Calvert Foundation: Investing in Communities(TM)

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CDFIs and their Investors Needed More than Ever

Federal Reserve Chairman Ben Bernanke gave a speech last week in which he called public attention to Community Development Financial Institutions (CDFIs)—more commonly termed “Community Investing.” We are thrilled to have such a public figure talk about the needs of disadvantaged communities and how social investors play an important role as a source of capital to meet critical community needs.

What is a CDFI?

The term “CDFI” is one you may not have heard, even if you’ve been involved with Calvert Foundation for a long time. But you know what CDFIs are – and, more importantly, what they do, especially if you have invested in our Community Investment Note. CDFI is a technical industry term that describes banks, credit unions, loan funds, and nonprofits providing critical financial services to U.S. communities where none are – or were – available.

Along with over 66 of our borrower organizations, we are a certified CDFI. We provide opportunity where there is none, taking on risk that more commercial entities tend to shy away from. In short, we help “the little guy,” and our collective services are more in need than ever.

What many of the articles about Bernanke’s speech failed to mention is that CDFI portfolios are performing better than banks – even with the stress caused by the economic crisis. According to a recent industry report, CDFIs have about $5 billion at work in communities, helping to make loans available for small businesses, provide job training and daycare facilities, get families into affordable homes, and teach people how to set up savings and checking accounts.

Given this role, it isn’t surprising that CDFIs’ constituents need them now more than ever. Bernanke talked about the challenges some CDFIs face during these difficult economic times, but we have taken special measures to invest in CDFIs with sound institutional and financial capacity whose rigor and discipline will allow them to go the distance.

Working from the Bottom Up

While CDFIs will be getting a slice of the stimulus package (about $100 million), they also need to bring in funding from private sources. Spooked by the larger economic climate, banks and other institutional players are backing out even though the CDFIs are performing well. “Economic recovery, like economic development, is a bottom-up as well as a top-down process,” Bernanke said.

We have been working the “bottom-up” angle since we started Calvert Foundation 14 years ago by making it possible for investors from all walks of life to invest in CDFIs. Calvert Foundation is unique because we work with individuals, not just institutions, and make investing as easy and safe as possible. Our Community Investment Note allows you to invest through your brokerage account, making public service just another part of your portfolio. Bernanke, while not naming us, described our Note in his speech:

One CDFI has created a product similar to a mutual fund where individuals purchase "community development notes" that are invested in community development organizations. The fund has raised capital from about 4,700 individuals and invested about $160 million; further, it has performed well, with an average 3 percent rate of return to investors and very low loss rates.

What You Can Do to Help

The good news is that, for the most part, CDFIs overall are faring pretty well – mainly because they have operated efficiently and ethically for decades. CDFIs offer solutions to today’s economic woes through their lending practices, which should be emulated by traditional financial institutions. Still, we continue to monitor and work closely with the 66 CDFIs that we invest in through our Note portfolio. (For more information on how our entire portfolio is faring, listen to the recording of a recent investor briefing call featuring our Chief Lending Officer Lisa Hall.)

We encourage you, as a friend of Calvert Foundation, to consider making or increasing your commitment to helping underserved communities. Think about opening a Community Investment Note or increasing your investment, or making a donation to help us expand our loan program (which, in turn, finances dozens of other highly effective CDFIs). We also encourage you to share this message with your friends, family and co-workers. Our Community Investment Note is a solid investment opportunity that provides returns to you – and to the many Americans in need during this difficult time.

 

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