Impact Evaluation of Mission-Oriented Investments

Summit understands that, with limited resources available, mission-oriented investors attempt to direct their funds into projects or institutions that will result in the highest possible impact. As such, measuring and reporting on the impact of grants, loans, and investments is increasingly important for mission-oriented investors who want to understand and communicate their impact. Summit’s team demonstrates extensive experience conducting impact evaluations for a variety of clients. Depending on our clients’ needs, Summit can design quantitative impact evaluations that utilize robust econometrics methods or develop metrics to begin measuring impact.

For mission-oriented investors, Summit relies on a detailed process to assist clients in understanding the objectives they hope to achieve through their investments and how best to measure the success of achieving those objectives. Successful impact measurement and reporting includes identifying what to measure and how to collect adequate data at each stage. In the figure below, we summarize the stages of this process as they relate to an investment into a Community Development Financial Institution (CDFI). The list that follows the figure summarizes the corresponding steps that make measuring the impact of a CDFI investment, or any mission-oriented investment, possible.

Sample Framework for Impact Evaluation of Investment into CDFIs

1. Issue or challenge addressed by the investment and/or portfolio. CDFIs servicing low-income communities often lack adequate access to debt and equity capital. Despite increases in federal resources available during the last decade, such as the CDFI Fund’s Bond Guarantee Program, and public debt offerings by certain larger, S&P-rated CDFIs, most low-income communities remain persistently under-invested, and CDFIs often face obstacles financing many projects in these areas.
2. Inputs to fuel the activities. Inputs such as financial resources are one key to addressing the challenge. Financial resources could come in the form of philanthropic or government grants to CDFIs, flexible loan products such as a low-interest debt or interest-only debt, long-term equity investments, or even technical assistance to newer CDFIs. Investors into CDFIs should work to tailor products that match the needs of CDFIs and the local communities that they serve, within investors’ own risk appetites.
3. Activities necessary to achieve the goal. The input of financial resources addresses the challenge when paired with activities that drive the change. These activities could involve providing financing to a CDFI that wants to provide funding for a new commercial real estate project, healthcare facility, charter school, or community center in a low-income community.
4. Immediate outputs resulting from the inputs and activities. The outputs are the near-term results of the CDFI’s investment—for example, the number of jobs created at the commercial center, patients seen by physicians at a healthcare facility, students attending the school, and the number of low-income people served at the community center.
5. Longer-term outcomes resulting from the outputs. The outcomes are changes that occur over the longer term, such as income levels of the employees at the commercial center, health of the community, education levels, and community/civic engagement.
6. Impact on those benefiting from the investment. The impact of the investment can be measured by comparing the longer-term outcomes of the affected community to a control group to understand the quantifiable effects of the investment. Understanding the differences in outcome, isolating for all other possible factors that could have led to the positive changes, will help investors understand how effective their particular investment was in creating a positive, lasting change in the low-income communities.

Summit works with mission-oriented investors at each stage of impact evaluation, from articulating the challenges addressed through the investment to conducting an econometric analysis that quantifies the impact of the investment by comparing the outcomes of those who benefited to those who did not. Conducting a full-scale econometric impact evaluation often requires considerable data and resources, and Summit works to tailor impact evaluation and reporting strategies for clients with different needs.

Click here to read Summit’s entire Mission-Oriented Finance blog series, which includes an Overview of our work in this area, how we conduct credit risk analysis, evaluate alignment of mission with impact of investments, perform portfolio monitoring, and measure impact.