SRI Trends Report 2018: Community Investing
Community Investing is a vital form of sustainable and impact investing that the US SIF Foundation has tracked for more than two decades. The community investing sector has experienced rapid growth over the last decade, nearly doubling in assets between 2014 and 2016, and growing more than 50 percent from 2016 to 2018.
Community Investing Institutions
In the United States, community investing institutions direct capital to communities and individuals underserved by conventional financial services. They typically provide capital for small businesses, affordable housing units, charter schools, grocery stores and other community amenities. They also provide responsible lending products and related programs to help consumers avoid the predatory lenders that are often found in low-income areas.
Their numbers include banks, credit unions, loan funds and venture capital funds that are certified and overseen as community development financial institutions (CDFIs) by the CDFI Fund, a division of the US Department of the Treasury. In addition, the community investing institutions tracked by the US SIF Foundation include numerous credit unions not certified as CDFIs but with a longstanding mission of serving lower income communities in the United States.
The US SIF Foundation has also tracked US-based loan funds that provide microfinance lending and other forms of capital to entrepreneurs and small businesses in poorer communities outside the United States.
Figure 2.26 shows that the community investing sector has experienced rapid growth over the last decade, nearly doubling in assets between 2014 and 2016, and growing more than 50 percent from 2016 to 2018. The largest growth in community investing assets has been among community development credit unions, whose assets have nearly doubled since 2016, thanks to an on-going wave of mergers and acquisitions within the sector, as high-performing community development credit unions take over the assets of other depository institutions that were impaired during the financial crisis a decade ago.
It should be noted that growth rates between 2014 and 2016 may have been abnormally high due to changes in the certification process that caused many CDFIs to lose certification by the start of 2014, which they subsequently regained later in the year. Controlling for this anomaly, overall growth rates in the community investor sector have been fairly steady since 2010.
Community Development Banks are regulated banking institutions that operate much like their conventional counterparts, but focus their lending and banking services in lower-income communities. They typically offer services available at conventional banks to both individual and business customers, including federally insured savings, checking, money market and individual retirement accounts and certificates of deposit.
According to the CDFI Fund, 139 CDFI-certified community development banks held $42.2 billion in assets by the start of 2018, as shown in Figure 2.26.
Community Development Credit Unions (CDCUs) are regulated depository institutions that are member-owned and cooperatively controlled. CDCUs offer federally insured accounts and other financial services offered by conventional credit unions but are mission-driven to responsibly serve low-income and other underserved communities.
According to the National Federation of Community Development Credit Unions, there were 370 CDCUs with $123 billion in combined assets at the outset of 2018.
Community Development Loan Funds (CDLFs) pool investments from individuals and institutions to further community development, often in specific geographic regions. Unlike depository institutions like banks and credit unions, CDLFs do not have federally insured deposits but they take many other steps to safeguard investor money, including using collateralized loans, setting aside loan loss reserves, and pledging the institution’s or fund’s net worth to protect against investor losses. International loan funds, which represent a subset of CDLFs for the purposes of this report, focus their lending and equity investments overseas, typically providing or guaranteeing small or microfinance loans to entrepreneurs and small businesses.
At the outset of 2018, $19.6 billion was invested in 619 community development loan funds based in the United States. Of this sum, $14.6 billion was invested in domestic loan funds certified as CDFIs. The balance of $5.0 billion, according to data provided by Calvert Impact Capital, represents the assets of loan funds managed by US-based international microfinance organizations.
Community Development Venture Capital (CDVC) is a form of private equity investment targeted at financially underserved low- and moderate-income communities that seeks to generate good jobs, wealth and entrepreneurial capacity. As a form of private equity, community development venture capital funds are also analyzed as part of the alternative investment vehicles discussed previously (but before aggregation, the assets of these funds are controlled for any potential effects of double counting). Within this category, 17 CDVC funds with $239 million in assets under management were certified as CDFIs by the start of 2018.
Other Forms of Community-Related Investment
In addition to the four types of community investing institutions previously described, community-related investing criteria and themes are considered across numerous investment vehicles and asset classes. As Figure 2.27 shows, investment vehicles with $1.39 trillion in total assets say they incorporate some form of community-related criteria. Most of these assets—$983 billion—were in uncategorized vehicles. The most significant community-related criterion for these uncategorized vehicles was affordable housing, affecting more than $500 billion in assets. Alternative funds accounted for the second largest pool of assets—$320 billion—considering community criteria, and registered investment companies applied community-related criteria across $77 billion in assets.