Community Investment Managers: Building Bridges, Changing Lives

A community investment manager is responsible for overseeing and developing investment strategies that positively impact underserved communities. They work with various financial institutions, such as banks, credit unions, and loan funds, to allocate capital and provide essential financial services to individuals and businesses in low-income areas. Community investment managers strive to achieve financial inclusion and equitable economic growth by supporting initiatives related to affordable housing, employment, education, and healthcare. Their role involves building partnerships, assessing social impact, and ensuring responsible lending practices to empower communities and create sustainable change.

Community investment management strategies

Community investment management involves providing strategic debt capital to demonstrate and scale responsible innovation in lending for underserved communities. The goal is to deliver positive social impact by partnering with innovative credit providers that offer responsible and transparent financial solutions. This can be achieved through various financial intermediaries and investment products, with the ultimate aim of bringing underserved communities into the financial mainstream.

One strategy is to focus on financial inclusion, particularly for small businesses and individuals, which is critical to equitable economic growth, job creation, and the health and sustainability of local communities. This may involve providing access to capital for personal credit, real estate development financing, business loans, and other financial products.

Another strategy is to identify and partner with community-based organisations, such as charities, non-profits, NGOs, social enterprises, etc., that are working to address a range of social issues in the communities where the investment is being made. This could include supporting organisations focused on education, youth development, economic development, and other areas that have a positive community impact.

Additionally, community investment management can involve developing new and innovative ways of doing business or creating products with enhanced social impact. This may include diverting procurement spend towards suppliers that aim to have a positive social impact.

Measuring the impact of community investment is also crucial. This can be done by evaluating various factors, including the number of people helped, activities conducted, funds raised, media coverage, customer awareness, and the short and long-term changes in individuals, organisations, and the business involved.

Overall, community investment management strategies aim to create positive social change while also generating financial returns, contributing to the long-term success and reputation of the business, and benefiting the broader community.

Community investing vs socially responsible investing

A community investment manager is responsible for providing strategic debt capital to demonstrate and scale responsible innovation in lending for underserved communities. They aim to deliver positive social impact by partnering with innovative credit providers that offer responsible and transparent financial solutions.

Now, here's a comparison between community investing and socially responsible investing:

Community Investing vs. Socially Responsible Investing

Community investing is a form of socially responsible investing (SRI) that allows individuals to invest their money in a specific community, often their own. It is a subcategory of SRI, which involves investing in companies and assets that have a positive social impact. While SRI focuses on avoiding investments in harmful industries, community investing directs capital towards underserved communities to support initiatives like affordable housing, employment, education, and healthcare.

Differences in Approach

SRI investors use negative screening to avoid investing in industries or companies that negatively impact the environment or society, such as alcohol, gambling, tobacco, and military industries. In contrast, community investing uses positive screening to actively seek out investments that aim to generate a positive impact on specific communities.

Return Expectations

SRI investors aim to maximize financial returns while avoiding harmful investments. They have a fiduciary duty to their investors to generate the highest rates of return. On the other hand, community investing may provide lower returns due to the nature of the investments, and investors may need to broaden their exposure beyond these low-return investments to meet their long-term financial goals.

Time Commitment

Community investing often requires more time and consideration than traditional or SRI investing. In addition to assessing risk, potential returns, and fees, investors must also evaluate whether the investment aligns with their values and standards for serving the community.

Global Trends

Both community investing and SRI are part of a larger global shift towards responsible investment practices. The United Nations-based Principles for Responsible Investment (PRI) has gained support from over 3,500 financial institutions, representing over $100 trillion in assets under management. This trend demonstrates the increasing importance of social and environmental impacts in investment decision-making.

Community development financial institutions

A community investment manager works with community development financial institutions (CDFIs) to generate economic growth and opportunities in underserved communities. CDFIs are private financial institutions that provide capital to communities that are traditionally excluded from banking and investment options. They are primarily nonprofit organisations that provide loans and other financial resources to low- and middle-income individuals within both urban and rural communities.

CDFIs have four institutional models: banks, credit unions, development loan funds, and venture capital funds. Each serves a different part of the community and may have different risk profiles, legal structures, and targeted borrowers. They are flexible and can provide value to the community without interference from shareholders or government oversight.

CDFIs are certified by the Community Development Financial Institutions Fund (CDFI Fund), an agency within the US Department of the Treasury. The CDFI Fund offers CDFIs the opportunity to apply for financial awards, such as monetary awards, tax credits, and federal guarantees for bonds, to help fund their mission of supporting underserved communities.

The work of CDFIs has a significant impact on the economic growth of the United States. They manage more than $222 billion, creating jobs, affordable housing, and financial opportunities for individuals and communities that often do not qualify for services by the standards of mainstream financial institutions. CDFIs have played a crucial role in providing economic relief during times of crisis, such as the 2008 financial crisis and the COVID-19 pandemic, and are recognised as "economic shock absorbers" by the Federal Reserve.

Overall, community investment managers work with CDFIs to bridge the gap between underserved communities and financial services, promoting economic growth, community redevelopment, and financial self-sufficiency.

Community investing: risks and limitations

Community investing is a form of socially responsible investing that allows investors to direct their money towards a specific community, often their own. The goal is to earn returns for investors while contributing to noble causes and helping underserved communities thrive. However, community investing also comes with certain risks and limitations that investors should be aware of.

One of the biggest risks is the possibility of losing your investment. This can happen if the project or business you invest in fails to generate enough revenue to repay loans or provide a return on investment. Community investments may also be less liquid than traditional investments, making it more difficult to sell your investment if you need quick access to funds. Additionally, community investing often entails higher risk as investors are putting their money in people and businesses that traditional lenders may consider too risky. This additional risk is not always compensated with higher returns as it would be with traditional investments.

Community investing also restricts investment options. Many community investments are in vehicles that provide low returns, such as savings accounts and government bonds. To earn high enough returns to meet long-term financial needs, investors need to broaden their exposure beyond these low-return investments. This can be achieved by investing in stocks of companies with a strong community focus or by expanding parameters to include a broader universe of socially responsible investments.

Another limitation of community investing is that it is often more time-consuming than traditional investing. Investors need to consider not just the financial risks and returns but also whether the investment meets their standards for serving the community. Due diligence is critical, and investors should conduct thorough research and analysis before investing in a community project or business.

Despite these risks and limitations, community investing can be a powerful tool for empowering local economies, driving social and economic change, and creating positive social and environmental impacts. It allows investors to use their financial resources to create stronger, more vibrant, and resilient communities.

Community investment outputs and impacts

Community investment is a form of socially responsible investing that allows investors to allocate capital to specific communities, often their own, with the goal of earning returns while contributing to noble causes and facilitating investment in underserved communities. This practice has become increasingly popular, with both retail and institutional investors considering social and environmental impacts as central to their investment decision-making.

The outputs of community investment can be measured in terms of the activities delivered, numbers reached, and funds raised. For example, the number of people helped through affordable housing, employment, education, and healthcare programs. The business outputs may include media coverage and increased awareness among customers.

The impacts of community investment are the changes that happen to individuals, organisations, and the company in the short and long term as a result of these activities. At its best, community investing is comparable to charitable giving, with the added potential for monetary returns. It creates wealth for investors while improving economic opportunities and the quality of life for individuals in the community.

Community investment can also have a positive impact on organisations, with employees gaining job-related skills and experiencing personal growth and behavioural changes. It can enhance a company's reputation, increase brand awareness, and lead to operational improvements. Additionally, community investment can drive innovation, create jobs, and contribute to the health and sustainability of local communities.

Overall, community investment outputs and impacts go beyond financial returns, creating tangible social value and contributing to the well-being and long-term development of underserved communities.

Frequently asked questions