Experts: As Traditional Banks Fail to Meet More and More Local Needs, Community Investing Poised to Break Through to Mainstream in 2011

"Community investing" is already the unsung hero in thousands of towns and neighborhoods across America, where it quietly has added jobs, local services and support for small businesses whe re traditional lenders have been unable or unwilling to do so. In 2011, community investing is poised to become much more widely visible as a result of three trends that could boost related investments from individuals and institutions, according to experts from the Social Investment Forum, Green America, One PacificCoast Bank and the National Federation of Community Development Credit Unions.

Community investment involves capital from investors and lenders that is directed, typically via community development financial institutions (CDFIs) and other community investing institutions, to communities and individuals that are underserved by traditional financial services. According to a major 2010 Social Investment Forum Foundation report (the most recent data set currently available), assets in community investing institutions rose more than 60 percent from $25 billion in 2007 to $41.7 billion at the start of 2010, reflecting healthy growth in all four categories of community investing institutions: community development banks, community development credit unions, community development loan funds and community development venture capital funds. * (For more information, see https://www.socialinvest.org/resources/research/documents/2010TrendsES.pdf.)

In a news conference today, experts from the Social Investment Forum, Green America, One PacificCoast Bank and the National Federation of Community Development Credit Unions identified three trends expected to continue leading to a surge in community investing assets in 2011:

• Consumers breaking up with mega-banks due to high fees and other abusive practices. Community development credit unions and banks have benefited from increased membership, assets and deposits in recent years, helped in part by consumers dissatisfied with mainstream banks that raised fees and cut back on credit as the recent US recession unfolded after December 2007. In 2010 and 2011, The Huffington Post and Green America have mounted major campaigns to encourage consumers to dump "abusive mega banks" in favor of community investing institutions. (See https://www.greenamerica.org/about/newsroom/releases/2011-02-14.cfm and https://www.adweek.com/aw/content_display/data-center/research/e3id2a9a8ed9c4a58a957d7c4820cedc7f9 for more information.)

• Rising institutional interest in community investing. The latest SIF Trends report shows that institutions in several categories are now investing more in community investing, thanks in part to SIF's education and outreach efforts around this issue to financial advisors, investment managers and religious institutions . According to new data from the Sustainable Endowments Institute, colleges and universities are now among the leaders in moving assets into community investing . Major institutions that have recently turned their attention to community investing include Mount Holyoke , Macalester College , Dickinson, Lehigh, Vanderbilt, and Skidmore .

• Growing consumer awareness of community investing success stories. Most CDFI banks were formed after 1994, initially as small institutions to serve communities that had little access to financial institutions and services. Over the past decades, these institutions have grown at a greater rate than conventional banks of the same size as they have met pent-up demand . An example of this demand: In a recent one-month period, Green America received nearly 15,000 orders and downloads for its new Guide to Community Investing, which helps individual investors take part in this fast-growing field. (See https://www.greenamerica.org/socialinvesting/communityinvesting/orderguide.cfm.) This is where success breeds more success: As community investing institutions meet local demands, they attract additional assets from individuals and institutions wanting to be part of such positive change and help local institutions to flourish.

Fran Teplitz , director of social investing & strategic outreach , Green America said: "The fact that community investing has grown steadily over the past decade, despite fears of capital constraints and the impacts of the market downturn, is a strong indicator for future growth. Add to that consumers ' continuing frustration around mega-banks, and the growing movement to support local economies, and we're likely to see continued growth of CI in 2011 and beyond."

Meg Voorhes, deputy director and research director, Social Investment Forum, said: " For many years, investment managers and advisors specializing in socially responsible investing have helped clients allocate a portion of their portfolios to community investing. It is exciting to see a new wave of interest in community investing as foundations and other institutions look for investments that will have high social impact."

Cliff Rosenthal, president and CEO, National Federation of Community Development Credit Unions, and a member of the board of directors of the Social Investment Forum, said: "Many Community Development Credit Unions and other CDFIs have played a crucial role throughout the recession in providing credit to borrowers who were shut out of the conventional capital markets."

Kat Taylor, founding director, One PacificCoast Bank, said: "We believe that Beneficial Banking -- providing fair and transparent transactional and savings services and loan capital for business and job growth in all communities -- is what all banks should deliver for the privilege of federal deposit insurance. In particular, we focus on lending that supports clean technology solutions, regenerative agriculture and natural resource use, critical community institutions, job growth and a living wage, as well as the resilience of consumers in times of setback. Banking that supports people and the planet will be critical in serving the nation as a whole as well as marginalized communities in order to move toward reliable prosperity for all. We understand that a bank cannot measure success and sustainability by focusing on profits alone, which is why community development financial institutions are so important."

BACKGROUND: THE RISE OF COMMUNITY INVESTING

According to the Social Investment Forum's 2010 data, top-level trends in community investing include the following:

• Assets in Community Development Banks grew to $17.3 billion by yearend 2009, up 34 percent from the 2006 total of $12.9 billion and sixfold from $2.9 billion in 1999.

• Assets in Community Development Credit Unions grew to $11.1 billion at the end of 2009, up 76 percent from $6.3 billion in 2006 and by more than a factor of 18 since 1999, when they stood at $610 million.

• Assets in Community Development Loan Funds grew to approximately $11.3 billion at the end of 2009, up approximately 145 percent from $4.6 billion in 2006 and more than six times from $1.7 billion in 1999. Of the 2009 total, approximately $2.2 billion are in US-based international microfinance funds that provide or guarantee loans for small-business creation and community development abroad. *

• Assets in Community Development Venture Capital Funds grew to $2 billion in 2009, an increase of 67 percent from $1.2 billion in yearend 2006 and 1200 percent from $150 million in 1999.

A major factor in CDFIs' asset growth has been the capital they have received from the US government, as well as foundations and other institutional investors. US Treasury programs stepped up assistance to CDFIs in 2009 as part of US government economic stimulus and recovery programs. In recent years, a number of campaigns, touting such concepts as "program-related investing" and "impact investing" have helped to increase awareness among foundations, other institutional investors and high-net-worth individuals of the high social impact associated with community investing strategies. However, the threat of a pullback in federal support for CDFIs has the potential to put a crimp in the rise of community investing as the very point where communities need it the most, according to the experts.