Bringing CDFIs into the 21st century: Brilliant ideas from some of the top business students in the U.S.

With the meteoric rise of online lenders, the growing need for access to smaller-dollar loans is clearer than ever. This trend has also underscored the need for community lenders, or CDFIs, to keep pace with — and distinguish themselves from — their digital counterparts in this once-niche lending space.

The question is how? Teams of MBA students from across the country brought their best ideas forward last month to the first-of-its-kind Community Finance Challenge, co-sponsored by CDC Small Business Finance and other partners at MIT’s Sloan School of Management. The theme: How can we bring CDFIs, or community development finance institutions, into the 21st century?

“The purpose behind this competition was to raise the visibility of community development finance as a business and as a field (for students) and to harvest great new ideas and energy,” said Allison Kelly, a competition judge and CDC’s senior vice president of strategy and innovation.

Some common themes and approaches that emerged from finalists’ proposals included:

• Integrating more technology into existing loan products for faster, easier more-streamlined customer experience.
• Experimenting with the CDFI business structure.
• Presenting different approaches to raising capital such as the set-up a national crowdfunding platform.

The Winning CDFI Idea

Nearly 200 students from more than 60 diverse colleges and universities competed in the Community Finance Challenge, the creation of John Beatty, a former CDC employee and current MBA student at MIT Sloan. It was important for Beatty and other organizers to invite not only the Ivy Leagues but also other institutions, from commuter schools to historically black colleges, Kelly said.

Judges whittled down the competitors’ pool to ten finalists. They went on to present their proposals at MIT Sloan. The winning team was from Northwestern University’s Kellogg School of Management. Represented by Gifford Brooks, Max Rappaport, Jakob Schmidt and Amelia Williams, the group snagged a $10,000 grand prize, which was made possible by the event sponsors.

From left to right: Jim Baek, Donna Fabiani, Stephanie Thomas, Gifford Brooks, Max Rappaport (back), Jakob Schmidt (back), Amelia Williams, Lauren Prange Van Dyke, John Beatty and Allison Kelly after the first-of-its-kind Community Finance Challenge. Brooks, Rappaport, Schmidt and Williams made up Team Kellogg, who took first place.

Team Kellogg’s thoughtfully planned and well-presented proposal involved:

• Implementing faster pre-screening tools with strong community engagement and customer-relationship building.
• Leveraging existing technology: a bank-account history API and non-traditional credit metrics such as social-media networks.
• Strengthening the CDFI customer acquisition pipeline by reframing their financing as “more than a loan” to reflect their true value to borrowers.
• Encouraging CDFIs to work more closely with trade organizations, entrepreneurship networks, and co-working spaces to create a small-business support ecosystem
• Hosting community events to develop a pipeline of borrowers and increase awareness of CDFIs. They include pitch competitions and business-plan reviews.
  

“They used best-in-class approaches in technology and innovation to improve what we already have,” Kelly said. “The plan was realistic and showed how we can more effectively target and acquire new customers.”

What’s Next?

CDC and fellow co-sponsor Opportunity Finance Network — the leading network of CDFIs in the nation — will introduce some of these proposals at OFN’s Small Business Finance Forum in June. Now in its seventh year, the event is designed for CDFIs and other mission-driven lenders to learn and network.

At the event, “we can share these learnings with the industry and try to ignite change and innovation,” Kelly said.

Beatty, the event’s lead organizer, hopes this event will spark thoughtful dialogue about access to capital especially to un-served and underserved communities.

“This challenge is a great event to both generate awareness and involvement from the next generation of leaders, while also bringing fresh thinking to solving the problems of economic inequity in the U.S.,” Beatty said. “Our industry will be stronger as a result from this effort both today and long into the future.”

CDC Small Business Finance offers several loan options for business owners who want to start or grow their business. As a non-profit organization, our mission is to support those who face the greatest obstacles in securing capital. They include women, minority and veteran-owned businesses in California, Arizona and Nevada.

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