Nonprofit organizations, including community development corporations, often have idle capital deposited at a standard commercial banking institution. But there are a number of community investment alternatives that will put that capital to work on behalf of struggling communities.
Community investment means using investment capital – typically at less than market rates – to foster largely philanthropic objectives, such as financing low-income housing, lending to small business, underwriting community facilities and other community development activities. Make no mistake, however, we are not referring to grants. Community investment is a real investment. The principal is returned with interest.
Locking in for Higher Yields
Federally insured deposits in community development banks and credit unions offer an attractive alternative to parking capital in a conventional bank. Federal insurance covers deposits up to $100,000, and some community organizations have several bank licenses so that they can offer depositors up to $300,000 in federal insurance.
By committing for more than one year, it’s possible to secure better yields as well. If you stagger the maturity dates of CDs held in several different credit unions and community development banks, you can lock in for a longer term, get a higher yield, meet some of your cash management needs and place capital in communities.
Bank CDs have the added attraction of always being carried at par on your books. This is a particular advantage because other fixed-income instruments must be marked to market, losing value any time interest rates go up, as is predicted to happen later this year.
Look for community development banks or credit unions in your region or consider placing your capital in parts of the country where deposits may be scarce. Louisville Community Development Bank, KY, United Singers Federal Credit Union of Thomasville, GA, and Bank of Cherokee County, OK, are just a few of the CD options that will allow your capital to reach communities outside the mainstream.
Calvert Foundation issues a security called Calvert Community Investment (CCI) note. The full value of note proceeds raised is then loaned to a broad spectrum of community-based nonprofits to support community development. While not federally insured, Calvert Foundation professionally manages a $40 million diversified portfolio with ample loss reserves and credit enhancements. Calvert Foundation has not sustained a single loss in its seven years of operation. The MacArthur and Ford Foundations, the CDFI Fund, and Ameritas Insurance Company provide credit enhancements. CCI Notes are structured to provide investor convenience. Investors can choose one-, three-, five-, seven- or 10-year terms and an interest rate ranging from 0 to 2 percent. Three percent is available on notes of five years or more.
For those concerned with liquidity, Calvert Foundation offers a Community Investment Management Account (CIMA). CIMA pairs up the CCI note with the Calvert Social Investment Money Market Fund. In the CIMA, once a quarter, investors can choose to move their resources from the CCI note to the money market account. While in the money market account, it will earn a more modest yield, but funds can be drawn down with checks, etc. CIMA allows the higher yield, puts funds to good community uses and provides the convenience of a money market account when needed.
Trying to improve the yield or safety of your own investments is a strategy; another would be to attract investment dollars yourselves. Many community loan funds and some CDCs have sought and received loans that can be used as a source of capital for their development. Organizations like the Institute for Community Economics in Massachusetts and the Reinvestment Fund in Pennsylvania have substantial experience raising loan capital from their supporters.
By concentrating on institutions like community foundations, private foundations, church groups, local businesses or high net worth individuals (also known as accredited investors), you can sidestep some of the more complex legal requirements of accepting investments from the general public. In fact, through program-related investments, foundations are specifically permitted to make such below-market, flexible loans or equity investments for initiatives with strong mission focus.
Supporters who in prior years had provided a $500 donation might be able to extend a $5,000 loan if they are confident the capital will be repaid with interest. To access loans from foundations and other accredited investors, you’ll need to present recent audited financial information and develop a promissory note that you would use with investors to evidence their loans to you. Community foundations, faith-based investors and local banks may be a good place to begin when it comes to attracting investments yourself.
The Social Investment Forum, the trade association of the socially responsible investment industry, is encouraging all socially responsible investors to place at least 1 percent of their total assets into one form of community investment or another. Your organization can both contribute to and benefit from community investment – a smart choice in these financially challenging times.