Community Investment Management (CIM) is an institutional impact investment manager that provides strategic debt capital to demonstrate and scale responsible innovation in lending. CIM’s Enterprise Loan Fund provides responsible debt finance to small businesses, partnering with technology-driven lenders to reach market segments underserved by traditional lenders. Small businesses are the engine of the U.S. economy. And for individuals in low-wealth communities, owning a small business can be more than just a form of employment: it is a way to build wealth that accrues in families and communities, helping to reduce entrenched inequity. The biggest obstacle to small business growth and sustainability is access to capital. While community banks have long been the main source of lending to small businesses, they have been in decline over the past few decades, and community lenders in the South are particularly undercapitalized and don’t make many loans.

 

CIM’s solution is to identify responsible lending partners who use technology to reach a wider array of small businesses that are considered inefficient market segments. CIM has an explicit social impact mission: as part of aiming to create a financially inclusive world, it has a rigorous process for transparency and responsible lending. It vets its lending partners to ensure they are borrower-friendly, adheres to the Small Business Borrowers’ Bill of Rights and Financial Health Network's Compass Principles and funds two to three times more women, people of color and military veteran-owned businesses than traditional financial institutions.

 

Since 2014, CIM’s Enterprise Loan Fund has provided more than $2B in funding for U.S. small businesses through 23 financing partners, diversified across states and industries. While it does not have a specific focus on the South, it has made significant investments in the region as part of trying to reach underserved borrowers. To date, it has served more than 120 businesses in Louisiana.

CIM has an innovative approach to filling the small-business capital gap, which has increased since the financial crisis. Partnering with lenders who leverage technology enables them to reach populations that are largely written off my traditional lenders. CIM individualizes partnership terms with each lender, ensuring incentive alignment. CIM also has positioned itself as a leading voice in defining what transparency and responsibility look like in digital-driven small-business financing. It works with an eye toward building markets, creating access, and not being extractive.

• Geography served: National
• Target population: Entrepreneurs in communities underserved by lenders, with a focus on women, people of color and veterans
• Sector: Financial services
• Asset class: Credit
• Basic fund/enterprise structure: Loan fund

For the W.K. Kellogg Foundation’s (WKKF) team, CIM’s Enterprise Loan Fund presented both intriguing opportunities and potential risks. On the opportunity side, from the foundation’s decades of work in New Orleans, it had identified lack of access to financial services as a critical need to reducing the racial wealth gap. The WKKF MDI team looked at models from developing markets around the world and saw that many communities had leapfrogged the formal banking sector that was not designed to serve these populations for innovative financial technology that was cheaper, easier and more scalable. Thus, the team believed CIM’s Enterprise Loan was providing a critical innovation and solution for these populations.

 

On the other hand, financial technology is an underregulated sector, meaning there is significant room for exploitation. There was both financial and mission risk: how to ensure that CIM’s services were market-viable and commercial (and therefore scalable and sustainable), but also not extractive to already underserved communities.

 

The Mission Driven Investments team undertook extensive diligence, working closely with CIM to understand how the team approached structuring partnerships, ensuring responsible terms, and tracking its impact. The team noted how deeply CIM sought to understand different populations to assess how financial technology solutions could serve them and ensure accessible terms. At the same time, the team continued to examine its own processes of assigning risk to different communities. The team noted that it is a lack of data about underinvested communities, rather than actual evidence of unreliable returns, which leads to traditional finance to label them as higher risk.

 

Ultimately, the foundation made a $5 million mission-driven investment into the Enterprise Loan Fund. Their post-investment engagement has included supporting CIM through their racial equity journey and learning more about trends and organizations on the ground doing mission-aligned work.

W.K. Kellogg Foundation
One Michigan Avenue East, Battle Creek, MI 49017