CARS™, the CDFI Assessment and Ratings System, is the only comprehensive, third-party assessment of a CDFI’s impact performance and financial strength and performance. CARS™ helps investors confidently assess CDFIs that match their social objectives and risk parameters.

A CARS™ assessment includes past performance, current financial position, and risk factors in the future. Ratings are based on five years of historical performance.

CARS™ analyses are conducted by experienced professionals who are experts in underwriting CDFIs. Rating assessments are based on an on-site examination including:

• A comprehensive analysis of financial and programmatic information
• An extensive review of loan files and risk management systems
• In-depth interviews with management and board members

CARS™ rates loan funds (nonbank CDFIs) that invest in communities and create opportunities for low-income and low-wealth people. CARS™-rated CDFIs provide financing and mission-driven services that support:

• Affordable housing
• Small and environmentally sustainable businesses
• Microenterprises
• Community facilities
• Cooperatives

Leading CDFI loan funds from across the U.S. have been rated by CARS™ including large, complex institutions as well as small loan funds with a regional focus.

Impact Performance rating reflects how well the CDFI is achieving its social mission. This rating is based on an assessment of the CDFI’s effective use of its financial resources to achieve its stated mission and the CDFI’s own evidence of how its activities contribute to its mission. It is not an assessment of the impact that the CDFI is having. The impact performance analysis also recognizes commitment to and leadership in the area of policy change by awarding some CDFIs the “Policy Plus.”

Financial Strength and Performance rating is an assessment of the CDFI’s overall creditworthiness. This rating is based on an analysis of past financial performance, current financial strength, and apparent risk factors. The methodology is based on the CAMEL analysis used by regulators to rate banks. CAMEL stands for capital (or capitalization), asset quality, management (including strategy, governance, management and staff, and infrastructure and management information systems), earnings, and liquidity.

Additional detail on the metrics and criteria CARS™ uses is described in CARS™ on the Road.

The CARS™ rating process relies on an exhaustive review of relevant documents describing the CDFI’s operations and impact, a thorough financial analysis, in-depth interviews with the CDFI’s management team and board of directors, and on-site inspection of the CDFI’s loan files. A two- to three-day site visit is a critical part of the rating process.

The CDFI reviews the draft CARS™ analysis and submits factual corrections. The CARS™ analysts review the proposed corrections and, if appropriate, incorporate them into the final report. Once the report is finalized, the CDFI may submit a one-page written response that is included in the Ratings Report.

CARS™ ratings are determined by a committee of independent analysts that applies an internal scoring system to defined ratings criteria. The scoring system ensures consistency in the committee’s analysis of different CDFIs by different analysts. The final rating is determined by how well the CDFI meets the specific rating descriptions. (see Ratings Scale)

The entire process can take four to five months. For a detailed explanation of CARS™ methodology and ratings process, see CARS™ on the Road.

The ratings scale is rigorous by design with mid-scale ratings indicating sound performance. Only CDFIs that demonstrate exceptional and consistent performance in all of the assessment categories earn the highest ratings.

CARS™ ratings are not based on a normative curve. Given the unique mission and operating environment in which a CDFI works, it is not rated in comparison to other CDFIs. Instead each institution is rated based on how it compares with the following ratings descriptions.

Impact Performance

Rating	Description
AAA	A CDFI in this group has clear alignment of mission, strategies, activities, and data that guides its programs and planning. The CDFI presents data that clearly indicate that it is using its resources effectively to achieve positive impacts related to its mission. It has processes and systems that track output and outcome data on an ongoing basis, and it can provide data showing positive changes in the communities or populations being served. This CDFI uses its data on an ongoing basis to adjust strategies and activities in line with its desired impact.
AA	A CDFI in this group has clear alignment of mission, strategies, activities, and data that guides its programs and planning. It accurately tracks appropriate output data that indicate that it is using its resources effectively to benefit its target populations or communities in line with its mission. The CDFI uses its data on an ongoing basis to adjust strategies and activities in accordance with its desired impact. It may track a limited number of impact indicators as well, but impact data tracking may not be rigorous or consistent.
A	A CDFI in this group has reasonable strategies and activities given its mission. It tracks basic output data that indicate fairly effective use of its resources to benefit its target populations or communities in line with its mission.
B	A CDFI in this group may lack alignment of its mission, strategies, activities, and data. Either the CDFI lacks data to form an opinion of its outputs and impacts or the data show that the outputs and impacts are unsatisfactory. This CDFI may also have a history of not using its financial resources fully to serve its target populations or communities.

Policy Plus (indicated by a “+”)

Policy change is an integral part of this CDFI’s strategies. The CDFI leads initiatives to change government policy to benefit the community development finance industry or disadvantaged people and communities. The CDFI can provide evidence of its leadership role in recent policy changes that produced benefits beyond additional resources for the CDFI itself, and management can clearly articulate the CDFI’s leadership role in current policy activities.

Financial Strength and Performance

	Rating	Description
	1	A CDFI in this group is sound in every respect. It exhibits exceptional financial strength, performance, and risk management practices. Any weaknesses are minor and can be handled in a routine manner by the board of directors and management. This CDFI is resilient to significant changes in its operating environment. It generally has a score of 1 or 2 in all five of the FSP areas.
	2	A CDFI in this group is fundamentally sound. It exhibits solid financial strength, performance, and risk management practices relative to its size, complexity, and risk profile. Challenges are well within the board of directors’ and management’s capabilities and willingness to strengthen. The CDFI is stable and is capable of withstanding fluctuations in its operating environment. Generally, most FSP scores for this CDFI are 2 or better, although it may have received a 3.
	3	The current financial strength and recent performance of this CDFI is satisfactory. It exhibits satisfactory financial strength, performance, and risk management practices relative to its current situation. It is stable but less capable of withstanding fluctuations in its operating environment than a CDFI rated 1 or 2. Generally, most FSP scores for this CDFI are 2 and 3, although the CDFI may have received a 4.
	4	A CDFI in this group is facing challenges that compromise its financial strength and performance. It exhibits weaknesses in one or more areas that could compromise its financial situation in the short term, even in a stable operating environment. The CDFI exhibits somewhat weak financial strength, performance, or risk management practices relative to its current situation. Generally, most FSP scores for this CDFI are 4 or better, although it may have received a 5.
	5	A CDFI in this group exhibits significant weaknesses in several areas that compromise its current and long-term financial viability. Although the CDFI may be able to sustain operations for a period of time, its financial stability is extremely sensitive to any fluctuation in its operating environment. Generally, this CDFI received FSP scores of 4 and 5, although it may have received higher scores in one or more categories.

The best possible rating that a CDFI could receive is AAA+1. Other possibilities include A2, AA+3, and so on.

CARS™ analysts are highly sought-after development finance experts and underwriters who have decades of hands-on experience in community development lending, banking, and related fields. Located in offices throughout the United States, they are experts in underwriting CDFIs and community investments.

Analysts work in teams of two to assess each CDFI. We carefully match the experience and expertise of the team to the unique characteristics and complexities of the CDFI.

CARS™ Ratings Reports help investors make better informed investment decisions and conduct prudent monitoring of leading CDFIs. Each report includes the full rating, the ratings description, summary data, and analyst opinions supported by a comprehensive, 50-60 page narrative discussion. Dozens of informative tables, charts, and graphs make it easy for investors to find the critical data they need to assess a CDFI’s impact performance and credit worthiness.

CARS™ reports include a standard set of graphs that help investors quickly identify historical performance trends for a CDFI over a five-year period including changes in capital structure, resource deployment, asset and portfolio composition, earned income, and expenses.

Data tables provide a summary of critical information as well as ratio analyses of standard performance metrics. CARS™ reports make it easy for investors to focus on the information and data they need to conduct thorough due diligence.