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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.

A new report, 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 the institutions.

"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 investment."

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 investment."

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 as $20.

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."


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