By David Erickson
Center for Community Development Investments
This issue of the Community Development Investment Review explores how better data and technology can direct more capital to low-income areas. Better data on community development investments can turn uncertainty into quantifiable risk. In other words, better data transforms community development investments from being considered exotic, one-offs, public relations or philanthropy deals into regular assets with known risk parameters.
A mantra of the business world is “what matters gets measured,” but with community development transactions that is not always the case. To make this transition will require breakthroughs on a number of fronts. Articles by authors in this issue analyze the possibilities for improving data collection and analysis in the following ways: uncovering market opportunities in low-income areas (Yago, Zeidman, and Manning); tracking individual transactions (Kaplan); analyzing how nonprofits operate (Bamberger and Gross); and estimating the risk on aggregated pools of community development loans (Chen and Chang).
Technology also plays a role in how we make community development investing more efficient, and holds the promise of connecting disparate groups and lowering transaction costs. In this issue, two articles show how well-designed websites can connect borrowers with lenders in a way that could dramatically increase the flow of capital to low-income people and communities. One article delves into the lessons from international microcredit lending (Bruett) and the other focuses on domestic lending, particularly that which is motivated by the Community Reinvestment Act (Choi).
Perhaps the most important aspect of innovations in data and technology is that it generates hard evidence of the effects of community development investing. More data provides raw material for independent policy research and promotes transparency and good governance in both the public and nonprofit sectors. It also strengthens the public policy argument that community development investment creates value by promoting healthier and more vibrant communities better able to contribute to the common weal. As Federal Reserve Chairman Ben Bernanke suggests in this journal: “To know whether our policies and programs are delivering the desired results, we need to be able to measure inputs and outcomes, program by program and community by community.”