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When a charitable donor wants to do “due diligence” on a potential grantee, there are a number of sources for researching potential recipients. Guidestar provides access to some basic information, largely drawn from grantees’ IRS Form 990 submissions. Rating services such as Charity Navigator, the American Institute of Philanthropy (AIP), and the Better Business Bureau Wise Giving Alliance evaluate and grade thousands of nonprofits based on a few standardized measures of organizational efficiency. There has been much criticism of the charitable rating services, though sometimes the findings and observations can be very useful in explaining some financial aspects of troubled nonprofits. All are trying to reduce their reliance on financial indicators and find measures that reflect more about the organizations’ accomplishments, impacts, and outcomes. What about someone interested in investing in community development financial institutions (CDFIs)?

CDFIs, the vast majority of which are nonprofits, provide financial services—lending and investment—in low income neighborhoods. Typically, most people know of them as community development banks or community development loan funds that lend for affordable housing and economic development, taking higher-risk projects that commercial lenders typically eschew. Among the better known CDFIs are Boston Community Capital, Enterprise Corporation of the Delta in Jackson, Miss., the Federation of Appalachian Housing Enterprises in Berea, Ky., IFF (which used to be known as the Illinois Facilities Fund), the Reinvestment Fund in Philadelphia, and Southern Bancorp in Arkadelphia, Ark. Some 860 CDFIs around the nation have been certified at one time or another by the U.S. Department of the Treasury for funding through its CDFI Fund.