Along with increased funding for underserved communities further disadvantaged by the coronavirus pandemic and its economic impacts. Black workers suffered record job losses early in the public-health crisis — and have been disproportionately exposed to ongoing risk of Covid infection as “essential workers” — a threat that extends to immediate family members, according to the Economic Policy Institute.
For one lending-technology pioneer, Dmitry Voronenko of TurnKey Lender, efficiency at the point of funding is essential for what he calls “full-spectrum compliance.” In this view, “there’s compliance around what must be done, and compliance that’s enhanced through keeping meticulous track of a funding operation, down to every decision at every juncture,” he says. “The result is unprecedented visibility in aid of long- and short-term development goals.”
But this isn’t just feel-good stuff. If, as some community developers urge, the federal government starts taking a harder look at how its funds are spent to bolster communities that are genuinely in need, advanced lending software could hold the key to Voronenko’s broader view of compliance.
Numbering about 1,000 throughout the US, CDFIs are lending institutions committed to extending financing and related services to people in economically distressed communities. In structure a CDFI can — but doesn’t have to — be a loan fund, a bank, or a credit union. Whatever form it takes, a CDFI may be supported by the CDFI Fund, which was established as a Treasury Department agency in 1994. Since then it has been the source of some $2 billion in community-development grants, and tax credits attracting $54 billion in private-sector funding.
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Why outcomes monitoring needs enhancement
Late in 2020, Congress boosted funding for CDFIs through the Treasury with particular emphasis on supporting CDFIs that support minority communities. This focus is needed. For example, Mississippi, the poorest state, sees just 17% of CDFI-backed mortgages go to African Americans — in a state where African Americans account for 40% of the overall population.
The 2020 legislation “was a major step toward positioning CDFIs to tackle long-standing gaps that limit opportunity, assertive action is required to ensure that the funding achieves the desired results,” Bill Bynum, CEO of Hope Credit Union in Jackson, Miss., writes in the Hill. “The Treasury Department is currently taking applications for the largest pot of funding for CDFIs in recent history — $9 billion made available through the Emergency Capital Investment Program” — an initiative that’s “projected to generate up to $90 billion in lending by CDFIs, and leverage substantially more in indirect investment.”
“Treasury has an opportunity and responsibility to make the Biden-Harris administration’s commitment to lifting communities of color real,” says Bynum. “Doing so will require investing in CDFIs that close, rather than widen, opportunity gaps.” For Bynum and others immersed in community development, this approach represents “the only way to ensure that the people and communities hit hardest by the economic crisis receive the relief they so desperately need.”
While regulatory compliance is already complex for lenders, seeking to create enhanced operational visibility around policies and procedures in support of best practices around community-development funding can require approaches that are even more nuanced. Here’s a seven-step program suggested by Voronenko, CEO and co-founder of TurnKey Lender, intended to shed more light on funding activity for hard-pressed CDFIs.
1.Map the touchpoints where consumers interact with your business
A CDFI’s interaction with CDFI-funding applicants starts with CDFI’s marketing, then continues into the application, credit review, approval (or not), funding (if approved), and continues through ongoing communications, reporting, and repayment. In this way, the CDFI can not only be on guard against fraud; it can provide a detailed account of fundee type and outcomes.
2. Assign ownership, and fund the program
With the map drawn, CDFIs can turn to issues of internal “ownership.” To this end, assign a point person — one with executive authority — to “own” the tracking of outcomes and usage. Ownership in this sense sends positive signals to applicants, fundees, regulators, and partners in community development that the CDFI in question takes responsibility for outcomes.
2. Determine appropriate guidelines for your funding operations
This is vital to determining appropriate business and revenue models as well as marketing efforts, product design, workflows, and even underlying technology platforms. Looking outward, CDFIs should understand expectations and requirements around the funding it does with respect to community needs, and the types of applicants in search of funding.
3. Publish policies and procedures
Documenting and publishing allocation policies and procedures ensures every CDFI staffer understands the importance of such policies and procedures as well as their individual tasks they need to perform to administer the program responsibly. Ideally, “a CDFI’s policies will include a standards overview along with a manual of procedures,” says Voronennko.
4. Launch the compliance program
Once you’ve determined to track outcomes, there will be nothing same-old about a CDFI’s funding activity. So look at your enhanced transparency as a new product launch. Think like a marketer and create a campaign that uses verbal, video and print channels in a series of integrated communications to bolster training as well as internal and external awareness.
5. Monitor and update compliance blueprints on a regular basis
While outcomes tracking for purposes that fall short of regulatory compliance aren’t likely to require as much ongoing oversight to ensure adherence to the new guidance, software designed for such rigorous oversight will keep CDFIs from straying off policy as conditions on the ground change. “And of course because tweaks must be made from time to time, it’s worthwhile to keep staffers informed and properly trained,” adds Voronenko. “Monitoring on this level could prove vital as the economy responds to the slow retreat of the coronavirus pandemic.”
6. Leverage software and outsourced resources
An oversight program, whether it’s about regulatory compliance or a lesser standard, can be expensive to develop, launch, and maintain. That’s why regtech software, and/or an outsourced compliance consultant, can be cost-effective solutions for many CDFIs. Leveraging third-party resources can boost a CDFI’s oversight, improve process efficiencies, and boost overall portfolio performance.
“CDFIs have a large role to play in the post-Covid economic recovery of many of our communities,” says Voronenko. “In supporting their efforts to provide greater visibility around outcomes, they’re paving the way to showing how community development and outcomes tracking can go hand in glove.”
To expand on the topic, check out our guide to creating a regulatory compliance blueprint.
Supporting Voronenko’s perspective on CDFIs is the fact that TurnKey Lender has long catered to nonprofits lenders, including:
- People Trust, which provides student loans and promotes community-development projects. The company uses TurnKey Lender platform for retail lending, loan-offer generation, and co-application functionality.
- HumanKind, which serves individuals and families throughout Virginia, uses TurnKey Lender to support easy access to credit for community development and neighborhood enhancement.
- The US Black Chambers, Inc., a nonprofit that supports and advocates nationally for black-owned businesses in the name of economic empowerment — often in partnership with local African-American chambers of commerce. “Our organization has been around for 12 years now with the goal and the mission of helping black businesses succeed and bringing economic vitality into our communities,” says Black Chambers spokeswoman Alisa Joseph.
Voronenko agrees, adding, “Our views on the need for CDFIs to demonstrate transparency isn’t simply about the possibility of stricter oversight requirements.” “As a result, our approach is informed equally by the real-word, and frankly real-time, needs of CDFIs we’ve come to view as partners.”