Common data and activation challenges
Advancing technologies are fundamental for CDFIs to increase efficiencies, better serve clients, and monitor financial and social impact. In the last few years, increased demand for services has fueled an industry call to start transforming the technology landscape to meet the expanding CDFI market.
Technologies designed for mainstream financial institutions do not meet the specific needs of CDFIs. Even customized solutions for the industry offer limited options or cannot be utilized for all phases of the lending cycle, including document storage, loan origination, underwriting, closing, servicing loans and monitoring impact. Additionally, the cost to implement new technologies has historically been too high for these organizations that prioritize raising capital and supporting their operations.
To meet their technology needs, CDFIs have implemented a wide range of systems and technologies for accounting, loan management, impact measurement and customer relationship management. In 2017, OFN published a survey, CDFI Loan Fund Technology Landscape, with the findings showing that common software packages utilized by CDFIs include “loan management systems geared toward community development finance, customized spreadsheets and databases, and popular mainstream software packages, such as Excel, QuickBooks and Salesforce.”
In addition, when the pandemic took hold, the need for CDFIs to invest in new technologies became urgent, as they faced an increased demand to disburse emergency Paycheck Protection Program (PPP) loans to small business and improve their lending capabilities. Technologies that they utilized could not support these programs, and, in many cases, PPP applications had to be handled manually, with some organizations not having the capacity to effectively provide these emergency loans.
To assist CDFIs with their mission, some technology companies are stepping in to help. In 2020, a large FinTech, in partnership with a big tech firm, committed to bringing low-cost technology solutions to CDFIs to improve customer onboarding and support digital transactions. And, in 2022, another big tech firm invested US$4 million for OFN to launch a new “CDFI Technology Grant program,” aimed at supporting investment in technology innovations. At present, some CDFIs have started their technology transformation journeys toward more robust loan management systems, integrated systems, enhanced analytics, trend identification, workflow automation and impact monitoring. However, the technology transformation revamping journey has just begun for these organizations, providing impact investors with the opportunity to support an industry at the beginning of its transformation that aligns with their own mission and values.⁴