Community investing consists of direct investments in projects
or financial institutions that benefit specific
communities or constituencies, especially
in economically disadvantaged areas. These
investments usually take the form of loans
or bank and credit union deposits and can
be either at or below market rates.
In practice, community investments
are closely related to program-related
investment, a loan or another type of
investment (as opposed to a grant) made
by a foundation, endowment or NGO for a
purpose related to its charitable mission.
In this area, mission and investing has
been explicitly linked for many years.
Because of their direct impact,
community investments are an important part
of many social investors' portfolios. They
can take many forms, including:
- Loans for low-cost housing ventures
(e.g., those offered by the members
of the National Community Capital Association
(NCCA));
- deposits in community development
banks (e.g., South Shore Bank
of Chicago) or credit unions (e.g.,
Self-Help Credit Union of North Carolina);
- banking programs (e.g., Wainwright
Bank (Boston), Vermont National Bank's
Socially Responsible Banking Fund).
Community investments vary
widely in, scope and risk. Some bank deposits
are at market rates, as are some housing
investments. Others are not. Loans to revolving
loan funds are usually at below-market rates,
but those made to NCCA members historically
have had very low default rates. In the
context of the institution's mission, accepting
a below-market rate of return on a portion
of the portfolio may be justified.
