Why CDFIs track metrics

CDFIs track metrics for various reasons, including to attract and retain funding and capitalization and to inform organizational learning and decision making. To be sure, the two reasons are not mutually exclusive. A CDFI may track a particular metric because a funder requires the organization to report on it and because the metric will help inform organizational learning and decision making.

Ideally, CDFIs should prioritize metrics that reflect changes they aim for among the communities they serve and those that promote organizational learning.^[3] However, in their 2017 brief, “From Compliance to Learning: Helping Community Development Financial Institutions Better Determine and Demonstrate Their Results,” Theodos and Seidman document the CDFI tendency to collect and track metrics because of funder pressures and requirements rather than to use “the information to learn and grow.”^[4]  

Theodos and Seidman call for CDFIs and their stakeholders to prioritize learning and focus on collecting and tracking data for their own purposes and needs, embedding learning into organizational routines. Fielded six years after Theodos and Seidman’s brief, the 2023 CDFI Survey provides data to determine where CDFIs and the industry stand on the journey “from compliance to learning.”

CDFIs track metrics to inform organizational learning and decision making and to attract and retain grants and debt capital.

In the CDFI Survey, respondents were asked to select all reasons why they track metrics and subsequently identify the top reason. Figure 3a presents all reasons selected, whereas Figure 3b focuses on the top reason. Most figures in this section focus on the top reasons why CDFIs track metrics, which is most reflective of their highest priorities.

The figures illustrate that CDFIs use metric collecting and tracking to inform program design and organizational decision making. At the same time, priorities may be driven by the need to satisfy external requirements to retain existing funding or attract new investment dollars.

Figure 3a illustrates that CDFIs use the metrics they track for organizational learning purposes:

Satisfying funder requirements and attracting new funding and investment rise in relative importance when looking at the top reason for tracking metrics (Figure 3b):

The responses reinforce how revenue- and mission-driven metric tracking are not mutually exclusive. For example, 14 percent of respondents indicated that they track metrics to attract new clients and customers. Because they are depositories, credit unions and banks rely upon customers to increase revenue. Both institutions rely on metrics to attract new clients and build revenue streams, and both want to grow their customer bases to further their missions of expanding capital access to individuals and communities that mainstream financial institutions often overlook.

CDFIs track metrics for different reasons based on institution type and business model.

Figure 4 illustrates how business models of CDFI institution types and, particularly, the revenue streams thereof drive the top reasons for metric tracking. For example, 30 percent of loan funds chose “satisfy funder requirements” as their top reason for tracking metrics, whereas 25 percent of banks and 17 percent of credit unions selected that reason. This aligns with the fact that just 5 percent of credit unions’ capital comes from borrowed funds, whereas 46 percent of loan funds’ capitalization is from borrowed funds and equity equivalent investments.

Thirty-one percent of credit unions chose “attract new clients or customers” as their top reason for tracking metrics, compared to just 2 percent of loan funds. As depositories, credit unions’ capital for lending comes from customer deposits, whereas funders and investors such as banks, philanthropies, corporations, and governments tend to provide capitalization for loan funds.

CDFIs with less capacity must track metrics to attract new funders and retain existing ones.

Researchers have theorized that, in an ideal set of circumstances, there would be a virtuous circle where CDFIs collect and evaluate metrics to inform organizational learning and decision making, ultimately enhancing CDFI capacity.^[5] Presently, capacity-constrained CDFIs often feel beholden to funder and investor requirements for survival and growth. This tendency is particularly acute among the smallest and most resource-constrained organizations.

Figure 5 shows the latter tendency in the 2023 CDFI Survey data. In this figure, capacity is measured as the number of full-time equivalent (FTE) employees, with small CDFIs having under 10 employees, mid-sized having 11 to 50 employees, and large having more than 50 employees.

Smaller percentages of large CDFIs reported funder-related concerns as their top reason for tracking metrics. Eleven percent of large CDFIs reported that attracting new funding or investment is their top reason for tracking metrics, whereas 18 percent of mid-sized CDFIs and 23 percent of small CDFIs selected this as their top reason.

Likewise, larger percentages of small and mid-sized CDFIs reported the need to satisfy funder requirements as their top reason (27 percent and 26 percent, respectively). In contrast, 20 percent of large CDFIs reported funder requirements are the key driver of metric tracking.

Interestingly, the findings concerning learning culture motivations and number of FTEs are more varied. For example, between 23 percent and 27 percent of CDFIs of all sizes said that tracking product success was their key reason for collecting metrics. For a larger percentage of mid-sized and large CDFIs, informing staff, management, and board was their key reason.

Regardless of asset size, roughly three out of 10 loan funds tracked metrics to satisfy funder requirements.

Figure 6 considers a different measure of capacity, namely assets. This figure presents data for CDFI loan funds to streamline the discussion. Number of FTEs and asset size are highly but not perfectly correlated. For the full dataset, the correlation coefficient between these two variables is 0.74 with a p-value of < 0.01.

About 30 percent of loan fund respondents said that satisfying funder requirements is the top reason they track metrics, regardless of asset size. The loan fund business model depends highly on contributed revenue and debt capital from funders and investors. Thus, CDFI loan funds of all asset sizes feel that they must collect metrics to sustain that model.

A growth mindset drives the logic of metric tracking for small and emerging loan funds:

In contrast:

This finding indicates that larger loan funds are more accustomed to using metrics to support organizational decision making.