This year, for the first time ever, MBA students across the country are grappling with the idea of the future of the CDFI industry thanks to the MIT Sloan “Community Finance Challenge,” sponsored by Deutsche Bank, OFN, Lending Club, LISC, Advantage Capital Partners, and CDC Small Business Finance. The Challenge focuses on CDFIs serving the small business market, and is open to MBA and other graduate students who are competing for $14,000 in prizes at the finals this March at MIT Sloan.
The Challenge calls for the design of what a new, 21st century CDFI could look like. Participating teams were asked to address questions like: What markets would it serve? How would it reach those markets? What products would it offer and why? What kind of impact would it have? How would it measure that impact? What technology would it use? How would its lending/investing systems operate?
CDFI Connect sat down with John Beatty, an MBA student at MIT Sloan School of Management. John, a former employee of CDC Small Business, is responsible for the creation of this competition.
Tell us a little bit about the Challenge and how you came up with the idea:
The aim of the Challenge is to take modern thinking and technology and to answer this question: “If you had to design the 21st century CDFI from the ground up how would you do it?” The reason for this challenge is that there is a huge opportunity for continued innovation in the community finance space. At the same time, the rise of fintech lenders and online lenders have shown a deep need for the industry. And we wanted to see what the best and brightest from all across the country, and not just the top 20 schools who always have a seat at the table, could do to answer that question.
This is the first challenge of its kind. We got it started last year in March. I worked in the CDFI industry before coming to MIT Sloan and I was aware of the need for innovation in the space, and participated in a couple of case competitions last year here at Sloan. So these experiences in my background helped me get the lightning bolt idea. Before I explored it further, I reached out to my former boss, Allison Kelly, at CDC Small Business Finance to see if there was really an interest and I received positive feedback. Similarly, when we started reaching out for sponsorship and participation there was a strong response.
Who did you work with to scope it?
After I had the strong interest response I took the idea to Mens et Manus America, which is an MIT-wide initiative to address economic and social divisions in U.S. Talking to them it was a spot-on fit. Even though not everyone was as familiar with the industry as myself, there were a lot of great ideas and guidance on how we could shape this project to move the industry forward. We also knew we had to attract a big name sponsor to help us get the word out and generate interest, so we partnered with Deutsche Bank, and they have been a great support for us.
You mentioned that you wanted more than the usual suspects competing. Tell me about the outreach process:
There are 700 business schools in America and you always see the same 20 competing.That wasn’t going to fly for what we want to do. So we went for a direct sales model. I was able to recruit a team of MBA students who are passionate about the cause and were willing to sign up for the email outreach we knew we had to do in order to be successful. We had one group working to reach out to business schools with a religious affiliation, especially given the role communities of faith played/play in community development. There are dozens of prominent universities that have a religious focus, who we think have something to say about this and take the mission very seriously. We had folks focused on HBCUs and communities of color and making sure those communities were reached. In addition to email we reached out to groups like the Black MBA association, JumpStart, the Consortium, Hispanic MBA, and various other MBA program groups. Similarly through the religious and rural sectors. There is no substitute for hard work. We contacted around 250 business schools, and I am proud that our team pounded the pavement and got these results.
What has been the response to the Challenge:
We have 60 teams from more than 30 schools, totaling around 200 people. It’s very exciting to see teams from schools across the country—serving different sectors, and who have diverse backgrounds—all competing and working on the problem.
For context, this is a huge response. The Microsoft case competition, for instance, had 40, and that is what we were aiming for and blew past. There is a lot of excitement around this and is really encouraging as we consider doing this again.
How much of an education gap do you think was needed for the competition (i.e. do students know anything about CDFIs?)
I put together a team of two Sloan students (one who had worked for Lending Club and one who worked for Advantage Capital Partners). The three of us were in the industry and we worked with Barbara Dyer, a Senior Lecturer focused on social impact and the Director of the Good Companies Good Jobs initiative at Sloan.
We wrote a 12-page prompt for the students. As you know, the CDFI Industry is tricky and can be overwhelming. With the prompt though, we had to find a way to educate people about the industry and its dynamics. So we provided grounding, and touched on areas like impact, advantages, and challenges while walking a fine line not recommending solutions. We worked with a number of CDFIs on the research paper, such as Oportun, Opportunity Fund, Craft3, and CEI.
In addition we hosted several webinars with CDFIs to help guide the conversation and answer questions. The questions the students had were spot on, so we think the guide worked well.
We will be getting the submissions on Friday. That's when we get to see how well we bridged this gap.
OFN is a sponsor for this event, can you share what that sponsorship entails? Who else is a sponsor?
The short answer is financial support. There is $14,000 in prize money on the line, and sponsors also offer financial support to make it possible for every finalist to make it to the competition, so we have extra money on a needs basis
Sponsors also played a role in our outreach efforts. And there is also a commitment to participate in the judging. Donna Fabiani, Executive Vice President, Knowledge Sharing, will represent OFN as an expert judge at the event and is actually also helping us with the preliminary judging since our response was above and beyond what we expected.
How many compete for the final prize in person?
There will be 10 teams who come to the event. There are two rounds of judging. The first round will break into five groups. The top two in each group go on to compete in the afternoon for the award.
It’s a small event but there are around 50 tickets available for sale.
A lot of the interest is also networking and connecting with CDFIs who worked with us on the challenge, so this is a chance for them to see the ideas that came from their direction.
I don’t think it’s a coincidence there is so much excitement about this Challenge. I think it's timely on a national level, and I think it's timely on an industry level. This is a unique chance and opportunity to consider how we might do things differently.