CNote | Why should funders care about CDFI data capacity?

This piece is co-authored by CNote and PCV’s Radiant Data Hub. CNote is a fintech platform that leverages technology and data to streamline the flow of capital, providing investors confidence their capital is deployed efficiently and responsibly, in order to strengthen a financial system that funds underserved communities, having deployed more than $645 million dollars to community financial institutions. Radiant Data Hub (now part of Pacific Community Ventures, which has deployed $75M+ as a CDFI) specializes in data infrastructure and ethical artificial intelligence (AI) solutions for mission-driven organizations, including CDFIs, helping them harness the power of data to scale their impact. Together, we see firsthand how strategic investments in data capacity can transform CDFI operations and outcomes.

When funders invest in community development financial institutions (CDFIs), they’re backing organizations that deploy capital where traditional markets fail. But here’s what many don’t realize: one of the most transformative investments a funder can make today isn’t just more capital—it’s building the data capacity that allows CDFIs to deploy capital more effectively, efficiently, and at a greater scale, while preserving impact and staying mission aligned.

Today, the building blocks of resilient communities are manifold and include healthy small business ecosystems, reliable infrastructure, desirable amenities, affordable housing, and plentiful jobs—all fueled not only by sound governance and financial and social capital, but also by robust data capacity. In many underserved communities, CDFIs work to fill in the gaps where traditional financial markets fail or local fiscal constraints stand in the way of financing the building blocks of resilient communities. For CDFIs, data capacity is then a critical lever for understanding the needs of a community, tailoring the solutions, and amplifying their impact.

Without accurate data systems, CDFIs may struggle to efficiently assess which businesses have the strongest potential for growth and community impact. Without real-time data tools, they can’t quickly identify emerging market opportunities or rapidly respond to community needs. Without sophisticated data analytics, it’s nearly impossible to optimize loan products, streamline operations, predict outcomes, or demonstrate the precise impact that funders seek to achieve.

It may seem like data is a back-office concern compared to direct lending. And yet, for CDFIs serving underbanked communities, data capacity is what separates organizations that can scale their impact from those that remain constrained by manual processes and limited data capabilities.

Data is the operational backbone that enables CDFIs to maximize every dollar of funding they receive, towards community impact. CDFIs can certainly lend to small businesses using sparse or outdated data, but they often can’t do it efficiently, effectively, or at scale, and haven’t historically been supported to do so. Much like physical infrastructure, such as bridges and roads enabling economic development, robust data infrastructure allows more CDFIs to move from small-scale, resource-intensive operations to efficient, scalable impact that can serve more clients while delivering the measurable outcomes that today’s funders require.

According to a 2023 survey conducted by the Federal Reserve, 77% of CDFIs recognize they need to expand their data capabilities to better serve their missions. More than half cited a lack of human resources (whether time or know-how) as the biggest barrier, while a third cited technology barriers.

CDFI leaders understand that data systems and technology are just as critical to scaling their operations as additional capital. “Data capacity [is] a strategic necessity for CDFIs. When we’re serving small businesses in emerging market communities, timing and context matter. Yet we often find ourselves stuck … we’re manually wrangling spreadsheets and siloed systems … by the time dashboards are built, the insights are stale,” said Ron Brooks, President of River City Capital in Memphis, TN.

Brooks’ remarks echo those of CDFI leaders across the country, whose combined activities cover $304 billion in loans, primarily in underserved communities. To scale this impact while maintaining accountability to underserved communities, CDFIs need access to real-time records, automation, and sophisticated analytics—tools that enable them to quickly assess opportunities, monitor portfolio performance, and measure community outcomes with the granularity that funders increasingly expect.

What can good data capacity deliver for funders?

If funders and impact investors would like to amplify their impact and reach more underserved entrepreneurs and communities, their investments into CDFIs should focus on how to build the technological capacity of these financial first responders. When funders invest in CDFI data capacity and automated solutions, they are investing in operational excellence that multiplies the impact of every dollar deployed:

The aggregate impact of these improvements is more informed decision-making, significant cost savings, freed-up staff capacity, and the ability to convert those operational gains into additional capital deployed to mission-aligned clients. For funders, this translates directly into more efficient use of their investment dollars, clearer impact measurement, and CDFIs that can scale their work without losing their important focus on underserved communities.

As more affordable, transparent capital bolstered by technology reaches underserved communities, funders can both grow their impact, and help grow the economy. Research shows, time and again, that closing finance gaps and removing other barriers to economic opportunity for underserved communities is a powerful tool for boosting the U.S. competitiveness and economic growth. For example, the Kellogg Foundation estimates this potential gain at additional $8 trillion to the U.S. economy.

How can funders strategically support CDFI data capacity?

Simply earmarking funding for technology purchases—though a solid start—won’t achieve these outcomes. Here’s why a more strategic approach is needed:

The solution: Strategic data capacity investment

Promising models that funders can support and scale are already emerging. Forward-thinking funders are providing unrestricted funding specifically earmarked for technology and data capacity, recognizing these investments as essential infrastructure rather than overhead. This flexible funding allows CDFIs to invest in the systems they need, rather than being constrained by narrow program requirements.

Another effective approach is building shared services for technical leadership. Rather than expecting each CDFI to hire expensive in-house CTOs or CIOs, funders are supporting fractional and shared services models that give multiple organizations access to high-level technical expertise. This approach dramatically reduces costs while ensuring CDFIs get guidance from professionals who understand both technology and mission-driven finance.

The rapid advancement in AI tools presents particular opportunities for CDFIs, who often possess rich qualitative datasets—client feedback, community assessments, impact stories—that remain largely untapped because they lack the capacity to structure and analyze unstructured information. While still requiring ethical human oversight, AI can help CDFIs extract faster insights from these valuable but messy datasets, turning operational friction into competitive advantage.

Perhaps most promising is the emergence of CDFI-specific solutions and expertise that understand the unique challenges of mission-driven lending:

Funders can maximize their impact by supporting these proven approaches: providing flexible technology funding, investing in shared technical services, enabling AI adoption for unstructured data analysis, and backing the specialized solutions emerging within the CDFI ecosystem.

This isn’t just about better reporting for funders, though that’s certainly a benefit. It’s about enabling CDFIs to work at the speed, scale, and precision that today’s community challenges demand, while maintaining the accountability and targeting that makes their work so valuable. When funders invest strategically in data capacity, they’re investing in the operational foundation that allows every other dollar to work harder and achieve greater impact, across every community in this country.