April 15, 2005
CARS Hits the Road: First Seven Community Development Financial Institutions Rated
by William Baue
The National Community Capital Association CDFI Assessment and Rating System has another 11 ratings
in the works, and expects to by fully operational by 2007.
One driver of investment is objective, third-party ratings, for example bond ratings issued by Standard & Poor's, Moody's, and Fitch. Investors interested in community investing now
have a new tool to help them assess community development financial institutions (CDFIs). This
week, the National Community Capital Association (NCCA) announced the first seven CDFIs to be rated by
the CDFI Assessment and Rating System (CARS).
received the stamp of approval from one of the most prominent and significant economists in the
country, Federal Reserve Board Chair
While still in its early stages, CARS represents "a critical step in
advancing understanding of the community economic development finance field and in designing
policies and practices that can improve economic opportunity for low-income families and
neighborhoods," Mr. Greenspan said in a recent speech on community development.
CDFIs rated include the Austin Community
Development Corporation, the Florida Community
Loan Fund, the Low Income Investment
Fund, the Montana Community Development
Corporation, the New Hampshire Community Loan
Fund, the Northern Economic
Initiatives Corporation, and the Rural Community
Assistance Corporation. There are currently 11 more CDFIs being rated, including Boston Community Capital, Coastal Enterprises Inc., the Reinvestment Fund, and the Unitarian Universalist Affordable Housing Corporation. NCCA
expects to release a total of 20 ratings by the end of 2005.
system consists of two primary quantitative components. The Financial Strength and Performance
rating (on a scale of 1 to 5) analyzes CDFIs' creditworthiness by looking at past financial
performance, current financial strength, and potential risk factors. It does so utilizing a CAMEL
(Capital, Assets, Management, Earnings, Liquidity) analysis. In this way, it resembles traditional
bond rating schemes.
CARS also consists of the Impact Performance rating (on a scale of
AAA, AA, A, and B) assesses social returns, evaluating how effectively CDFIs achieve their stated
missions. Additionally, CARS includes a 15 to 20 page narrative analysis, which comprises a peer
comparison that results from a site visit that includes interviewing management and reviewing
documents and files.
"As an investor, Wachovia thinks CARS ratings will help rationalize
capital-raising among CDFIs," said Catherine Dolan, senior vice president and managing director of
community development finance at Wachovia, a
CARS subscriber. Ms. Dolan also serves on the CARS Advisory Board. "We will certainly look for
the CARS analysis for any individual borrower and plan to include it in our assessment, just as we
use ratings from mainstream rating agencies like Moody's, Standard & Poor's, and Fitch in our
market rate businesses."
CARS is available for individual purchase at $2,500, a three-pack
over a 24-month period for $5,000, or an annual subscription to access all ratings for $15,000.
Thirteen major investors have already subscribed to CARS, including the Calvert Foundation, Fannie Mae Foundation, the Ford Foundation, Trillium Asset Management, Washington Mutual, and the FB Heron Foundation.
NCCA plans to conduct 10 to 15
more CARS ratings in 2006 as part of a three-year soft launch before becoming fully operational in
"This new rating system will be instrumental in paving the way for new investors who
are looking for a solid financial yield and a high social impact yield," said Mark Pinsky,
president of NCCA.