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April 14, 2011
Trends Point Toward a Growing Surge in Community Investing
    by Robert Kropp

The Social Investment Forum identifies a tenfold increase in community investing over ten years, to which continued government funding and frustration with the abusive practices of big banks have contributed.


One of the noteworthy findings of the 2010 Trends Report published last November by the Social Investment Forum (SIF) documents the substantial growth in community investing, which increased by more than 60% from $25.0 billion in 2007 to $41.7 billion in 2010.

Defined by the Trends Report as "the capital investors direct to communities that are underserved by traditional financial services," community investing is most often accomplished through community development financial institutions (CDFIs), which include banks, credit unions, loan funds, and venture capital funds. The investments are typically directed toward housing and small businesses in low-income and other underserved communities.

The efforts of CDFIs have been assisted by monetary awards and the allocation of tax credits from the Community Development Financial Institutions Fund (CDFI Fund) of the US Department of the Treasury. In March of this year, for instance, the CDFI Fund awarded $3.5 billion in New Markets Tax Credits (NMTCs), providing investors with a credit against federal income taxes for investing in Community Development Entities (CDEs).

Given the slash-and-burn approach to budget-cutting thus far demonstrated in the US Congress this year, it was heartening to hear from Fran Teplitz, director of social investing and strategic outreach at Green America, that "Fortunately, the federal government has largely preserved funding for CDFIs in 2011."

As of April 12, it was anticipated that funding for the CDFI Fund would be $227 million in 2011, a $20 million decrease from 2010.

Teplitz spoke yesterday at a news conference in which she and other speakers argued that the trends identified by SIF could lead to a "surge in community investing assets in 2011," according to a press release.

In the news conference, Teplitz identified three trends that could lead to such a surge.

"First, there is an increasing frustration with big banks due to their abusive practices," she said. "The second trend is the increase in the number of institutions now getting involved. According to the Sustainable Endowments Institute, colleges and universities are playing a key role."

In its recently published College Sustainability Report Card, the Institute noted an increase in the number of colleges and universities receiving a grade of A- or better for their endowment activities, to 23 from 12 the previous year.

"The third trend driving community investing is the increase in public awareness of the many benefits of community investing and banking," Teplitz continued. "CDFIs serve clients that big banks often either ignore or exploit, such as lower-income families, nonprofit organizations, mission-motivated entrepreneurs, and inner city and rural small businesses that are committed to their communities and workers."

In its Community Investing Guide, Green America stated, "The global economic crisis has focused public scrutiny on the predatory practices, gross mismanagement, and outright greed of some of the biggest conventional banks and financial institutions. The housing crisis has clearly shown what happens when lenders treat borrowers as a means for leveraging greater corporate profits, providing deceptive and unsound terms and inappropriate products and services."

Meg Voorhes, deputy director and research director of SIF, also spoke at the news conference, and said, "The assets of the four sectors of community investing grew about tenfold in ten years. Major factors in the growth have been the capital they received from the US government, as well as from foundations and other institutional investors."

"In addition, the asset growth of community development banks and credit unions has been fueled in large part by consumer demand," Voorhes continued. "Members of communities previously underserved by traditional banks have been eager to open accounts with these alternative institutions."

Also speaking at the news conference was Cliff Rosenthal, president and CEO of the National Federation of Community Development Credit Unions. According to the Federation, "CDCUs offer an economic lifeline to low-income communities that have been abandoned by commercial banks and targeted by high-priced check cashers and predatory lenders."

"These have been difficult times in many communities," Rosenthal said. "However, we've seen resilience and growth in a majority of our credit unions, even those that are serving low-income and distressed communities. We've seen both internal growth and an increase in the number of institutions flocking to our mission."

"Social investors have provided very important support to CDCUs and other CDFIs," he continued. "They've done this by making direct deposits, at times at market rates and at other times at below market."

Kat Taylor, the founding director of One PacificCoast Bank, a California-based CDFI, said, "Providing fair and transparent transactional and savings services and loan capital for business and job growth in all communities is what all banks should deliver for the privilege of federal deposit insurance."

"Banking that supports people and the planet will be critical in serving the nation as a whole, as well as marginalized communities, in order to move toward reliable prosperity for all," she continued. "We understand that a bank cannot measure success and sustainability by focusing on profits alone, which is why community development financial institutions are so important."

 

 
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