In our 2020-2024 strategic plan, LIIF committed to shifting the way we do business through a new impact-led lending approach informed by equity-centric decision-making tools.
An “impact-led lending approach” means that our investments in vital community assets like affordable homes, quality early care and education, schools and other facilities will be driven by qualitative and quantitative rubrics to help us predict whether an investment or program drives expanded access, improved outcomes, and power and agency for people of color, with a focus on Black and Latino people and communities. Our goal is to develop tools to align our lending and programmatic work with our racial equity goals.
This work is personal to us. LIIF has spent decades investing nearly $3 billion creating greater access to vital community resources, yet irrefutable economic and social data shows that people of color continue to have less opportunity, wealth and positive social and health outcomes due to systemic obstacles to access and power.
Access to quality education is a key component to building communities of opportunity, equity and well-being. For example, lifetime earnings of high school graduates are $260,000 more than peers who don’t earn a diploma. In 2018, 79% of Black students, 81% of Latino students and 89% of White students graduated on-time.
Many studies also show that Black and Latino students face discrimination and barriers such as higher rates of suspension, less funding in their school systems, higher teacher turnover and less participation in high level courses.
Recognizing the vital role education plays, we developed the Education Impact Tool (EIT). The EIT is a result of a 3-year-long effort that now guides our K-12 school investments and is informing new tools to assess and direct our lending at large.
CDFI Racial Equity Collaborative on Education
In 2018, LIIF partnered with seven other community development financial institutions (CDFIs) to form the CDFI Racial Equity Collaborative on Education. Our goal was to explore ways to align our investments with work being done in K-12 schools to advance racially equitable outcomes for students.
As a first step, the Collaborative partnered with three educational equity consultants – Village of Wisdom, we are (Working to Extend Anti-Racist Education) and Discriminology – to develop a framework for evaluating schools’ institutional commitments to creating equitable learning environments for students of color.
This framework, called the Racial Equity Matrix (REM), defines ten focus areas:
After piloting the REM with existing school borrowers and gathering lessons learned, Collaborative members have adapted and incorporated elements of the framework into their own organizations’ lending practices. At LIIF, we developed the Education Impact Tool that we now use to inform underwriting school loans.
It takes a significant investment of time, training and collaboration among LIIF loan officers, underwriters and asset managers to build fluency in leading genuine racial equity conversations with school administrators and financing partners. So far, conversations with school borrowers have been well received, advanced our collective thinking, and presented opportunities to make connections among schools on similar equity paths.
Our investments have been worthwhile because our potential for impact is significant–both in knowledge sharing among decision makers and dollars out the door to accelerate the deep work already being led by many school leaders.
To date, LIIF has invested nearly $740 million in K-12 schools serving more than 100,000 students, and our work in this space continues to grow. We expect that an ongoing feedback loop will be vital to collecting input and outcomes over multiple years to hone the effectiveness of our tool. We plan to gather qualitative input and quantitative data from schools as we partner with them to support more comprehensive data collection around topics like student discipline, curriculum and hiring and use it to inform future investment decisions.
Education Impact Tool in Practice
Recently, LIIF closed $6.25 million in construction and mini-permanent financing to the Chattanooga Charter School of Excellence (CCSE). The high school will open in 2022 as an extension of the local elementary and middle schools of the same name, which serve primarily serve Black and Latino students and consistently outperform area schools on standardized tests though nearly 100% of students receive free or reduced lunch.
As with all our charter school lending, LIIF spent many months in conversations with school leadership and used school data, equity plans and established goals to inform an equity assessment using the EIT.
CCSE demonstrated standout activities and commitments to many equity focus areas outlined in the tool, including:
- Family Engagement: CCSE hosts active parent organizations, has reduced parent-staff language barriers via bilingual staffing of meetings, and employs a dedicated family engagement coordinator.
- Discipline and Social-Emotional Support: The school rewards good student behavior through a positive behavioral intervention system, hosts annual staff trainings on implicit bias, and provides students with a counselor for talk therapy as a first step after disciplinary issues.
- Culturally Relevant Pedagogy: CCSE aligns its curriculum with students’ needs and experiences via practices like trainings teachers on cultural competency, celebrating Black history and Hispanic heritage throughout the year, teaching from books written by people of color, and incorporating lessons on slavery and racism into the history curriculum.
LIIF and CCSE school leadership have worked together to identify areas of improvement and offer accountability support throughout the loan term. For example, the school is addressing a shortage of teachers of color – particularly Black male math and science teachers – through HBCU partnerships. CCSE also plans to expand data collection efforts to better track school spending and student outcomes within these equity focus areas.
Thanks to financing through the Tennessee and Georgia Charter School Product in partnership with the Tennessee Charter School Center, LIIF’s investment offered flexible terms which allowed the school to serve students and families from a permanent location. The school’s executive director, Marcia Griffin, noted that this financing “enables our K-8 programs to extend its reach towards high quality education in a safe and sustainable environment where it had been at a deficit for many years.”
A Framework for Equitable Lending Beyond Schools
Components of the Education Impact Tool are currently being integrated into a larger framework to guide LIIF’s lending for racial equity in all sectors we work in. Our goal is to create a comprehensive tool that will better align our capital to deliver access, outcomes, and power and agency to people facing the deepest inequities, in particular Black and Latino people and communities.
The process of building a tool that centers racial equity goals has been collaborative, iterative and introduced interesting challenges, as this is new territory for our sector. Some of the challenges we’ve faced and continue to work through include:
- Distilling systemic barriers to racial equity into practical and actionable next steps within our sphere of influence;
- Introducing conversations around race and racism with borrowers and incorporating clear questions into the underwriting and project evaluation process that staff feel empowered to lead;
- Defining and collecting data disaggregated by race, which is more available in some sectors like K-12 schools than housing, which is protected by fair housing laws and;
- Creating space to recognize the long history of our CDFI industry in expanding opportunity while acknowledging our limitations and where we can do better.
As with our education lending tool, LIIF has benefitted significantly from partnerships that offer learnings and feedback on our process for developing a larger framework. Through the Impact Frontiers CDFI Cohort, we’ve tapped into a peer community to learn about approaches to formalizing impact management with a racial equity perspective. This cohort has helped us shape early thinking around balancing impact, risk and return. From our cohort co-leader, Erika Seth Davies (founder of the Racial Equity Asset Lab), we’ve learned about frameworks to assess our borrowers and our own internal business practices.
With insights from external partners like these, a cross-section of LIIF lending staff has been dedicated to shaping the tool that will dictate our theory of change. So far, we have learned and incorporated lessons into our process, including:
- Exploring ways to delegate power and advance community ownership. We are drawing from the Spectrum of Community Engagement to Ownership model (created by Facilitating Power and visualized below) to more clearly define concepts like “community engagement” and “power sharing.” We hope to deepen relationships with borrowers who are inviting those most affected by a development to be at the decision-making table.
- Racial equity must be centered in the external impact and outcomes we hope to achieve as well as internal systems, processes and policies. In other words, we need to support both targeted, transformative outcomes for people and communities of color and organizational progress that reflects racial equity goals. This involves supporting leadership that is representative of communities served, policies that align with our equity goals and business practices that incorporate a racial equity perspective.
This work is ongoing and iterative, and LIIF will share more on its impact-led lending work over the next year. In addition to centering impact, we will continue to balance risk and profitability factors to ensure our business continues to be financially sound and sustainable.