What metrics are needed to hold lenders accountable for racial justice commitments?

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** Economy Remix: Rules of the Lending Road for Racial Justice Accountability
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Welcome to the Remix, as we take our latest spin around the economy. This column ("Community Finance Alliance Launches Racial Equity Scorecard ([link removed]) ") analyzes an effort among community development financial institutions (CDFIs) to bring racial justice accountability to their lending and technical assistance work.

Since the murder of George Floyd in 2020, nationwide over 1,300 corporate firms have pledged to invest over $340 billion in racial justice. But does this $340 billion make a difference in people’s lives? Truth be told, there are no rules regarding what counts as racial justice investment. Nor is there an agreed-upon set of metrics as to how to evaluate investment performance. As a result, it is hard to say for sure what is being achieved.

My latest column ([link removed]) reviews the work of a group of CDFIs to create a “racial equity scorecard” that aims to develop some common standards. Earlier this year, I interviewed some of the people behind this effort from Community Vision, a California-based CDFI, and the African American Alliance of CDFI CEOs.

CDFIs, of course, were formed as a response to racial and economic inequality. And yet, in an industry with an estimated $457.9 billion in assets, only $4 billion in assets—or less than one percent—are held by Black-led CDFIs. In short, racial disparities persist within the CDFI sector, as well as outside of it. One CDFI leader who I interviewed noted that “a lot of times there will be a commitment to invest in Black communities, but [the money] ends up going to White communities.”

The scorecard aims to begin to change this by directly integrating racial equity analysis into the due diligence process. In other words, at the same time a loan is being evaluated for financial soundness, it will also be evaluated for mission soundness.

The scorecard is organized into five categories (power building/leadership, job creation, equity, community, and catalytic impact), with points awarded for various attributes within those five categories. At present, a dozen CDFIs are participating in an initial cohort. The hope of cohort members is that the tool, once refined, can be more broadly used—both by CDFIs and ultimately by banks and other financial institutions.

These remain, however, very early days. Much more needs to be done to refine, as one CDFI leader put it, what “good” looks like. Still, this effort provides a valuable window into the nuts-and-bolts work that it will take to forge racially equitable lending relationships. As you read this article ([link removed]) , I encourage you to reflect on these themes. Until the next Remix column, I remain,

Your Remix Man:

Steve Dubb
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