Scanning the Field: Emerging Efforts to Capture Impact Capital
June 13, 2017 / Guest Blogger: Rachel Reilly Carroll, Associate Director for Impact Investing, Enterprise
The CDFI industry was built upon a rich history of self-reliance and determination. Since the 1800s, Americans overlooked by traditional financial institutions have organized to empower themselves and their communities through different variations of peer lending networks. Modern-day impact investing is a derivation of this model—people and companies looking for opportunities to lift up the places and causes they care about.
Mainstreaming impact investing—are we at a tipping point?
Panelists at last month’s Wharton Social Impact Conference seem to think so, citing an increased interest in investing with purpose. It’s estimated that baby boomers will transfer nearly $60 trillion in wealth to millennials over the coming decades. Many anticipate this will lead to an exponential increase in assets targeted to values-aligned investments. To capture this growth a number of international investment firms, including Bain Capital and BlackRock, have launched Sustainable, Responsible, Impact Investing (SRI) practices in recent years.
As mainstream financial institutions begin integrating impact as a core value, CDFIs are grappling with our place in the market and how we can best connect to investors. CDFIs are uniquely positioned to connect investors to SRI opportunities and many have been doing so for decades. However, scaling this practice has remained elusive—but that might be about to change.
Eight ways in which CDFIs are moving to capture impact capital
While the practice of impact investing is baked into the core competencies of the CDFI industry, we face challenges in our ability to capitalize on this growing movement. A number of organizations are moving to address these challenges and help bridge the divide between mainstream investors and CDFIs.
- Investor Notes—Craft3, Vermont Community Loan Fund, and CEI are among the nearly two dozen CDFIs currently issuing private debt to individual and institutional investors.
- Electronically Traded Investments—The lack of electronically-handled investment products offered by CDFIs is a barrier to connecting to mainstream investors. Recently, Enterprise Community Loan Fund began offering its Impact Notes online through self-directed brokerage accounts, and Self-Help Credit Union created federally insured DTC-eligible Certificates of Deposit, including their Friends and Family CD.
- General Obligation Bonds—This year, LISC and Reinvestment Fund both issued S&P-rated general obligation bonds totaling $150 million. These are the first two offerings of this kind, and the bonds’ success has signaled CDFIs’ ability to access the private bond market.
- ImpactUS—An online marketplace for community investment products also launched this year. ImpactUS provides a platform of services to CDFIs and others to lower barriers associated with raising private capital.
- CNote—CDFIs can access impact capital without having to create an investment product. CNote aggregates and manages capital from impact investors, and lends that money to participating CDFIs.
- Mighty Deposits—Are bank accounts the on ramp for mainstreaming impact investing? CDFI banks can partner with Mighty Deposits to appeal to impact investors by providing investment transparency and telling their impact story.
- LOCUS—Philanthropy is embracing impact investing, and this year Virginia Community Capital launched LOCUS Impact Investing to help facilitate the flow of impact capital by connecting foundations with investment opportunities.
- Becoming a B-Corps—To attract the attention of impact investors, a number of CDFI banks, including Spring Bank and City First, have become certified B-Corps.
These are just a few examples. Do you know of other ways CDFIs are innovating to connect to impact investors?
Rachel Reilly Carroll is the Associate Director for Impact Investing at Enterprise, leading the Enterprise Community Impact Note program and directing Enterprise Community Loan Fund’s public policy and impact articulation strategies.
*The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of OFN.