There are numerous community investment activities and institutions that invest in and provide services to
lower-income communities. The Community Investing Center focuses on the primary Community Investment Institutions (CIIs) specifically designed to accept investor capital and use it to provide opportunities for underserved communities. However, significant community development activities and institutions fall just outside of this framework, and are presented below. Each pursues
specialized goals within community development, and has exhibited strong impact on the communities and individuals it serves.
Community Investment Institutions
- Community Development Corporations (CDCs) focus on economic development in low and moderate-income U.S. rural and urban communities. Their services are more specialized than those of CDFIs and CDEs, as they focus mainly on housing production and job creation. There are approximately 3600 CDCs nationwide, of which 900 are tracked by the trade association entity, the National Congress for Community Economic Development (NCCED). According to the NCCED, since the emergence of the first CDCs in the late 1960s, they have produced 247,000 private-sector jobs and 550,000 units of affordable housing.
- Community Development Entities (CDEs) are government-certified domestic corporations or partnerships with a mission of serving or providing investment capital to low-income communities or low-income people. They differ from CDFIs in that providing financial services is not their main goal, although it is an important part of their mission. CDEs also maintain greater accountability in their work with residents of low-income communities, often through their representation on a governing board of or advisory board to the entity. In 2004, the CDFI Fund reported that 1408 CDEs are currently certified and operating in the U.S.
- Minority-owned and Women-owned Financial Institutions are owned and/or managed by African-Americans, Latinos, Asians, Native Americans, women, and other minority groups. These institutions utilize specialized knowledge about the populations they serve to provide effective assistance and access to capital to specific minority populations. A large portion of these institutions are banks and thrifts, numbering 183 in the U.S. in 2002, according to Creative Investment Research. In addition, minority-owned financial institutions encompass a broad spectrum of institutions, including but not limited to CDFIs, CDCs, and CDEs. Some minority-owned CDFIs are in our database, although they cannot be sorted by this characteristic.
Community Investment Products
- Community Development Municipal Bonds (CDMB) CD Muni bonds are securities issued by states, cities, towns, counties and special districts that have community development as their primary purpose. The interest on them is generally exempt from federal income taxation and, in some cases, state income taxation. CD Muni bonds can be purchased from community development banks and other community development financial institutions.
- Economically Targeted Investments (ETI) are most often defined as investments that fulfill a community development need that other investors have not met, and present an opportunity to diversify a market rate portfolio or provide a market rate of return with a government risk management or subsidy program. Several public pension plans are required by their Board of Trustees or Department of Fiscal Services to commit to an investment goal of five to ten percent in Economically Targeted Investments. Investments in a variety of community development projects or institutions can qualify as economically targeted. It is up to the institutions looking for capital to chose an appropriate vehicle for their purpose.
- Targeted Mortgage-backed Securities (MBS) and Collateralized Mortgage Obligations (CMO) are pools of mortgages to low- and moderate-income individuals that represent the collateral for a security, the cash flow of which is determined by the payment of the individual mortgage loans underlying the security. CMOs are more complex mortgage securities that help compartmentalize prepayment risk and better addresses investment time frames and cash-flow needs. They can be purchased from government-sponsored corporations like the Government National Mortgage Association (Ginnie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac), and Federal National Mortgage Association (Fannie Mae). Each entity offers a slightly different variation in the securities they issue.
- Equity Equivalent Investments (EQ2) were pioneered in 1996 by National Community Capital Association and Citibank. EQ2s are loans to CDFIs that are deeply subordinated and have a rolling term and other features that allow them to function like equity. EQ2 investments in U.S. CDFIs also provide banks with enhanced CRA credit, making it easier for banks to fulfill their requirement under the Community Reinvestment Act to serve low- and moderate-income communities.
Community Investment Programs
The Low Income Housing Tax Credit (LIHTC) is a federal housing program thatprovides tax incentives for investing in affordable rental housing. Through this program,
created within Section 42 of the IRS Code, investors receive a credit against their federal
taxes in exchange for providing funds to build or renovate housing at rents within reach of low-income people. Since its enactment in 1986, the LIHTC program has become the primary means of developing affordable housing in the U.S.
- The Enterprise Social Investment Corporation (ESIC) is a prominent example of organizations that mediate the LIHTC into viable community investments. The ESIC works with partners to provide financial and development services to create housing, commercial, and other community development opportunities in underserved neighborhoods across the country. In 2002, ESIC raised in excess of $475 million from over 170 partners who have invested in ESIC-managed funds.
- Local Initiatives Support Cooperation (LISC) also provides grants, loans, and equity investments to CDCs for neighborhood redevelopment with LIHTC dollars.
- New Markets Tax Credit was approved as part of the Community Renewal Tax Relief Act of 2000 to spur the investment of $15 billion in new private capital into U.S. community development financial institutions (CDFIs) and other entities that make loans and equity investments in businesses located in low- and moderate-income areas. By making an equity investment in an eligible "community development entity" (CDE), individual and corporate investors can receive an NMTC worth more than 30 percent of the amount invested over the life of the credit in present value terms.