Federation’s Rosenthal joins Green America & Social Investment Forum Hailing Shift
(April 25, 2011 – New York, NY) Community investing is already the unsung hero in thousands of towns and neighborhoods across America, where it quietly has added jobs, local services and support for small businesses where traditional lenders have been unable or unwilling to do so. In 2011, community investing is poised to become much more widely visible as a result of three trends that could boost related investments from individuals and institutions, according to experts from the Social Investment Forum (SIF), Green America, and the Federation.
Community investment involves capital from investors and lenders that is directed, typically via community development financial institutions (CDFIs) and other community investing institutions, to communities and individuals that are underserved by traditional financial services. According to a major 2010 Social Investment Forum Foundation report (the most recent data set currently available), assets in community investing institutions rose more than 60 percent from $25 billion in 2007 to $41.7 billion at the start of 2010, reflecting healthy growth in all four categories of community investing institutions: community development banks, community development credit unions, community development loan funds and community development venture capital funds.
In a news conference held on April 13, SIF, Green America, and the Federation identified three major trends expected to continue leading the surge in community investing in 2011:
- Consumers breaking up with mega-banks due to high fees and other abusive practices. Community development credit unions (CDCUs) and community development banks have benefited from increased membership, assets and deposits in recent years, helped in part by dissatisfied consumers angered at mainstream banks’ raising their fees and cutting back on credit throughout the recent recession. Additionally, on 2010 and 2011, The Huffington Post and Green America mounted major campaigns to encourage consumers to dump “abusive mega banks” in favor of community investing institutions.
- Rising institutional interest in community investing. Based on SIF’s latest Trends Report, institutions in several categories are now doing more community investing, thanks in part to SIF’s education and outreach efforts around this issue with financial advisors, investment managers and religious institutions nationwide. According to data from the Sustainable Endowments Institute, colleges and universities are now among the leaders in moving assets into community investing. With multi-million and sometimes billion dollar endowments, these shifts in investment provide major market pressure for mutual funds and money managers to provide more socially responsible investment options. Some institutions that more recently turned their attention to community investing include Mount Holyoke College, Macalester College, Dickinson College, Lehigh University, Vanderbilt University, and Skidmore College.
- Growing consumer awareness of community investing success stories. Most CDFI banks were formed after 1994, initially as small institutions to serve communities that had little access to mainstream financial services. Over the past decades, these institutions have grown at a greater rate than conventional banks of the same size by meeting pent-up demand. As community investing institutions meet local demands, they attract additional assets from individuals and institutions wanting to be part of such positive change and help local institutions to flourish.
|Federation President/CEO Clifford N. Rosenthal
According to Federation President/CEO Cliff Rosenthal, who serves on the board of directors of the Social Investment Forum, “Community development credit unions and other CDFIs have played a crucial role throughout the recession by providing credit to borrowers who have been shut out of the conventional capital markets. A major challenge that remains is that many of our institutions have been disproportionately affected due to the economic distress of the communities they serve, so the growth in socially responsible investments has been indispensable in allowing many of our member CDCUs to expand their services at a time where other lenders have tightened their underwriting guidelines.”
Fran Teplitz, Director of Social Investing & Strategic Outreach at Green America, highlighted what has become a welcome trend for community development practitioners, explaining that “the fact that community investing has grown steadily over the past decade, despite fears of capital constraints and the impacts of the market downturn, is a strong indicator for future growth. Add to that consumers’ continuing frustration around mega-banks, and the growing movement to support local economies, and we’re likely to see continued growth of community investing in 2011 and beyond.”
Meg Voorhes, Deputy Director and Research Director at the Social Investment Forum, echoed Teplitz, noting that “for many years, investment managers and advisors specializing in socially responsible investing have helped clients allocate a portion of their portfolios to community investing. It is exciting to see a new wave of interest in community investing as foundations and other institutions look for investments that will have high social impact.”
For Rosenthal and CDCUs nationwide, this increased investment will be crucial in the coming years, given law-makers’ slashing of government spending in their attempts to rein in the deficit.
“While the Treasury Department’s CDFI Fund has thus far been spared from major budget cuts, we really don’t know how it will fare in the future,” Rosenthal said. “Most legislators acknowledge the benefit of investing in CDFIs through the CDFI Fund, where each federal dollar is leveraged approximately 27 times by non-federal sources, but given some legislators’ bottom line-only approach, which has slashed a host of social programs, no initiative is safe from cuts, which is why we are especially pleased to see a general shift towards greater community investment by the mainstream capital markets.”
“Credit unions, and CDCUs in particular, have long focused their services to disadvantaged populations. This is exactly why the first credit union in America was founded more than 100 years ago, to provide French-Canadian immigrants with opportunity,” he said. “This is still what many credit unions are all about, but given the challenging economic times, many are finding it difficult to stay in business. While some, even in our own industry, criticize small credit unions as lacking a competitive advantage, we have many member CDCUs that operate as the only regulated financial institution in some of America’s poorest communities. If they go, only the predatory check cashers, payday lenders, and pawn shops will remain to fill the void, and for those of us in the CDFI community, this is simply not acceptable.”
© 2011 National Federation of Community Development Credit Unions.