Community Investing

What Is Community Investing?

In finance, the term "community investing" alludes to institutions and investment products that are planned to support monetarily impeded networks.

In the United States, for instance, there are several types of [Community Development Financial Institutions (CDFIs)](/cdfi, for example, community development banks (CDBs) and community development credit unions (CDCUs). These institutions give capital to underserved networks through personal credit, real estate development financing, business loans, and other financial products.

How Community Investing Works

Today, community investing forms part of a bigger trend in the investing community. Progressively, both retail and institutional investors have come to see social and environmental impacts as a central consideration in their investment dynamic cycle.

Under the system of the United Nations-based PRI, for instance, more than 3,500 participating financial institutions have pledged to direct their portfolios toward investments with high environmental, social, and governance (ESG) factors. As of March 2020, those institutions on the whole address assets under management (AUM) of more than $103.4 trillion.

However while community investing is part of this global shift toward responsible investment practices, it likewise has a specific importance in the United States. In 1994, the United States Congress passed the Riegle Community Development and Regulatory Improvement Act, leading to the Community Development Financial Institutions Fund (CDFI Fund). Through this new institution, financial service companies could apply for tax credits and different incentives to assist with funding investments in monetarily burdened networks all through the United States.

Real World Example of Community Investing

As of July 2020, there were almost 1,030 financial institutions conveying different services to underserved networks that received certification from the CDFI Fund. Of these, generally half comprised of loan funds, which are institutions that pool capital from investors to loan money to entrepreneurs in moderately ruined networks; while around 40% comprised of CDFI-subsidiary banks and credit unions who utilize contributors' funds to support the networks in which they dwell. Through and through, there was generally $141.2 billion invested in CDFI-ensured institutions starting around 2019.

Progressively, there are likewise some fixed income and alternative investment vehicles that spend significant time in community investing. For instance, the Community Investment Note — presented by the non-profit financial firm Calvert Impact Capital — is a fixed-income security that dispenses capital to different community investment drives. Since its commencement in 1995, generally $2 billion had been distributed through these notes as of December 2020.

Highlights

• It is regularly accomplished through different financial intermediaries and investment products.
• The practice has become progressively famous all through the world, driven in part by organizing institutions like the United Nations Principles for Responsible Investment (PRI).
• Community investing is the practice of dispensing capital to low-income networks.