Getting Capital into Communities
October 11, 2017
I am an impact investing "newbie". I started working at Calvert Foundation at the beginning of this summer and since then I've been learning about the many ways that we look to create social and environmental impact by investing in different sectors, nationally and internationally. A couple of weeks ago, I attended the Opportunity Finance Network (OFN) Conference, where I had the opportunity to meet with our many Community Development Financial Institution (CDFI) borrowers and learn about how they are leveraging capital to maximize impact while working towards long term sustainability.
Currently there are a little over 1,000 certified CDFIs in the U.S. The formation of CDFIs is rooted in community “self-help” style efforts to counter redlining practices and direct capital into under-resourced communities. Today’s CDFI industry was formed in the late 1960s and early 1970s in the United States, but it wasn’t until the 1990s when CDFIs were able to rapidly expand because of several favorable changes in their funding environment, namely, the formation of the CDFI Fund in 1994, the revision of the Community Reinvestment Act (CRA) that explicitly identified funding CDFIs as a valid CRA activity (1995), and a growing track record of success that attracted other private and public sources of capital. Their growth means improved financial inclusion for a range of community stakeholders from individuals to small businesses. As they continue to grow so does their need for new sources and structures for capital.
A common theme from the OFN Conference was the need for long-term, low-cost debt. This type of debt allows CDFIs to invest in longer term community projects like affordable housing development, and pass on cost savings to the underlying community stakeholders. CDFIs are attempting to meet this need in a variety of ways, one strategy that was discussed at the conference was directly accessing public capital markets. Some of the organizations that are already doing this include our borrowers Local Initiatives Support Corp (LISC) and The Reinvestment Fund (TRF) who offer bonds. Not all CDFIs are able to make public bond offerings. If we want to see continued sustainable growth in the CDFI space, it is important that investors work together and offer different products and services that can help to improve and increase the flow of capital down to under-financed communities.
Our Community Investment Note® offers another way for a variety of investors to support the work that CDFIs are doing. Some of Calvert Foundation’s first investments were in CDFIs, and 22 years later, they remain an important part of our portfolio. We are responsive to CDFIs’ need for longer term capital, our 10 and 15-year notes give us more flexibility to make longer term investments in CDFIs and further their sustainability. By channeling more private capital into CDFIs, we aim to help build healthier, more sustainable, and thriving communities.