Investing in Communities

If we want our communities to be healthy and vibrant, environmentally sustainable, and socially just, we need to close the wealth gap between rich and poor and create economic opportunity for all. This is where community investing comes in – it provides financing for economically disadvantaged people in the US and abroad that are traditionally underserved by financial institutions. Community investors make it possible for local organizations in urban and rural areas to create jobs; provide financial services to low-income individuals; and supply capital for small businesses, affordable housing, and vital community services.

If every socially responsible investor moved 1% of his or her savings and investments into community investing, it would put an additional $10 billion into rebuilding low-income areas across the U.S. and the world by 2005. You can achieve this goal by simply banking with a community development bank or credit union. For more advanced investors, there are community development loan and venture capital funds, pooled community investment portfolios, and mutual funds with community investment components.

A group of black farmers in South Africa. Low-income housing developers in Kentucky. Owners of a small food co-op in Oregon. Though they come from very different places, all of these people have one thing in common – they were deemed “unbankable.”

Too poor, too inexperienced, too high-risk to receive a loan from a traditional financial institution, but with loans from four different community development institutions, they reached their goals.

1% In Community

The Social Investment Forum Foundation and Co-op America have launched a campaign to encourage everyone to put their banking and investment dollars to work strengthening communities that have been left behind. The goal of the 1% in community campaign is to triple the $5 billion already involved in community investing as of 2000. This would move an additional $10 billion into disadvantaged areas across the country and around the world.

Over a three-year term, $15 billion can finance: over 15 million US microenterprises or over 2 million small businesses. Internationally, it could create 55 million microenterprises (calculations by Calvert Foundation).

The number of institutions and professionals that have pledged to devote at least 1 percent of their assets to community investing jumped from 23 to 54 in the first year of the 1% In Community. This means more than $1 billion in assets are earmarked for community investing.
Investors include large institutions – General Board of Pensions of the United Methodist Church, Fannie Mae Foundation and Domini Social Investments – and over 20 professional advisers across the US.

According to the Social Investment Forum’s 2001 Trends Report on Socially Responsible Investing, community investing grew by more than 40 percent between 1999 and 2001. As of mid-2001, assets in community investment vehicles stood at $7.6 billion.

Eco-Investing: Shorebank Pacific
When the People’s Food Co-op in Portland, OR. needed a new building, the members turned to a bank that supports environmental values and community investing for a loan.

Member/ owner Miles Uchida says many traditional banks would have been skeptical of giving a loan to them because they sell organic produce and planned to build a new store that incorporates green building practices. But Shorebank Pacific gave them $388,000 precisely because of this. This FDIC-insured community development bank was created to support projects that combine environmental awareness and economic development.

Since opening in 1997, the bank has supported projects from British Columbia to San Francisco. Its borrowers have used their loans to establish an environmentally focused alternative school, redevelop an historic apartment building, create a green office building, and expand an organic dairy, among others. The bank also has staff who work with potential borrowers to help them further reduce waste and pollution, and conserve natural resources.

About 1100 people from 47 states make the loans possible through their “EcoDeposits,” which are savings accounts, CDs, or IRAs they hold with the bank. “When someone places money with ShoreBank Pacific, those funds are immediately loaned to a small business owner to strengthen a business and bring environmental awareness to it,” says deposit manager Laurie Landeros. Financial returns are similar to traditional banks.

Beyond U.S. Borders: Shared Interest’s Community Development Fund
In South Africa, a US-based community development fund provided the loan guarantee for 16 black women to start a commercial farming project. In post- apartheid S. Africa, credit is still very hard to come by for the majority of black people. The women had little farming experience and barely any resources. The land they had been allotted by the government was barren, arid and prone to both long droughts and sudden floods.

They were turned away by bank after bank. Through sheer persistence, they found a local community development institution called the Bushbuckridge Local Business Service Center (BLBSC) that was willling to help them. To secure a commercial bank loan on their behalf, BLBSC turned to an international guarantee fund established by Shared Interest, a US-based nonprofit social investment fund designed to help low-wealth South Africans access credit.

Investors can earn up to 2% interest on a five-year investment in Shared Interest’s fund, and the money is used to help build small businesses, microenterprises, community facilities and affordable housing in the country.

Shared Interest helped BLBSC get a $709,000 loan for the women, which enabled them to launch the New Forest Vegetable Project. The project quickly became successful. In their first harvest, the women grew 175 tons of top-grade tomatoes using a technique called “shade-cloth” farming. Greenhouses – each half the size of a soccer field – are covered by sturdy plastic nets on tall wooden poles, protecting the crops from strong winds and abrupt changes in weather.

Today, each woman owns her own greenhouse employs four other women – 80 women in total are employed by the project. They grow tomatoes and peppers which are sold throughout the country via a farming network.

Most people in the U.S. don’t realize that their money can have such a significant effect on an international level through community investing. Shared Interest started in 1994 and today manages about $6.2 million from 140 individual and institutional investors.

Donna Katzin, executive director of Shared Interest, says community investing practices are changing the way banks do business. The success of the women’s farming project, for example, is encouraging more commercial banks there to lend to the country’s newest borrowers and businesses.

Though the fund is not insured and is consequently considered a somewhat high risk investment, Katzin says Shared Interest has repaid every loan. “The bottom line is that no lender has lost a penny of principal or interest as a result of a loan to Shared Interest.”

The women farmers have met all their loan payment
s and are now discussing whether to restructure as a cooperative. Katzin says the transformation the women have effected in their lives and in their community is incredible, particularly since they managed it in less than three years!

So, How Do You Get Involved?

How to Invest Your 1% In Communities

1. Commit to at least 1% in community.
2. Shift your bank accounts
3. Explore options beyond bank accounts
4. Educate Your Financial Planner
5. Spread the word

When you put your money in a bank, it doesn’t just sit there waiting for you to take it out. Banks make money by loaning and investing your money, and seldom do they ask you what projects you want your funds to support. Your conventional checking account could be financing construction of a natural gas pipeline in the rainforest. They could be loaned to a company embroiled in sweatshop labor in China. Your CD might support construction of a big box store in your home town, forcing small locally owned businesses to close.

You can open a checking, savings, money market or CD account at a community development bank or credit union. They operate on the theory that ownership allows people – particularly minorities, women, low-income families and rural residents – to improve their economic positions. They may specialize in supporting affordable housing in New York City, financing locally owned businesses in rural Arkansas, or providing credit and financial services to Native Americans in the Southwest.

They may even fund community organizations in low-income areas to support social change. In 1994, 15 unemployed women were living in subsidized housing rehabilitated by Shorebank in inner city Chicago. With the bank’s help, these women organized a peer support group called Sisters Building Bridges for the residents of their building. Some enrolled in employment programs sponsored by the bank, while others applied for loans to start businesses or attend school. Today, almost all the women are employed full-time.

Community development banks offer competitive interest rates and are federally insured up to $100,000 – just like any other bank. What if you don’t have a bank like this in your neighborhood? In today’s world of electronic banking, distance is not an issue. Co-op America executive director Alisa Gravitz has her bank accounts in a community development bank 1000 miles from her home. She has her paychecks automatically deposited and moves her funds around electronically – over the phone or through an ATM. Many grocery stores offer free check cashing cards, making it easy to get cash remotely. Or get a free checking savings account at a conventional bank that has lots of ATM machines. Keep the minimum required in the account for free use of their ATMs. Write a check from your community bank to the conventional bank once a month to cover your cash needs.


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Excerpted from Investing In Communities, a special issue of Co-op America Quarterly, fall 2002.
Co-op America is a Content Partner.

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