Social Impact Investing

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Impact Investments: An emerging asset class Global Research 29 November 2010 Appendix III: CDFIs In depth: Community Development Finance Institutions in the US In the US, community development finance institutions (“CDFIs”) were some of the earliest impact investors. As non-profit companies created to reduce poverty in economically depressed areas, CDFIs evolved from depository institutions that emerged in the early 1900s to serve economically disadvantaged communities by lending capital from collected savings. Credit unions and banks dominated the industry until the 1960s and 1970s, when community development corporations and community development loan funds emerged to finance small business and affordable housing developers. As part of President Bill Clinton’s urban development agenda, a 1994 law formalized the legal concept of a CDFI and established a government-funded CDFI Fund to provide risk capital to spur investment in CDFIs. Since its inception, the CDFI Fund has awarded more than $1bn in funding and has granted allocations of New Market Tax Credits 110 that have attracted more than $26bn in private investment 111 . There are over 1,295 CDFIs currently functioning in the US, including more than 400 community development loan funds, 80 venture capital funds, 290 credit unions and 350 community development banks. In the 2008 CDFI Data Project, a collaborative of the leading CDFI trade associations, 495 CDFIs were surveyed and sampled in industry landscaping research. The sample managed over $29bn in assets, with the average total asset size for each CDFI, being $59,408,271. They invested over $5.5bn in 2008. 40% of their investments were in housing, 37% in business, 8% in consumer finance, 4% in community services, 1% in micro-enterprise and 11% in other. Those investments created 35,524 jobs, financed 60,205 affordable housing units and provided 116,405 responsible mortgages for new home buyers 112 . During the last five years, the total assets for CDFIs in the Data Project grew by 10% per year. At this growth rate, the assets in this sample would grow to over $76bn in 10 years. However, when compared to the $13.8 trillion under management by US banking institutions, CDFIs are a small subset of mainstream finance, and will need government support to reach scale. We expect that this support will mainly be given by the CDFI Fund. The CDFI Fund is the government’s most effective tool for increasing the asset size of CDFIs. The CDFI Fund estimates that for every dollar that they give in financial assistance, they leverage $20 in private and non-CDFI public capital 113 . This is a highly promising statistic for the CDFI industry, given that the Obama administration has increased the CDFI financial assistance appropriations to a record $245m in FY 2010 and $250m in FY2011, up substantially from the $54m in appropriations in 2007 and $107m in FY 2009. The new appropriations budget is projected to leverage an additional $2.7bn in private financing. 110 The New Markets Tax Credits program is a program administered by the U.S. Department of Treasury and the CDFI Fund to encourage economic development in low income communities. 111 The CDFI Fund, http://www.cdfifund.gov/who_we_are/about_us.asp 112 FY 2008 CDFI Data Project Report, CDP Publication Committee. 8th ed. Philadelphia: Opportunity Finance Network, 2010. 113 http://www.community-wealth.org/_pdfs/featured/bang-for-buck.pdf 80
Impact Investments: An emerging asset class Global Research 29 November 2010 Impact investors have found various avenues to invest in CDFIs. They can invest into community development venture and loan funds or direct capital into a CDFI bank. To invest in a public CDFI bank, investors can buy stock, negotiate a PIPE transaction (Private Investment in Public Equity) or enter into a preferred stock transaction with a warrant. In both private and public CDFI banks, investors can purchase trust-preferred securities 114 or make linked deposits, which reduce the interest rate to a particular borrower or act as a guarantee for borrowers who would not be able to access capital independently. Lastly, impact investors who wish to support community development credit unions (that cannot take on equity due to their non-profit status), can support them through a deposit or through “secondary capital” subordinated debt that strengthens the existing capital of the credit union. 114 Trust preferred securities are long-term debt instruments with qualities of preferred equity. 81
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23 “His master replied, ‘Well d
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Domini, shareholder advocacy and co
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Two good things came out this resea
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Fund Azzad Ethical Mid Cap Fund Bri
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Fund Fund A Praxis Growth Index Fun
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development in the US, or are made
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concern, and submitting and voting
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sustain land trusts, to a meeting o
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that are often excluded from market
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Some organisations that have used S
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it helps identify the critical sour
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and shareholder trust through posit
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Approaches Some commentators have i
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Wieland and Handfield (2013) sugges
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EthicalQuote (CEQ) tracks reputatio
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Displaying commitment to CSR is one
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Brand Differentiation CSR can help
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takes health and safety, diversity
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advance with the practice of CSR wh
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Stakeholder Influence One motivatio
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Regulation Fifteen European Union c
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jurisdictions. E.g., some jurisdict
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"Impact investments can be made in
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venture capital community. Investor
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countries via local intermediaries.
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determining views of affected commu
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Another measure of economic impact
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The Board for the CCEG was to inclu
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17 Love Relationship Online dating
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Social Value Act 2012 legislation.
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Development released a report outli
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Benefits and Costs of Social Impact
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UK On 18 March 2010, Secretary of S
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US Massachusetts: The second of two
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US Federal: The U.S. Department of
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would establish a five-year pilot p
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We are dedicated to finding ways to
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In the past, public monies have oft
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indicate that more Americans want t
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Youth" to "Opportunity Youth" in or
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income must file a Form 990. The fo
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In its first three years, SIF has a
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The Office of Social Innovation pri
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of Management at UCLA; and launched
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Notes _____________________________
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Investing for Impact Case Studies A
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Contents What is Impact Investment?
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What is Impact Investment? Impact I
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A case study approach in an asset a
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Segments of Impact Investors High T
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Foundations Like high net worth ind
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in the developed and the developing
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By creating mechanisms through whic
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Asset Allocation Framework Asset cl
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Cash Shorebank Deposit Program fina
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Mezzanine/Quasi Equity Instruments
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Venture Capital Bridges Ventures CD
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Real Estate JP Morgan Urban Renaiss
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absolute return (hedge funds) BelAi
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senior debt Root Capital Impact Fir
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Venture Capital Aavishkaar Impact F
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eal estate Ignia Impact First Inves
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senior debt Root Capital Layered St
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The New York City Acquisition Fund
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Appendix Methodology The Investing
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Websites •• Bridges Ventures: h
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Cash Quasi Equity Public Equity Buy
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SOCIAL IMPACT INVESTMENT: BUILDING
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Global Research 29 November 2010 Im
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Impact Investments: An emerging ass
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Social Impact Investing

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