Financial Advisor Magazine: CARS™ – A Go-To Place for Advisors to Evaluate Nonprofit Loan Funds

Financial Advisor Magazine recently published a story on CARS™ (the CDFI Assessment Rating System), which was founded in 2004 by Opportunity Finance Network and launched as a stand-alone organization in 2012.

Ellie Winninghoff writes, “Local wind-farms that finance services for low-income people. Microfinance for Native Americans. Conservation easements that protect working waterfronts and the lobster industry in Maine. These are the types of activities financed by community development finance institutions, or CDFIs, most of which are revolving loan funds that serve minorities and low-income people. But while there is huge interest in them by impact investors, it can be baffling to analyze a nonprofit and understand the risk of investing in one.

Fortunately, there is a way. CARS (the CDFI Assessment Rating System) is the go-to rating service for these loan funds, most of which are nonprofit. It also performs deep dive due diligence with respect to finances and how well a loan fund is achieving its own specific mission. Unlike conventional rating firms like Moody’s or S&P, CARS rates an entire institution rather than individual loans. And its research, which averages 120 hours per CDFI, is primarily financed by investor/subscribers.

‘The heavy lifting is done by CARS,’ says Randy Rice, community impact investments portfolio manager at Boston-based Trillium Asset Management… Rice points out that the purpose of the CARS exercise is transparency, and not to force CDFIs to write off loans… ‘If they have a lending profile that’s the same as their local community bank, why bother?’ he says. ‘We would rather see a loan fund work with its borrowers to restructure a loan if they can keep it performing rather than write it off. It’s better financially, and it’s part of the mission. But at the same time, we want the loan fund to measure it and manage it.’”

The entire article can be read here.