Using data to drive investment and impact September 26, 2019

By Donald Hinkle-Brown, President and CEO of Reinvestment Fund

 

Children’s Playhouse is a high-quality early childhood education facility operating in a low-income community of Philadelphia. A few years back, this minority- and woman-owned small business was ready to expand to a third location. But, like many small businesses in the child care space, it struggled to secure capital from a traditional bank.

This situation is not unique, and it’s at the core of a big, community-wide challenge: how to ensure all children in Philadelphia have access to high-quality education at an early age.

Community investors are central to tackling that challenge – our missions drive us to support early education, our flexible financing allows us to make loans other financial institutions either don’t understand or might consider too ‘risky,’ and our technical assistance programs related to organizational planning and budgeting help ensure borrowers like Children’s Playhouse are set up for success.

But as much as those tools help individual borrowers like Children’s Playhouse, how do we ensure that such loans/interventions are moving the needle on the larger challenge? The answer, in a word, is DATA.

Data is critical to targeting our interventions and to ensuring that we can measure our impact beyond immediate outcomes. Here’s how Reinvestment Fund and our partners used data to figure out that investing in Children’s Playhouse was critical to our larger goal of increasing access to quality early childhood education in Philadelphia.

First, we knew we didn’t have to conduct research to prove yet again what we already know – that children’s experiences before they turn five can make or break their success and happiness in later life. Instead, we conducted a kind of supply-and-demand study – also known as a “gap analysis” – that showed us specifically where there is the greatest need for high-quality early childhood education facilities.

This neighborhood-by-neighborhood analysis – which took into account the quality rating for each facility – provided a roadmap for all stakeholders, including Reinvestment Fund, to take action:

• It is a market study for providers thinking about expanding to focus on communities with the greatest need, usually ones with little or no infrastructure;
• It is also a tool and call to action for community organizers and local stakeholders to advocate with state and local government to focus on high-need communities;
• It is a capacity building blueprint for foundations to build capacity in specific high-need communities to facilitate expansion; and
• It is an underwriting tool for lenders analyzing market demand, key to underwriting projected revenues.

Research can be a catalyst for various interventions that promote and fuel capital absorption in communities of need.

Reinvestment Fund, in partnership with the Public Health Management Corporation (PHMC), then created the Fund for Quality (FFQ) to invest in projects that increase the availability of high-quality childcare in the areas of the city where data shows it is most needed. FFQ provides grants and loans to high-quality providers (based on the Keystone STARS rating system in the state) seeking to expand to an additional location or to increase the size of an existing location.

And that’s where Children’s Playhouse came in. Our data showed that they planned to expand to a third location in a neighborhood where there was demand for 3,200 seats but supply for only 1,500 seats. Furthermore, only 38% of existing slots in that area were of high-quality, making this additional investment doubly essential.

Children’s Playhouse also received technical assistance related to organizational planning and budgeting, along with project management and feasibility assistance for the expansion. The small business owner has been able to see financial growth, strengthen her financial/business practices, and learn how to collect and analyze data that is helpful for business decision-making.

This kind of intervention is another example of the “continuum” approach CDFIs must take to create lasting impact in under-resourced communities (as documented by my friend Joe Neri of the Midwest-based IFF). By pairing capital investments with technical assistance aimed at addressing well-documented issues prevalent across the childcare sector – slim profit margins and low cash reserves – we are finding creative ways to increase the availability and sustainability of high-quality early learning centers.

Children’s Playhouse is not an exceptional case – on the contrary, it represents what many childcare facilities are capable of achieving with the right supports.

FFQ has worked with high-quality early childhood education operators in neighborhoods across Philadelphia to create over 2,200 high-quality early childhood education seats in Philadelphia, primarily for children from low-income families. This concerted effort is one of the many drivers that has resulted in a 35% increase in the supply of high-quality early childhood education seats in Philadelphia since 2014.

The idea of using data to drive effective investments and interventions isn’t new. Within technology and retail companies, data permeates all aspects of operations — information is used to guide everything from shaping user experiences to influencing consumer purchases. At Reinvestment Fund, and in the community development and finance world more generally, data allows us to better understand the landscape above any one transaction and helps ensure that decisions rely on fact rather than instinct, local bias, or politics.

In other words, it facilitates strategic, targeted solutions.

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The purpose of this blog series is to introduce a continuum of activities that CDFIs need to conduct in order for us to better align capital with justice. We know that raising capital alone is not enough to overcome the many barriers that inhibit the flow of capital to lower-income communities.