Last week the Council of Development Finance Agencies hosted Blending Capital for Impact: How Foundations Can Advance Economic Development Finance. Here are my takeaways from this interesting program.
There is money in the system, but targeted communities are often not ready to use it.
Foundations and community development financial institutions frequently have trouble identifying quality investments through which to deploy their funds. In other words, the weakness is often on the demand side, not the supply side.
It’s not that there aren’t good opportunities, but they aren’t identified in systematic ways. Community-based organizations striving to increase investment in their neighborhoods typically focus on putting together financing for individual projects, often in trying circumstances, frequently requiring near-heroic efforts. But there is no system for identifying and channeling funds into multiple good projects in a community.
Multiple related deals are more appealing than one-off projects.
A pipeline of deals that are aligned with well-defined strategic priorities that can then create a cascading series of benefits makes places more “investable.” Further, foundations prefer to have a portfolio of similar investments rather than a series of one-offs.
A critical element in generating and moving projects through the pipeline is an enabling environment – encompassing both policy aspects and institutional practices (who talks to whom and who is at the table). So one organization pursuing one project is not their ideal model.
Narrow program criteria limit investment opportunities - and impact.
Back on the supply side, many foundations and individuals focused on impact investing define eligible investments narrowly, limiting the potential pool of quality opportunities. While it may seem preferable to be highly specific and targeted when deploying funds for economic development, it can create a barrier to getting money out into the community.
Data can be "terrible and misleading" when trying to assess portfolio impact.
This last takeaway is not surprising and is entirely consistent with the challenges we have seen in figuring out the true impact of economic development incentives.
To address these issues, foundations can work with development finance institutions because they are well positioned to identify opportunities that fit with strategic priorities in a location and can deploy capital efficiently in those communities.
This program is one more reason I continue to be impressed by CDFA and its thought leadership on important issues in economic development.