Partners, Volume 15, Number 2, 2005

Sustainability and Scale: New Buzzwords or Tools for Survival?

Current economic and political conditions call for new ways of thinking about community development. “Sustainability” and “scale” are crucial concepts in today’s tight funding environment.

As needs outstrip available resources, market forces drive stakeholders to cut costs through structural or functional combinations and greater standardization in order to grow—or merely to survive. The community development industry stands at an important crossroads, and new approaches are essential for its continuing viability. “Sustainability” and “scale” are indeed more than just new buzzwords.

Funding pressures call for greater efficiency
In a world of limited resources, all industries experience pressures to increase productivity through gains in efficiency to remain competitive. Community development is no different, and service providers have always grappled to make the most of their budgets.

But now more than ever, organizations are being forced to look at additional ways to cut expenses, increase productivity, or both in response to funders’ expectations. Funding is becoming so scarce and difficult to obtain that many community organizations may face demise unless they implement major changes.

Some might argue that increased government spending is the solution to sustaining community development. But it’s unrealistic to expect government funding to serve as a cure-all, given current policies and competing priorities. Nor can the collective resources of financial institutions or philanthropy keep pace with growing demands.

The bottom line is that many community development organizations will need to rethink long-range plans as they evaluate program costs and assess their effectiveness. Maximum internal efficiency will become increasingly the starting point in seeking and justifying resources.

Leveraging resources through alliances
Besides striving to maximize efficiency internally, organizations can increase efficiency through leveraging externally. For example, two organizations providing different yet complementary services can combine forces in serving the same community through an alliance or merger. Combining two smaller organizations with the same mission is another form of external leverage. Leveraging can also be achieved through joint ventures or various contract arrangements.

Granted, recommending leverage through alliances is easier said than done. Issues often arise concerning leadership, control, and inevitable staffing cuts in a merged organization. A successful alliance requires that both groups understand and recognize the quantifiable value of a combination—without ever losing sight of clearly defined goals about what’s best for everyone, especially the community being served.

Clear communication that builds trust among all parties is vital, especially among the boards of directors. In addition to evaluating the structural aspects of a merger, risks should be explored thoroughly, including legal matters. Third party professionals can be engaged to provide guidance any step along the way.

Improving marketplace sustainability
In addition to looking at the sustainability of individual organizations, community development must also strive for sustainability through efficient markets. For example, community development efforts that attract market-rate investment stand a greater chance of creating momentum to benefit the entire community over a shorter period of time. This success reduces the need for additional subsidies, allowing funds to flow into other projects. Serving more people with fewer resources further enhances efficiency.

In considering sustainability at the level of individuals and families, it has become apparent that creating affordable homeownership must be complemented by access to mainstream banking products and services. Continuing reliance on expensive, fringe service providers drains precious wealth-building opportunity and threatens personal financial sustainability. At all levels of community building, best practices maximize use of limited resources.

Encouraging more standardization
What do we mean by the term “attaining greater scale” in community development? Although this broad concept can be defined in many ways depending on the context, economies of scale basically result in lower costs per unit, whether one is considering loan transactions, investments, or numbers of customers served. Efficiencies of scale are possible when fixed costs can be contained through standardization, so that an increase in production volume reduces the cost of each item produced.

The push for greater scale comes largely from the marketplace, which seeks consistent and predictable standards to mitigate risk. Standardization creates larger markets by increasing participation through greater understanding, which in turn fosters higher confidence.

Individual organizations can achieve greater efficiencies of scale in small ways such as taking advantage of external service providers. For example, a small or mid-sized nonprofit probably can’t process its own payroll as efficiently as an external payroll firm that has achieved economies of scale through volume.

Achieving greater scale will take significant time, especially since so many nonprofits are small shops. Some organizations still lack Internet access and even computers. But the wheels have been set in motion by market forces that crave efficiency.

Reality check
The inherent issue with the concepts of sustainability and scale is that one size does not fit all. Nonprofits by definition are not designed to make money providing services that the for-profit sector cannot offer. Nor will certain organizations ever be able to merge if geographic constraints or their specialty services do not lend themselves to linkage with other groups. In these cases, the cost of providing services may be deemed preferable to incurring societal cost if the services are not provided. So discussions must remain realistic and keep sight of an organization’s context.

Another reality touchstone is recognizing that changes often take significant time. While an ideal merger could occur in a matter of weeks or months, some processes can take many years or even decades. Again, continued viability should be stressed as the rationale for advancing these concepts.

The role of the Federal Reserve
The Fed’s Community Affairs function promotes effective programs and fair lending to achieve greater economic stability in low- and moderate-income communities, largely through facilitating partnerships, providing information, and offering technical assistance. It is not the role of the Fed to advocate mergers or establish industry standards.

Nevertheless the Federal Reserve Bank of Atlanta’s regional managers stand ready to discuss opportunities for enhancing programs and organizational efficiency to promote stronger communities.

This article was written by Wayne Smith, Community Affairs Director at the Atlanta Fed.

An Informed Discussion: Achieving Sustainability, Scale, and Impact in Community Development Finance.

In April 2005, the Federal Reserve System and the Aspen Institute’s Economic Opportunities Program co-sponsored the first of seven conferences to be held at various Reserve Banks and the Federal Reserve Board of Governors over the next two years.

The conference series is based on a paper by the Aspen Institute’s Economic Opportunities Program. Published by the Chicago Fed’s Consumer and Community Affairs division in December 2004 in its periodical, Profitwise News and Views,1 “New Pathways to Scale for Community Development Finance”2 summarizes 10 case studies, primarily private sector examples, of successful attempts to broaden the impact and market reach of an assortment of products, services, and organizations.

The conference’s goals included the following:
  • Introduction of a new framework for scale and sustainability for the community development finance field;
  • Exploration of new business models and practices with potential for promoting scale and sustainability in the field;
  • Providing a forum in which bankers, community economic development professionals, foundation representatives and other funders, as well as those involved in related public policy areas can share ideas about the future of the CDFI/community development industry;
  • Encouraging future dialogue and action on the industry and industry practices, and developing techniques to measure the impact of new or modi- fied organizational and industry practices.

The record of the conference can be found as a link from the Federal Reserve Bank of Chicago’s public website3 or directly from Please refer to this resource as well as “New Pathways to Scale for Community Development Finance” for comprehensive information on the subject of sustainability and scale.


2By Gregory A. Ratliff and Kirsten S. Moy, with Laura Casoni, Steve Davidson, Cathie Mahon, and Fred Mendez. Funded by The F.B. Heron Foundation, The Fannie Mae Foundation, and the John D. and Catherine T. MacArthur Foundation.




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