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Community Investing Products

Community Development Banks

&

Community Development Credit Unions

Products Available Description Rate of Return Investment Term Security Services Provided to Communities

Checking
and/or Savings Account

Accounts in banks or credit unions. Market-rate No minimum term. All depositors federally insured up to $100,000. Basic financial services and loan products to underserved individuals and community development projects.
Certificate of Deposit (CD) Deposit made to a bank or credit union. Market-rate; below market rate also available. One month to 120 months. All depositors federally insured up to $100,000. Banks in the CDARS program offer insurance on up to $20 million.
Individual Retirement Account (IRA) Tax-deferred retirement account. Permits deposits of up to $4,000 per year, for withdrawal after retirement. Varies with IRA type (traditional, education, Roth, money market) and with investment term. Varies with IRA type; often one-year minimum. All depositors federally insured up to $100,000.
Money Market Account Combination of short-term, low-yield investments (CDs and treasury bills). Slightly higher than a savings account. No minimum term. All depositors federally insured up to $100,000.
Equity Investment in a Bank Preferred stock in a bank. No established return, based on performance of invested bank. No maturity date. Not insured.
Secondary Capital in a Credit Union Subordinate loan that helps a credit union build its balance sheet. Varies, often below-market. Term varies, but generally long term. Not insured.

Community Development Loan Funds
(Domestic)

Senior Loan Individual or institutional investor lending money to a CII. Varies with investment term and size, usually between 0 and 4%. Term set by investor; often one-year minimum. Generally backed by loan loss reserves, and the CII's net worth. Generally not insured, but may be secured by collateral. Funds finance high-impact community development by providing capital to one or more of the following: developers of affordable housing, small businesses and microenterprises in the U.S., and nonprofit community organizations. Many CIIs also provide technical assistance and training to borrowers, and advocate for policy changes to support their constituencies.
Subordinated Loan Institutional investor providing a loan that is subordinate to senior loans and helps build the CII's balance sheet. Term set by investor; often one-year minimum.
Equity Equivalent (EQ2) Investment Deeply subordinated obligation by an institutional investor to help build a CII's balance sheet. Can provide banks with enhanced CRA credit. Terms vary, but should have a rolling term with a minimum of 5-10 years to be equity-like.
International Community Development Funds (International) Senior and Subordinated Loans to Microfinance, Guarantee, or Small & Medium Enterprise Funds Individual or institutional investor lending money to a fund financing community development projects. Varies by institution, usually between 0-4% depending on investment term and size. Terms set by investor; often one-year minimum. Not insured; often protected by collateral, loan loss reserveds, and a CII's net worth. Investment in funds that work with microfinance institutions, cooperatives, local banks, and small and medium enterprises around the world to provide financing and job training to underseved people and communities.
Commercial Bonds or Private Equity Funds Debt and/or equity investment in a pool of top-tier institutions. Varies, but often between 5-10% depending on management fees. Varies, based on offering.
Community Development Venture Capital Funds
(Domestic and International)
Pools of Equity Investments Equity investments in new businesses in low-income areas in the U.S. and abroad. Potential for higher returns when company profits, and lower returns when profit is low. Term varies. Not insured; often protected by collateral. Equity investments and debt with equity characteristics to businesses; extensive managerial and entrepreneurial assistance. Creates new jobs in low-income areas.
Social Enterprises
(Domestic and International)
Equity Investment Social purpose businesses, often tied to nonprofits, that use their profit to further their mission while providing job skills to lower-income communities. Varies with investment details. Term varies. Not insured. Provide employment and business skills in underserved communities, and raise money through the business to futher social mission of the organization.
Community Development Pooled Funds
(Domestic and International)
Senior and Subordinated Loans Investments spread over a number of CIIs that diversifies the portfolio and lowers risk. Varies with investment term and size, usually 0-4%. Term decided by investor; often one year minimum. Not insured; often protected by collateral, loan loss reserves, and credit enhancements. A combination of services to underserved communities through loans to or investments in CIIs.
Community Development Bond Funds
(Domestic)
Mutual Fund Pools of fixed-income securities (mortgage- and asset-backed securities, municipal bonds, etc) invested in low and moderate communities. No established return, please visit the Mutual Fund Performance Chart. Term decided by investor. Not insured. Support affordable housing, health care facilities, and other economic development in low and moderate income communities.

Community Development Banks & Credit Unions

Current Assets(2005) Growth (1999-2005)
Banks $10.1 billion +247%
Credit Unions $5.1 billion +749%
*Social Investment Forum, “2005 Report on Socially Responsible Investing Trends in the United States,” 2005.

Community development banks and credit unions are established for the express purpose of investing in and offering financial services to traditionally underserved communities. They offer deposit customers traditional banking products at competitive rates of return. Federally insured savings and checking accounts, CDs, IRAs, and money market accounts ensure stability and provide liquidity essential in both professional and personal portfolios. Through the Certificate of Deposit Account Registry Service many community development banks are now able to insure deposits up to $20 million.

Community development banks and credit unions are often the first step for individuals, apartment building owners, and small businesses looking for loans. They develop relationships with their communities and with their customers that help them look at and beyond credit scores to prudently lend where traditional banking institutions do not. Because of their focus on underserved communities, some community development banks and credit unions offer innovative financial services products and thus are responsible for attracting historically “unbanked” populations into the financial arena.

An increasing number of community development minority-owned banks and credit unions have sharpened their focus on the financing and banking needs of minority populations. Minority-owned institutions share a common culture with their clients and possess specialized knowledge about the communities they are serving. One recent development in this sector is the increase in Native American-owned banks opening on Native lands, where 15% of people must travel 100 miles or more to reach a bank or automated teller machine.

Community development banks receive capital from deposits made by individuals and corporations, the federal and state government, and financial and religious institutions. Community development credit unions receive the majority of their capital from member deposit and limited non-member deposits from social investors, financial institutions, corporations, and federal government. Most community development credit unions are designated as “low-income” credit unions by the National Credit Union Administration, allowing them to accept non-member deposits.

For Further Information

Community Development Loan Funds

Current Assets(2005) Growth (1999-2005)
Loan Funds (domestic only) $3.2 billion +97%
*Social Investment Forum, “2005 Report on Socially Responsible Investing Trends in the United States,” 2005.

Community development loan funds (CDLFs) were founded to meet the credit needs of disadvantaged communities. CDLFs are typically private, nonprofit, unregulated financial intermediaries that provide low-cost financing for housing, economic development projects of community organizations, small businesses, and microenterprises in the U.S. and internationally. Most also provide technical assistance and training to their borrowers.

Between 2003 and 2005 CDLFs experienced $83 million growth, now holding more than $3.4 billion in assets. Community development loan funds are specialized lending institutions offering a variety of both domestic and international loan products to investors.

The high priority for many CDLFs is lending to projects that empower individuals, increase local ownership, build the capacity of community organizations, and contribute to community revitalization. The Aspen Institute’s FIELD Program found that CDLFs are meeting these goals in their multi-year report on seven domestic microenterprise organizations. They found that that the cost effectiveness of their programs compared very favorably to those of other employment and training, business assistance and job creation strategies for low- and moderate-income participants.

For Further Information

International Community Development Funds

Current Assets(2005) Growth (2003*-2005)
International Funds $165 million +129%
*Social Investment Forum, “2005 Report on Socially Responsible Investing Trends in the United States,” 2005. Note that 2003 was the first time International Funds were separately tracked in the Report, and they stood at $72 million.

High-impact investments in new markets, business creation, and community development abroad are achievable through international community development funds. US-based international funds, with $165 million in assets, focus their lending and equity investments abroad, often providing or guaranteeing smaller loans to communities and individuals in need.

For more information, please visit our International Comunity Investing Resources.

Community Development Venture Capital Fund

Current Assets (2005) Growth(1999-2005)
Venture Capital Funds $870 million +480%
*Social Investment Forum, “2005 Report on Socially Responsible Investing Trends in the United States,” 2005.

Community development venture capital (CDVC) funds make equity investments in businesses with potential for rapid growth to create jobs, entrepreneurial capacity, and wealth that benefit low-income people and distressed communities. The number of CDVC funds has grown dramatically over the past 10 years, from just half a dozen funds in the 1990s to 79 funds at the end of 2002. CDVC funds now hold $870 million in assets, increasing 480% from 1999.

CDVC funds focus their investments in geographical areas that traditional venture capital funds have overlooked, for example in Appalachia, rural Minnesota, Baltimore, and Cleveland. Providing equity and equity-like investments in highly competitive small businesses that have the potential for rapit growth, along with training, has resulted in a variety of positive social impacts.

CDVC investments range in form from the purchase of preferred and common stock to the provision of subordinated debt with equity “kickers” such as warrants or royalties. The financing structure of CDVC funds, as compared with lenders, allows them to enjoy the “upside” when a company does well, but investors also participate in the “downside” when a company does poorly. Their dollars are usually accompanied by intensive managerial and entrepreneurial assistance through which the CDVC funds not only contribute to the overall health of a business, but also provide a positive influence on a company’s commitment to its community.

CDVC funds are offered by a variety of institution types, including for-profit corporations, not-for-profit corporations, limited partnerships, and limited liability companies. Funds organized as limited partnerships or for-profit corporations are often affiliated with not-for-profit organizations. CDVC funds are capitalized by foundations, banks, insurance companies, government sources, and individual investors. Banks that make direct investments into CDVC funds are able to obtain CRA credit for their investment activity.

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Social Enterprise

Social enterprises are nonprofit-owned and -operated businesses that provide employment and job training in underserved communities while raising money to further the mission of the organization. These social purpose businesses vary greatly in organizational, legal, and ownership structures, but all are focused on providing a sustainable revenue stream to help an organization address critical needs and issues.

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Community Development Pooled Funds

The community investment opportunities available through community development banks, credit unions, loan funds, international funds, venture capital funds, and social enterprises entail direct investment in one CII. While direct investing has several advantages – it allows the community development lender to secure funds on the best terms and it ties investors to initiatives in their chosen communities – it may also have some disadvantages, such as less diversification of risk, and less need for the investor to do due diligence on specific funds. Pooled investing can overcome these disadvantages for many investors.

Community development pooled funds act as umbrella funds that spread investors’ capital over many Community Investment Institutions (CIIs). This investing option offers several benefits to the investor, such as creating a more diversified and less risky investment. Pooled funds alleviate the due diligence process for the investor by doing due diligence on hundreds of CIIs that they regularly invest in.

Investing in pooled funds still allows the investor to make choices about the social impact and financial characteristics of the investment. There are a variety of pooled funds with different financial goals and social impacts, including pooled microenterprise funds, pooled housing funds, pooled guarantee funds, and pooled investments in credit unions. Pooled funds also have the capacity to create tailored products, resulting in an investment product that matches each investor’s financial goals and social mission.

For Further Information

Community Development Bond Funds

Community Development Bond Funds invest in fixed income securities that support community development in low- to moderate-income communities. These funds invest in mortgage- and asset-backed securities, municipal bonds, and other fixed income securities that are qualified to receive credit under the Community Reinvestment Act (CRA). Financial institutions can receive CRA credit by investing in the funds, institutional investors can match their mission with market-rate returns, and retail investors have a familiar mutual fund vehicle to invest in community development. The Bond Funds also might have deposis at community development banks as part of their commitment to community investing.

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