Community investing is the least well-known aspect of social investing. It is through community investing that individual investors can have the greatest social impact by playing a direct role in addressing urban decay, rural poverty, and other issues facing our communities. There are four primary sectors of development that community investing supports: Affordable Housing, Microenterprise, Small Business, and Community Development. Small Business Development lending is more traditionally structured and for larger amounts than microenterprise loans. Community Development lending supports non-profits or small businesses that are working directly with disadvantaged populations and communities to develop enterprises that provide core social resources, such as health services and daycare centers.
Community investing typically only requires $1000 minimum commitment that can be made through a standard checking account, certificate of deposit (CD), or promissory note. Funds pass through a Community Development Financial Institution (CDFI) into the hands of those who otherwise would not be eligible for loans or have access to capital. Borrowers appreciate below market interest rates between 0 and 5 percent.
There are four types of CDFI's: Community Development Credit Unions, Community Development Loan Funds, Community Development Corporations, and Microfinance institutions.
Community Development Credit Unions (CDCU's) are non-profit regulated and insured entities serving their members in low-income communities. Self-Help Credit Union in North Carolina is the largest of the 200 CDCU's in the United States and has $425 million in assets.
Community Development Loan Funds (CDLF's) are non-profit, unregulated, and uninsured entities. CDLF's such as the Environmental Support Center administer loan funds for community development and various lending activities, including the environment, housing, small business, and non-profit facilities funding. CDLF's are able to make loans that banks and credit unions would typically not make.
Community Development Corporations (CDC's) are non-profit, unregulated and uninsured, primarily involved in housing, neighborhood revitalization and community development. They may also have community loan funds within their programs. Today, there are more than 2000 community development corporations, which are simply community owned CDFI's. Community Development Banks can take the form of for-profit entities or credit unions.
Microfinance Institutions (MFI's) are non-profit microloan institutions that are also unregulated and uninsured. Although microlending has gained most recognition internationally, there are a growing number of programs in the United States. MFI's often target some of the poorest of the poor, and may employ the peer-lending model.
In addition to financial assistance for small business ventures, borrowers typically receive technical assistance and business training. These supportive programs help to ensure success of the venture and prevent loan loss. More than $700 million has been loaned to date through community investment programs with a repayment rate of 99 percent. Loan loss reserves and shared loss arrangements where investors collectively share responsibility for any loss are other security measures put into place.
Top 10 Largest Community Development Finance
Institutions (CDFI) by Total Assets
Chart information provided by the Calvert Foundation.
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