study period, and just as importantly, statistically significant increases in the benefits they provide to employees are indicators of the quality of available jobs in their neighborhoods. The number of businesses offering no benefits to employees fell by more than half, from 48% to 22%; additionally, about half of those who already offered at least one benefit had added one or more a year later.
Why does this matter?
The impacts of our work on confidence and financial stability, something we have never previously been able to measure, demonstrate the transformative power of mission-based lending services. Confident, resilient entrepreneurs are positioned to build a better future for their families and their neighbors.
For example, at the start of the study, 91% of borrowers said a key motivator for starting their business was to better support their families. The study’s qualitative data illustrate their progress in the ensuing years:
“I’ve been able to send my daughter to college.”
“[Receiving the loan] has changed my lifestyle. I go on family vacations. I have savings...Yes, life is better.”
The diversity of the study sample in terms of geography, demographics and industry make these findings relevant to the CDFI industry as a whole, not just our own two organizations. We invite our peers to explore the findings in detail, and to leverage the study in communicating the importance of mission-based lending services among those who are invested in economic equality. Learn more at http://smallbizimpact.org/