In this post CSBDF’s Jason Sabatelle (Volunteer Senior Research Fellow), Adonis Caramintzos (Volunteer Research Fellow), and Emily Rivera (Loan Servicer) join Vice President of Policy & Research Jamie McCall to show why both economic and social impact measurement is important (….and hard to do). For more details about the findings of this research, please see the 2-page brief and full report.
Throughout the pandemic, many programs have emerged to help small businesses across the country. Many of these efforts - including distributing both loans and grants - have been led by community development financial institutions (CDFIs) like CSBDF. For us, it has been a privilege to provide help to the main engine of the state’s economy over the past 18 months. And while the economic recovery from COVID-19 has started, we think much more help is needed to ensure North Carolina’s small businesses have the tools they need to succeed in the long-term.
For three decades CSBDF has been here to help small businesses. But to do that well, we must understand how what we do affects both entrepreneurs and the communities they live in. In that spirit we examined our impact amidst the pandemic, finding that CSBDF’s lending helped small businesses be more financially stable. We are now pulling back to explore our impact in a different context and over a much longer time.
Estimating Our Economic Impact is Important…
Time and again, we have been inspired by the ability of the state’s small businesses to prosper despite what seems like overwhelming challenges. The stories we hear from entrepreneurs who receive assistance from CSBDF put a face on the data we publish about our economic impact. CSBDF’s ability to create positive financial ripples is important and is indeed part of our story.
Yet we have also acknowledged that measuring our economic impact is a challenge. We issue millions of dollars in affordable loans each year, but North Carolina has an economy totaling $600 billion. In such large and complex systems, trying to identify how 1, 50, or even 100 loans move the needle on economic outcomes is not an easy task. How do we know whether it's our loan or another variable (or both – or neither!) that is causing observed positive economic effects?
…But Only Part of the Story
If putting a number behind our economic impact is hard, trying to show our impact on community social systems is even harder. How do you quantify small businesses giving a neighborhood a sense of place and character? How do you put a dollar value on the relationships entrepreneurs build with each other and their community over time? How do you measure the social worth of main street firms as pillars of their community?
As part of our ongoing commitment to impact measurement and program evaluation, we’re excited to share a new exploratory analysis on how CSBDF’s work creates positive social impacts across a 10 year period. This research looks at how affordable financing activities might shape community-level social capital. We wanted to know: is there a correlation between CSBDF’s lending and increasing levels of trust, reciprocity, and social connections at the community level?
In short, the answer is: yes (with caveats, of course!). Using a CSBDF dataset which covers 1,068 lending transactions, we find that lending activity does appear to be occurring in tandem with an increase in community-level social capital. Correlation is not causation, but a pattern of correlation over many loans and a long time period does hint at a positive social impact. The 2-page brief and report give more detail, but a few high-level findings stand out:
First, we looked to see if the demographics and characteristics of the firms we serve were correlated with county social capital levels. The data show CSBDF’s lending to businesses owned by racial minorities has a positive association with community social capital. In fact, that is the only variable we tested at the firm-level which seemed to have a positive association. Importantly, that does not mean other variables have a negative association (or even no association). It just means we cannot distinguish whether other variables have effects which are not due to statistical noise.
Second, though we included traditional measures of economic impact like job creation and retention, neither measure had a significant relationship with social capital. We think this is interesting because employment is one of the primary ways CDFIs talk about their impact. That includes CSBDF, which engages in extensive efforts to collect accurate jobs information from our borrowers. Our research makes the case for why CDFI impacts should be reimagined to have a focus on both economic and social outcomes.
Slight Technical Detour - Why This is Hard
Though we think our findings are positive, they also illustrate some of the inherent complexity involved in trying to measure CDFI impacts. For example, you may notice the table above says income inequality has a positive relationship with social capital and racial diversity has a negative relationship. How could it be that higher income inequality and less diverse communities lead to more trust, reciprocity, and social networks?
The good news is that isn’t what is actually happening. But it is easy to interpret the data that way - showing why this kind of research is hard. There are multiple types of social capital, and the index measure used in our analysis does not capture all those categories (no measure could). The index used in our research tends to be a good measure of bridging social capital, which are networks of trust involving people/organizations with heterogeneous (different) social, economic, and/or demographic characteristics.
The index does not do as well at capturing bonding capital, which represents trust across people/organizations with homogeneous (similar) social, economic, and/or demographic characteristics. The debate about how these different types of social capital relate to positive community outcomes is extensive and ongoing. But we believe our results support research showing how bonding capital – especially in the distressed/marginalized communities – helps promote an array of desirable socioeconomic outcomes.
Economic and Social Impact Measurement is Key
The best things in life are never easy, and so it goes with trying to measure the social capital impact of CDFIs. Though the analysis is exploratory, we believe it shows that across the past decade CSBDF loan interventions are “moving the needle” in terms of promoting positive social outcomes at the community level across North Carolina.
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