Beyond Banking: Community Investing How To's

Community Investing Gp
Community Investing Pioneers
Newark. Detroit. Watts. Race riots shook the foundation of America’s urban core during the 1960s. But out of these cities of broken windows and crumbling buildings arose a new economic movement, dedicated to rebuilding and supporting our nation’s impoverished communities. The ’60s and ’70s saw the birth and growth of community investing, stemming largely from the efforts of a variety of religious groups and coalitions.

“There were race riots across the country throughout the 1960s,” explains Sister Corrine Florek, a member of the order of Adrian Dominican Sisters
. “This led to concern among religious groups about racist policies and how they kept people poor. We began realizing there was a need for social justice beyond charity.”

The Sisters were spurred on by the passage of the Community Reinvestment Act, a 1977 law that established an obligation for federally insured banks to help meet the credit needs of their entire communities, including low-income areas. This law shifted our nation’s investment focus toward community development, and the Sisters began offering “alternative investments” in 1978, long before the development of most modern instruments of community investing.

“In those days, you didn’t have community loan funds, you didn’t have community development credit unions and banks,” adds Florek. “We basically just tried to get a hold of community groups and ask them if they could use a loan.”

Breaking from the standard practice of supporting community development solely through grants, a group of fewer that 10 nuns began loaning their retirement money and other assets to community development projects. They charged minimal interest with no assurance they would receive their full return.

“It was a total risk. Collateral was not a word in our vocabulary,” Florek recalls. “We just had a promissory note that said the amount loaned and the date that it would be due. We learned by doing.”

The Sisters began by issuing loans between $5000 – $10,000. Recipients generally couldn’t qualify for or afford a loan from a traditional financial institution. 100% of those early lendees paid them back, with interest. Today, two hundred loans later, their loans average $35,000 and their loan fund stands at $3 million!

When the Sisters began investing, religious congregations that were involved in community investing operated their loan funds independently of each other. In the mid-80s, the Interfaith Center on Corporate Responsibility (ICCR) connected a wide range of congregations through the Clearinghouse on Alternative Investment, a network that encourages community investment in low income and minority communities around the world.

Frequently Asked Questions

How can I get involved today?
You can achieve the 1% or more goal just by doing your banking with a community development bank or credit union. Instead of channeling your money to large corporations, the military, or the fossil fuel economy, for example, these institutions focus on funding economic development in low- and moderate- income areas.

What other options are available?
Community investment funds.
These are generally long term investments (one to five years), offer market or below-market returns (0-4%), and are not insured. These vehicles have the highest impact of all the options because investor money is tied up for a longer period of time and the money can reach the highest risk borrowers who need it the most.

* Community Development Loan Funds (CDLFs) provide affordable financing for housing and economic development projects, cooperatives, and community- based nonprofits. These loan funds are not insured, although they use grants and loss reserves to help protect investors. Most CDLFs have a minimum investment requirement, which averages around $1000. Investors generally receive interest payments quarterly or annually; once the allotted time is up, the CDLF repays your money. Most set a minimum loan period of at least one year. If you can’t afford the minimum, most CDLFs accept charitable donations in any amount and your donation may be tax deductible.

* Microenterprise Loan Funds provide small loans and training to entrepreneurs in the US and overseas.

* Community Development Venture Capital Funds (CDVCs) provide loans to businesses that create jobs in low-income communities. Like traditional venture capital funds, CDVC funds invest in companies with strong management, impressive growth potential, and the prospect of high financial returns. Unlike traditional funds, they also consider the number and quality of jobs that will be created and the business’s impact on the community. CDVC funds also provide extensive management assistance. They may sit on a company’s board of directors, help win contracts, assist in designing budgets, and help line up more financing. Minimum investments range from $50,000-$500,000 and typically run for 10 years. Loans to nonprofit CDVCs may have lower minimums. The CDVC industry is young and funds typically haven’t completed full investment cycles, so there no definitive statistics on returns. More mature funds indicate they expect returns in the 8-12% range.

* Pooled Investment Portfolios are a great option if you want to diversify your community investments. You invest through one facility, which spreads the money out within a pool of institutions that serve many low-income areas in a variety of ways. By purchasing a Community Investment Note through the Calvert Foundation, for example, you can even specify a geographic region or international program for your money.

* Mutual Funds. Some SRI funds devote up to 10% of their assets to community investing, and two even put 100% of their assets into underserved communities.

Every investor should have a diversified portfolio to minimize risk and achieve a variety of investment objectives. Community investing can be a healthy part of a diversified portfolio.

Why not just give the money to charity?
Community investments can have a much higher impact.

Charitable Giving Community Investing
When you make a $20 donation: When you invest $1000 in a community investment at 3%:
You give $20 Your interest earnings are reduced by $20, compared to a 5% Treasury Bill investment
And only $20 goes to help The entire $1000 goes to work to help


Community investing also enables people to use their skills and talents to lift themselves up economically – the money provides loans to start environmentally sustainable businesses, builds schools or funds important services like affordable child care.

Spreading the Wea
lth: Calvert Pooled CI Notes

Since 1987, the Wainwright Bank & Trust Company of Boston, MA., has lent over $113 million to build homeless shelters, affordable housing, HIV/AIDS services, and health centers. One such loan built the Sheila Daniels House, a home for low-income families with at least one member with HIV/AIDS. Across the globe in southern India, Opportunity International, a microcredit lender, loaned a woman in India $111 to buy a milk cow. Both these lenders receive investments from Calvert Foundation.

The Calvert Foundation, a nonprofit established in 1995, was designed to connect individual and institutional investors with community banks and funds. Why is this necessary? Small lenders often lack the resources to provide investment options for those who aren’t able to invest large blocks of capital.

“Individual investor programs can be costly to manage for small community banks and lenders,” says Isabelle Moses of Calvert Community Investments. “We work as an intermediary, making it possible for people to invest in community development across the country and around the world.”

Currently, 1500 individuals and institutions have put over $38 million into the program. You can start with as little as $1000, which is pooled and invested in over 170 community investing institutions. You can have a say in where your money goes. Investors choose between geographic regions and sectors: housing, microlending, small business, or community development. Investors choose a fixed rate of return, between 1-3%, and the term: one, three or five years.

You can see the impact of your investments by using the “social return” calculator on Calvert Foundation’s website. For example, it shows that a one-year, $1000 investment could build or improve 14 homes in Africa.

www.calvertfoundation.org


Spread the Word!

1. Find community investment options that work for your institution’s geographic area.
For example, students at Williams College in Williamstown, MA., persuaded their school to offer a social investment option as part of its endowment. Now alumni have the option of giving to the Social Choice Fund, which is invested in Calvert’s Social Investment Balanced Fund. When the Fund reaches $10,000, the school will invest 10% of its holdings in a community development loan fund that supports the Berkshire region surrounding the college. This made the investment much more attractive to the school’s financial personnel.

2. Match community investing with your institution’s mission. The congregation at the East Liberty Presbyterian Church in Pittsburgh, PA., wanted to extend their justice million beyond the local community. They invested in Oikocredit, an international development organization that provides loans to community-owned businesses in developing countries, helping thousands of people escape poverty and become self-reliant.

3. Bring in the experts. Encourage your institution to see advice from community investment professionals on the appropriate options.

4. Take the leap and invest.

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Community Invest.org:
see the streaming video!
Social Investment Forum: database of professionals, banks, funds

Association for Enterprise Opportunity
National Community Capital Association

Community Development Venture Capital Alliance

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

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