3c hapter - Index of

92 Locavesting
funds that absorb any losses. Even today, while the recession has
weakened many portfolios, CDFIs compare favorably to banks in
terms of delinquencies and charge- offs.
As a general rule, community loan funds tend to have higher
delinquency rates and lower charge- offs than banks. That’s
because banks, which are closely regulated, have rigorous requirements
for writing off bad loans. Community development entities,
in contrast, have more fl exibility to keep loans on their books.
More importantly, they tend to work more closely with their borrowers
to help them succeed and avoid default.
As the economy soured, CDFIs proactively wrote off loans in
2008 and 2009. Net charge- off rates were 1.78 percent in 2009,
up from 0.93 percent in 2008, according to OFN. That compares
favorably to net charge- offs at FDIC- insured banks and fi nancial
institutions of 2.49 percent in 2009, up from 1.28 percent in
2008. 4 And although CDFIs have higher delinquency, or “at risk,”
rates than banks as a rule, their delinquencies have grown at
a much slower pace than banks’.
Loan funds are the fi rst to remind you that their investments
carry risk. “We are not FDIC insured, we are illiquid, we are what
is called alternative risk—all the things fi nancial advisors warn
against,” cautions Margaret Berger Bradley, director of communications
and investor development at The Reinvestment Fund in
Philadelphia. “But we have never failed to pay back someone who
has lent us money.”
Many investors seem perfectly comfortable with the level of
risk and return they are getting. Judy Wicks, the founder of the
White Dog Café in Philadelphia, known for its sustainable operations
and community support, has invested her entire retirement
account with The Reinvestment Fund at a mid- to- high single digit
rate. Joe McQuillan, a Philadelphia developer, is more typical. He
and his wife have invested 5 percent of their retirement fund, at
2.5 percent interest, in the fund. “I’ve got more confi dence that
TRF is sound than I do in some of the stocks of blue chip companies
that I’ve invested in in the past,” he says. “I lose no sleep on
my TRF investment.”