July 04, 2012
Community Investment Options Increase but Barriers Remain
by Robert Kropp
A report from US SIF details an increasing number of community investment options, but low
awareness, perceptions of low returns and high risk, and increased regulatory scrutiny remain as
barriers to a wider uptake of the practice.
Community investment, defined in 2010 by US SIF: The
Forum for Sustainable and Responsible Investment as "capital investors direct to communities
and individuals that are underserved by traditional financial services," has long been a pillar of
sustainable investing. In its 2010 Trends Report, US SIF found that community investment in the US
totaled almost $42 billion by the end of 2009, a 60% increase over a three-year period.
authored by Rosalie Sheehy Cates and published by US SIF last week, adopts a more granular approach
to community investment. While the report describes some of the challenges investors still face in
having their assets improve livelihoods in low- and middle-class communities, it also surveys an
increasing number of options available to investors who want to engage in the practice.
The simplest form of community investment remains the depositing of funds in community
development financial institutions (CDFIs), which are banks or credit unions with branches in the
communities in which the funds are invested. "CDFI banks play a critical role in assisting small
business owners grow their businesses and helping new investors develop new economies in
underserved markets," a recent report by the National Community Investment Fund (NCIF) stated.
NCIF also found that in 2011, the total assets of the 88 certified CDFIs included in its report
increased by 16.3%.
The US SIF report quotes NCIF Chief Executive Saurabh Narain as
stating that growing distrust of Wall Street has motivated the transfer of cash into local,
mission-oriented banks and credit unions.
At last year's SRI in the Rockies conference,
Donna Gambrell, Director of the US Treasury's CDFI Fund, outlined the considerable accomplishments of
"In 2010 alone, CDFI awardees reported originating loans or investments
totaling more than $1 billion," Gambrell said. "CDFIs financed almost 18,000 affordable housing
units, and more than 5,200 business and microenterprise loans. CDFI Program awardees in 2010 helped
provide financing that created or maintained over 25,000 jobs and leveraged $1.5 billion in private
The report also describes a number of additional investment options available
to both accredited investors and institutions. These options include fixed income products,
alternative investments, and one public equity product: the US Community Investing Index Strategy, developed in 2009 by
State Street Global Advisors and the F.B. Heron Foundation.
The report points out that
since 2001, a critically important role in the growth of community investment has been played by
the Calvert Foundation. Through its
Community Investment Note, the Foundation "manages more than $200 million raised from thousands of
caring investors who want to lift people out of poverty while earning a financial return on their
The report further notes that the growth of the Foundation has been helped in
part by its relationship with MicroPlace, an online portal that allows
retail investors to invest in microfinance projects by means of investments that can be as little
Earlier this year, the Calvert Foundation announced that a $1 million grant from
the Citi Foundation supported its launch of the Women Investing in Women Initiative (WIN-WIN). The
initiative seeks to raise $20 million for loans to organizations and projects creating economic
opportunities for women. Every dollar of an investment of $1 thousand or more will go directly to
flexible and affordable loans targeting women, and investors will realize returns of up to 2%.
Yet despite the numerous advances in access to community investing accomplished in the last
several years, "Barriers known prior to this study largely still exist," the report states. 'These
are: the relatively low awareness of community investment options, a shortage of products, low
returns or the perception of low returns, the perception of high risk, the manual processing and
reporting required for non-standard investment vehicles, limited liquidity and the fact that
community investing products generate low or no income for advisors. Additionally, interviews
revealed an increasing concern about regulatory constraints."
An effort to standardize
financial reporting by CDFI loan funds has been undertaken by the CDFI Assessment and Ratings System (CARS), which with
another Citi Foundation grant is developing an automated reporting system similar to that provided
to commercial banks by the Federal Deposit Insurance Corporation (FDIC). The system is intended to
remove barriers to sustainable investment in CDFIs by providing standardized data to help investors
analyze the performance of specific CDFIs against industry trends.
"In the wake of Occupy
Wall Street and the meltdown of global financial markets, awareness of and demand for community
investment in depository institutions is as high as it has ever been," the report concludes. "The
future of community investing will likely include further product development, a broader return
horizon, a rich impact canvas, and a complicated regulatory environment."