For two years, I was privileged to be part of an alternative economy project.
The project, developed by Marco Vangelisti, was part of Essential Knowledge 4 Transition (EK4T). Known as the EK4T Inner Circle, Marco created a place where folks who’d taken one of his workshops could work with him directly.
During my time with the Inner Circle work, we learned about the possibility of actualizing impact investment themes around food and social justice issues.
Designed for beginning community investors of all financial abilities, Marco introduced the group to several vetted strategies with low minimum investments.
In this group, I learned of many community investments worthy of further exploration.
Among them, investments structured around Community Development Financial Institutions (CDFIs).
CDFIs: A History
Table of Contents
I mentioned CDFIs in my post on FarmLink, but here’s more detail for those interested (otherwise feel free to skip ahead):
In 1994, through the Riegle Community Development and Regulatory Act, CDFIs became a formal organization with United States Treasury Certification and their own fund.
The fund, known as the CDFI Fund, had a lot of precursors. You can find the promise of the fund in:
- the minority-owned banks of the late 1800s
- credit unions of the 1930s and 40s
- community development corporations of the 1960s.
Advocates have long known that for a community to have a robust local economy it needs:
- Basic financial services like checking and savings accounts
- Non-predatory credit
- Investment capital.
Historically, these things are the most difficult to find in low-income communities.
Consequently, the promise of CDFIs lies in a promise of change.
Fair Access to Capital
According to the CDFI Coalition’s page, their mission is to: encourage fair access to financial resources for America’s underserved people and communities.
In order to fulfill the mission, there are four types of CDFI organizational structures:
- Banks
- Credit Unions
- Loan Funds
- Venture Funds
Opportunity for ethical investors happens at every level (consider a banking relationship at one of the first two options), but a few loan funds and venture funds make it possible for community members to go beyond deposits and invest.
CDFIs and Ethical Investors
CDFI’s designed to engage community-member investors often offer investment notes.
These notes give ethical investors an easy way to see their wealth go to work in their local communities.
From the CDFI side, they not only bring money into CDFI funds, but, engage community members and harness financial resources for the good work of social justice and sustainable agriculture.
CDFIs: Low Risk Profile
I think part of why Marco used CDFI funds to engage beginning investors is the CDFI fund risk profile.
Because they are US Treasury certified, many CDFIs also come with state and federal guarantees.
As a result of their certified status, CDFIs can take part in SBA guarantee programs to mitigate any losses that might occur in their loan funds.
(Of course, I’d be remiss if I didn’t mention, loss of principle is a possibility and no one should ever invest more than they can afford to lose.)
However, even considering all that, most CDFI funds have a remarkably high success rates outside of their guarantees. Their technical assistance programs and their commitment to a high touch loan servicing approach keep defaults almost to zero.
And, it’s always good to know, between an impact-driven process designed to reduce risk and loan loss guarantees, there is a lot of good already baked into the CDFI industry.
Community Reinvestment Act (CRA)
So, we’ve just mentioned CDFI’s available to community investors. However, if you look at the industry, it’s apparent most CDFIs find their funding through institutional investors not community investors.
Since CDFIs work with our vulnerable communities, they’re attractive to banks working for Community Reinvestment Act (CRA) credits.
As a result of these large scaled investments from banks, much CDFI investment is not scaled for community investors. Unfortunately, CDFIs often choose to work primarily with the easier to obtain and service capital that comes to them with the larger pools of capital from banks and foundations.
CDFI Investment Notes
A few CDFIs, however, in addition to their institutional investors, find it a valuable part of their mission to encourage small investments from ethical investors in their communities.
Notable are two California-based CDFIs working to include community investors:
In a January blog, we discussed FarmLink’s Investment Notes.
FarmLink’s Investment Notes are a recent offering and are securities registered within the state of California made available through Direct Public Offerings (DPOs).
Northern California Community Loan Fund (NCCLF) notes have a similar structure, and predate FarmLink and their note by more than a decade.
Both funds do good work and encourage an inclusive economy, but one is focused on agriculture and the other our urban centers.
Northern California Community Loan Fund (NCCLF)
The beginnings of the NCCLF came on the heels of legislation that prohibited redlining back in the 1980s when a few well-to-do Oakland community members started looking for ways to invest directly in their local communities.
These forward thinking investors wanted control over their investments, and to find a way to create direct social justice impact.
Accordingly, they needed to step away from investments designed for profit only and controlled by Wall Street.
…sound familiar?
To bring their radical vision to life, their investment ideas focused on access to capital and how the lack of access affected low-income communities.
These Oakland residents were specifically interested in the unfair outcomes of redlining. They committed to work in places that had been systemically and systematically denied capital through the restrictive practice.
Community Investors Take Control
As these community members started to advance their vision, they worked in parallel with a larger zeitgeist occurring across the United States.
The nation was also finding itself newly open to themes centered on a rich history of self-help and mutual aid.
In this spirit during the late 1960s and early 1970s, our modern understanding of the CDFI industry started to take shape.
In response to the havoc created by redlining, the United States Congress passed the Community Reinvestment Act in 1977.
As a result of the legislation, banks now held responsible for CRA credit, often turned to CDFIs to help them invest in their vulnerable communities.
To enahnace the vision even further, in 1985 The National Community Capital Association was established.
The NCCA of the mid-eighties, today is known as the Opportunity Finance Network. NCAA is a national organization of CDFIs.
The 1985 NCAA provided the way forward for our community investors.
In 1987 ethical Oakland investors formalize their work as the Northern California Community Loan Fund and became a CDFI.
With formal recognition, they pulled together some capital in the form of a grant. The grant anchored the long envisioned early loan fund.
In the ensuing years, they’ve grown from that tiny fund of 1987 to a nearly $70M fund today.
NCCLF Today
True to their early community investor roots, NCCLF continues to offer an investment note easily accessible by community members. NCCLF asks a minimum investment of one thousand dollars (like FarmLink’s).
Though a sizeable amount of NCCLF’s pooled fund comes from institutions, about twenty-five percent of NCCLF comes from everyday folks.
Investing in amounts from one to five to ten thousand dollars, these ethical investors embrace the NCCLF investment thesis around social justice and democratizing capital.
NCCLF Accountability
And, a happy byproduct of investment from community investors is an increased accountability from NCCLF.
These investment notes oriented around community engagement help keep the NCCLF process transparent and more responsive to the real needs in the communities where they act.
NCCLF Social Justice
As a result of their early work around redlining, the folks at NCCLF know the deep implications and wide reaching affects of real estate ownership.
Through long experience, NCCLF staff understands ownership within a community can create a capital asset for the community
–think of private home ownership…
but also property ownership for nonprofits like Oakland’s Saint Anthony Foundation or Destiny Art Center.
By it’s very nature, NCCLF’s real estate work defends against gentrification.
You can see the result of their work in their steady commitment and continued awareness of the power dynamics around real estate ownership. To further their mission, NCCLF offers creative financial solutions to help cash strapped stakeholders meet their goals.
To do even more to help their stakeholders, they also offer consulting services and other technical assistance.
Today, NCCLF continues to consider programs responsive to community needs. To keep up with a growing demand for community equity, NCCLF is expanding their work to include some small business loans and food access.
Only a Handful
NCCLF and California FarmLink are among a handful of CDFIs throughout the United States to create investment notes with accessible minimums.
FarmLink’s work centers on an inclusive economy and agriculture whereas, NCCLF is more urban and focuses on social justice through real estate ownership and technical assistance..
Both investment notes offer ways for ethical investors to invest in accessible values-driven investment notes.
When everyday folks are top of mind for financial instrument design, our financial resources can serve our values by becoming tools for our advocacy.
What’s your investment theme?
Do social justice issues or Slow Food’s Joy & Justice Initiative interest you?
Do you want to find out more about NCCLF’s Investment Notes and their work with social justice issues?
Let me know in the comments!
Want to find out more about NCCLF investment notes? You can, here.
Interested in FarmLink Investment Notes? Check them out here.
Live some place other than California? Find other opportunities throughout the U.S. for community investment here.