Designed for CDFIs and other alternative lenders - strategies to improve performance.

1. Your Mantra for 2014:
Improve Financial Strength &
Performance
Facilitated by:
Jason Friedman, Principal &
Barbara Eckblad, Associate

2. Using Goto Webinar
• All participants will be on mute.
• You will see a panel on the right hand
side. Under the Audio tab you will see
the dial in number and access code you
were e-mailed previously. To join the
call, then enter in the Audio PIN
number.
• Q&A: we’ll save 30 minutes for Q&A;
type your questions in the Questions
Tab.
• You may also use the “Raise Hand”
button to alert the presenters that you
have a question or comment.
2

3. The Friedman Associates Team Approach
We grow organizations
thoughtfully for
sustainability.
We help you maximize
your impact now for
long-term results.

4. Friedman Associates
Mission: inspire nonprofit leaders to achieve
their vision for the entrepreneurs and
communities they serve - and demonstrate
the results that lead to increased funding and
long-term success.

5. Services: Build Strong and
Sustainable CDFIs
 Assess and Strengthen Loan Fund Operations
 Improve Effectiveness and Impact of Development
Services
 Prepare CDFIs for CARS™ Assessment
 Develop KPIs and Systems to Demonstrate Impact
 Strategic Planning & Business Planning
 Board Development
 Preparation of CDFI applications

6. Jason Friedman
• 26 years experience in micro and small business
community development finance and asset building
programs.
• Designed CDFI and related initiatives at the local,
state and national levels.
• Director of Training and Education for the Association
for Enterprise Opportunity (AEO).
• Vice-President of Economic Development for the
Institute for Social and Economic Development.
• Economic Development Advisor for Governor Mario M.
Cuomo

7. Barbara Eckblad
• Core expertise: CARS preparation; scaling loan programs;
portfolio management; aligning of staff, products and
systems; new product development/expansion; earned
income strategies; loan operations systems; technical
assistance deployment; building collaborations.
• Director of Lending for Wisconsin Women's Business
Initiative Corp. where she oversaw all aspects of the loan
fund and grew the loan portfolio by 67% over 3 years while
decreasing delinquency rates to below-industry standards.
• Small business ownership experience, including building an
innovative commercial and residential real estate firm from
start-up to largest market share, eventually transitioning the
firm to employee ownership.

8. Agenda
• What’s the word on the street?
• What do we mean by mission impact?
• Investments to build financial strength and
performance
• What is CARSTM? Why does it mean for my
organization?

9. Agenda
• What is Prep My CDFI!?
• How will it prepare me for CARS™?
• When is it time for Prep My CDFI!?
• What have we learned that you need to know?
• How much does it cost?

10. The Word on the Street….
• Mark Pinsky, OFN's CEO, delivered a "State of CDFIs"
speech on the "opportunity revolution" in which he
urged CDFIs to stay true to their mission as they take
on greater influence and amounts of capital.
• Most organizations that fail do so "from indigestion,
not starvation," he cautioned, and claimed that CDFI
challenges right now "are more internal than
external."
• "We may still be fleas on the tail of the dog," he said,
"but we're wagging the tail, if not the dog."

11. Ask yourself….
• When was the last time you underwent a
comprehensive review of financial and programmatic
information?
• When was the last time you did an extensive review
of loan files and risk management systems?
• When was the last time you had a discussion with
your board about whether you are achieving mission
impact?
• Do you have the data to demonstrate mission impact
beyond loan portfolio stats?

12. What is Sustainability?
Most CDFIs view sustainability as
balancing the tension between
mission, organizational capacity
and capitalization such that a CDFI
can sustain or increase it's impact
over time.
Mary Reynolds Babcock Foundation, CDFIs: A
Study on Growth and Sustainability, June 2011

13. Sustainability Not Self-Sufficiency
• Unlikely to be achievable for loan funds -
cannot survive as "spread lenders."
• Self-sufficiency ratio - ratio of earned income
to total operating expenses.
• Regardless of structure, all CDFIs accept
subsidy.

14. Sustainability through
“Smart Subsidy”
"Smart subsidy" is defined
as subsidy used to create
efficiencies, expand
capacity, implement new
activities, and/or to grow.

15. Investments in Sustainability
• Increasing loan volume
• Increasing efficiencies
• Reducing costs (partnerships)
• More income generating services
• Cross-subsidization
• Strategic imperative: a well-defined business plan
which requires human resources, operating
acuity, lending capital.

16. Preferred Sustainability Strategies
• Invest in Technology: CRM, MIS,
etc.
• Invest in staff-capacity and/or re-
working staffing structures.
• Partnerships and outsourcing.

17. Overall Challenges
• Capital follows mission.
• Unrestricted net worth (equity capital) is a key
challenge.
• Investments: Ongoing education and training on
market definition, asset design, cash flow
management, standardization of documentation,
portfolio analysis, interest rate spreads, etc.
• Insure updated loan policies and procedures and/or
capitalization assistance and definition of that
assistance.

18. Analyzing Organization Credit Risk
• Success in raising funds?
• How well does management adjust
mission program activity if they
don’t hit their fundraising targets?
• What is the level of flexibility in
the business model created to
serve the mission?

19. Analyzing Organizational
Credit Risk
• What is the capacity of management to manage
the delicate balance between achieving mission
objectives and keeping the doors open?
• How does management respond to fluctuations in
grant revenue?

20. What is Your
Mission
Impact?

21. Impact Measurement
• To determine how well impact
is aligned with mission, and
how well it is performing
against internal goals.
• Feedback loop to
management.
• To satisfy funder reporting
requirements.

22. Ask yourself
• Do you measure your mission impact? What
indicators do you use?
• Do you have a reliable way of knowing the
impact your are making?
• Do you have a strategy to increase that impact to
fulfill unmet needs – your mission gap.
• Strategy: do you have a coherent, integrated,
explanation of how the organization is going to
guide its performance toward a breakthrough in
mission impact?

23. Outcomes Vs. Outputs
• Outputs
• Outcome indicators
• Long-term impacts: measuring changed lives
and conditions over time.
• How are people’s lives improved as a result of a
particular community development effort?
• Requires investment.

24. How Do You Use the Data?
 Funder reports
 Stakeholder reports
? Annual review of impact against mission
?? Share impact data with all staff regularly to
assess performance to mission
??? Use it to actively influence decisions about
strategies and adjust products and services.

25. No Going Back…..
Your Mantra:
Measure Financial Strength and Impact

26. More investors require CDFIs to:
 Produce positive financial returns
 Produce data that demonstrate
long-term impacts
 Become more sophisticated in data
collection and impact reporting
 Become CARSTM-rated

27. What Is CARSTM?
 The CDFI Assessment and Rating System (CARSTM) is
the industry’s independent, third-party rating of
impact performance and financial strength.
 A CARS™ assessment includes past performance,
current financial position, and risk factors in the
future. Ratings are based on five years of historical
performance.
 With CARS™, investors have enhanced transparency,
experience greater efficiency, and make smarter
investments. Leading community development
finance institutions CDFIs are rated.

28. Disclaimer
• Friedman Associates has no affiliation with
CARS™ Inc.
• Advisory services are provided to CDFIs without
consultation with or benefit to CARS™ Inc.
• Our reference to the CARS® brand does not
imply endorsement of our services by CARS™
Inc.

29. • CDFIs that are CARS rated receive two performance
ratings:
 financial strength
 impact performance
• CARS does not measure actual impact, but rather the
extent to which a CDFI is having the impact it sets out
to accomplish, including the institution’s capacity to
measure impact and use those measures to improve
performance.

30. Financial Strength and
Performance
Creditworthiness: CAMEL Analysis
Capitalization
Asset Quality
Management
Earnings
Liquidity

31. Management: 25% of Score
 Strategy
 Governance
 Management and staffing
 Infrastructure and
 Management information
systems

32. Strategy
• Management’s clarity around mission, strategies,
market, etc.
• The quality of the strategic plan and business
plan, and how management uses each.
• To what degree the legal and organizational
structure of the institution supports its strategy.
• Track record in terms of accomplishing
organizational goals as defined in business plan
and other documents.
• Strategy regarding sustainability, efficiency, and
self-sufficiency.

33. Governance
• Existence of a feasible succession plan for an
executive director or key management transition.
• Board expertise relative to the CDFI’s activities.
• Board effectiveness with regard to its fiduciary,
supervisory, and strategic functions.
• Board policies and structure.

34. Management and Staffing
• Management depth, experience, and tenure in
relation to the CDFI’s current and planned
activities.
• Rationale for staffing structure.
• Manageable and appropriate levels of staff
turnover.
• Staff recruitment and retention strategies.
• Staffing plans in relation to planned activities.

35. Infrastructure and MIS
• Quality and timeliness of management
information.
• Accounting and internal controls (as reflected in
audits and management letters).
• Existence of basic insurance coverage for major
risks.
• Adequacy of information systems, data backup,
and disaster recovery plans.

36. • Alignment of strategy and operations
• Effective use of financial resources
• Tracking of outputs that show effectiveness
• Tracking of outcomes or impacts that show
effectiveness
CARS™ Ratings and Scale
Impact Performance

37. Are You Ready for CARS™?
• CARS™ is a demanding process, takes a
significant amount of staff time, and takes 6
months to complete.
• A CDFI can be rated only once every three
years.
• With so much on the line, why not invest now to
assess your capacity and strengthen
performance and impact?

38. What is Prep My CDFI?
• A process to prepare you for CARS™
• We assess your readiness for the
rating process.
• We identify the gaps.
• We advise you on how to fill ‘em!
• We prepare you for the CARS™ site
visit.
• We put you in the best shape to get
the rating you deserve!

39. Prep My CDFI! Process
Understanding
CARSTM
Capacity
Assessment:
impact
performance and
financial strength
Comprehensive
Management
Report and SWOT
Preparing for
the site visit
After the visit:
Implementation
Preparing for a
CARSTM renewal

40. When is the right time for
Prep My CDFI!?
 “We have funders who have asked if we’re going to
get a CARSTM rating.”
 “We think it’s time we go through the rating process
but don’t know where to begin.”
 “We’re signed up for CARS and just got our
document request list. We need help!”
 “We just received our rating and want to quickly
remediate the issues the analysts identified.”

41. Seeking or in the Process of
Obtaining a CARS™ Rating?
• Introduce management and board members to
CARS™ philosophy and goals.
• What CARS™ will analyze and what that means for
your CDFI, including impact, financial strength, and
policy advocacy.
• Scan of your CDFI and its current capacity for
working on CARS™

42. Prepare for CARS™
With Prep My CDFI!
• Identify and review the documents you need for
CARS™ and your methods for tracking performance
and outcomes.
• Review the questions CARS™ may ask about your
required documents.
• Analyze your loan fund policies, procedures, and
more to ensure that your CDFI has the backup
documentation you need and which CARS™ requires.
• Management report and SWOT analysis (excellent
feedback for strategic planning).

43. Up for CARS™ Renewal and Want
to Improve Your Rating?
• Review CARS™ analysts’ report to identify areas of
improvement.
• Management report and action plan for remediation.
• Review and assess documentation required for
CARS™
• Coordinate a strategy for the CARS™ visit.

44. Pricing
• The minimum fee is $8,000.
• Includes a one-day site visit.
• A moderately higher fee for CDFIs with a higher level
of complexity. Determined after initial consultation.
• Additional support to improve or strengthen loan fund
operations, governance, and impact/outcomes
tracking and staff training is available.

45. What We Have Learned
From Your Peers
• CARS™ strengthens organizations
- short term and long-term.
• CARS™ challenges you to look at
parts of your organizations
differently.
• Preparing for CARS™ is a rigorous
process.
• CARS™ is capacity draining.

46. Final thoughts..
• What is my vision for our
CDFI?
• How important is it to meet
and demonstrate industry
standards?
• How can I use a CARS™
rating to our advantage?
• Can I benefit from industry
experts who know the
process and can guide me
through it?

47. Let’s Take Your Questions!

48. Contact
Jason Friedman, Principal
Friedman Associates
jasonj@friedmanassociates.net
319-341-3556
www.friedmanassociates.net