Tag: Impact Investing

Above: Donna Katzin, founder of Shared Interest with Ruben Mbuyisa of Mutha Farms – beneficiary of a Shared Interest guarantee. Photo courtesy of Shared Interest

Today, in our current political and social environment, the demand to invest in undercapitalized Black and Brown communities resonates with particular urgency – and for good reasons. In the U.S. alone, white families have accumulated seven times more wealth than Black families and five times more than Latinx families, and during the pandemic twice as many Black-owned as white-owned businesses have been forced to close.¹

Investing in low-income communities struggling at the margins of the mainstream economy has been a pillar of socially responsible investing for more than half a century – the movement has now broadened to include “sustainable” and “impact investing.” While faith-based and other investors have also launched corporate dialogues and screened their investments to end slavery, advance civil rights, stop the Vietnam War, abolish apartheid and combat climate change – many have proactively invested in undercapitalized and disempowered communities.

Just as this movement gathered momentum on the heels of the Civil Rights and anti-apartheid movements, it is particularly relevant now to strengthen Black, Indigenous and People of Color (BIPOC) communities and to help reverse the concentration of wealth and power in fewer and fewer hands. This agenda prioritizes transforming an economy built on the original sins of the suppression of Native people, enslavement of Blacks and extractive exploitation of the earth.

In our globalizing world, where challenges of inequality, racial oppression, climate change and pandemics know no borders and impact each other, SRI has provided a mechanism for redirecting capital toward global solutions. In this context, a number of community investing institutions work internationally. These include Root Capital, which lends directly to rural enterprises and small-scale farmers in Sub-Saharan Africa, Latin America and Southeast Asia; Working Capital for Community Needs, which extends credit to microfinance institutions in Latin America; MicroCredit Enterprises, which provides finance for overseas microfinance institutions and small businesses; and Shared Interest, which facilitates Black communities’ access to commercial capital in Southern Africa (see below).

Gathering Steam

Community investing in the U.S. is growing rapidly and steadily.  Assets invested in community investing institutions – totaling $226 billion in 2020 – nearly doubled between 2014 and 2016, rose by more than 50 percent during the following two years, and increased by 44 percent between 2018 and 2020, reports USSIF.²

Fueling Transformational Change

Community investing not only redirects resources to enterprises, homes and facilities in communities marginalized by racial, gender and economic exclusion. At the same time – place-based strategies can further challenge an inequitable status quo by empowering vulnerable communities, linking them to broader social movements, and impacting institutions that keep their residents poor and powerless.

Here are some important examples:

Grassroots Community-Engaged Investment: The Boston Ujima Project.

A recent paper by Transform Finance examines grassroots community engaged investment institutions (GCEIs), such as the Boston Ujima Project, which combine BIPOC community investment and community organizing strategies to build wealth and power.

Ujima (whose name is Swahili for collective work and responsibility) has worked in Black communities in Boston since 2017 to provide finance to local residents, using grassroots structures including neighborhood assemblies to ground the organization’s policies, practices and products in members’ decisions. It further facilitates collaborations and advocacy to advance their goals and broad economic justice agenda. Ujima’s United Business Alliance also translates these priorities into action by providing a network of community-oriented companies committed to sharing ownership and wealth, creating good jobs and meeting local needs in keeping with community priorities.

Movement-Building: The Oweesta Fund

A second strategy connects community development financial institutions (CDFIs) serving excluded and exploited populations to larger social movements. For example, the Oweesta Fund (which grew out of the First Nations Development Institute) provides loan products and grants, as well as technical, policy and advocacy support to the 40-year old Native Community Development Financial Institution movement and its members.  It aims to help build “the economic independence and strengthen sovereignty for all Native communities.” With its $16 million loan portfolio and support services, Oweesta fortifies the connective tissue between CDFIs deeply rooted in Native communities and amplifies and leverages the voice and power of these institutions and their communities to advance their shared priorities and rights.

Changing Institutions: Shared Interest

Launched in 1994, after the fall of apartheid, to enable South Africa’s Black majority to make a reality of its hard-won rights, Shared Interest utilizes loan guarantees to catalyze institutional change. By sharing risk with Southern African commercial lenders and providing technical support, it has helped move 22 banks and other financial institutions to extend credit for productive purposes to Black communities and clients they would have otherwise considered “unbankable.” The organization has benefited more than 2.3 million entrepreneurs, farmers, home-owners and cooperatives since inception. The ultimate goal is for Black borrowers to secure credit from mainstream financial institutions that have changed their business practices to include them.

Looking Forward

Of course, there are challenges. Not the least of these is scaling strategies that are deeply rooted in particular communities, and not easily replicable. Moreover, the community investing field has not yet developed an efficient and sustainable mechanism for connecting these “transformative” organizations to each other or to the retail investment market, despite several valiant and innovative attempts and technology-enabled platforms. This remains a focus for the future. If we are serious about challenging racial and economic oppression and empowering marginalized communities, we urgently need to educate investors about which kinds of community investments produce which outcomes and impact. Examples include Calvert Impact Capital’s resource for impact-driven faith-based investors.

We must also support:

• Emerging GCEIs in frontline communities;
• Intermediaries that link and support such grassroots wealth- and power-building initiatives; and
• Organizations that engage in institutional change.

Working together, today’s social change movements and investors have the potential to harness what we have learned about community investing and organizing since the 1960’s to build the resources, capacity and power of communities struggling for social, racial, economic and environmental justice.

These times require no less.

Article by Donna Katzin, the founding executive director of Shared Interest, which she led for 26 years to help move international investors from disinvestment from apartheid to reinvestment in a democratic new South Africa. Previously she directed the South Africa and International Justice Programs for the Interfaith Center on Corporate Responsibility.  Prior to that she created the Human Rights Department and served as an organizer for District 65 UAW in New Jersey. She has been honored by the South African – American Organization, the North Star Fund, the South African Embassy, Face2face Africa, and the Conference on Sustainable, Responsible, Impact Investing.

Donna has worked as a community organizer in housing, bilingual education, and the movements to oppose US intervention in Central America and the Caribbean and apartheid in South Africa. She co-leads Tipitapa Partners, a US non-profit that works with marginalized women and youth in Nicaragua to sustain their communities and uphold their rights, and is a board member of Community Change and the Fund for Community Change in the US.

Faced with an affordable housing shortage, policymakers often overlook America’s biggest source of affordable housing: homeownership.

Client photos courtesy of Homewise, inc.

Contrary to popular belief, owning is often more affordable than renting. Today, it is cheaper to buy a home than it is to rent in two-thirds of US counties, including New Mexico’s Santa Fe and Bernalillo Counties, home to high-cost Santa Fe and moderately priced Albuquerque, where Homewise, has helped more than 5,000 modest-income families become homeowners.

Nevertheless, some believe homeownership is reserved for people who achieve some level of financial success, that it’s not for people still on the path to financial security. This may explain why most federal, state, and local efforts to create more affordable housing narrowly focus on the rental market.

However, the data disprove this thinking. The typical homeowners spend 10 percentage points less of their income on housing than the typical renters.

This remains true when controlling for income. Among households with annual incomes of less than $50,000, renters spend an average of 34 percent of their income on housing, but owners spend only 24 percent. Similarly, for households earning less than $20,000 a year, homeowners spend 38 percent of their income and renters spend 48 percent.

The lower cost of owning also holds true when controlling for race and ethnicity. Though Black and Hispanic homeowners have higher housing expense ratios than white homeowners, they have lower housing expense ratios than all renters, including white renters. The median housing expense ratio for Black and Hispanic homeowners is 19 percent, and the typical white renter household spends 24 percent of its income on housing.

I’m not suggesting homeownership alone can solve the housing affordability crisis. But strategies focused only on rental housing can be shortsighted, especially when homeownership may be more cost-effective for all involved. Many rental programs, including housing choice vouchers, require the government to send monthly assistance to a landlord who is under no obligation to renew a tenant’s lease.

In comparison, homeownership can provide the kind of affordability and stability low-income families need. Here’s how.

The Average Monthly Mortgage Payment is Less Than the Average Monthly Rent

In November 2020, the Zillow Home Value Index estimated the median US home value was $263,351. If a homebuyer financed 100 percent of their home purchase, their monthly mortgage payment would be $1,464 (assuming a 30-year fixed-rate mortgage at a 3.5 percent interest rate, with taxes and insurance estimates from the 2019 American Housing Survey).

At that time, the Zillow Observed Rent Index found the median monthly rent was $1,734, meaning the average renter paid $270 more per month than the average homebuyer.

Mortgage Payments are Generally Stable, But Rents Tend to Rise

Increasing rents and home prices do not affect renters and owners the same way. Whereas renters are continuously vulnerable to cost increases, rising home prices do not affect current homeowners’ costs.

Over time, owning and renting produce starkly different economic outcomes. Homeownership’s major affordability benefit is that it stabilizes what is likely the household’s biggest monthly expense, assuming a buyer has a fixed-rate mortgage. The only potential changes in homeowners’ housing expenses are taxes and insurance. The principal and interest payment stays the same for the length of the loan.

The Cost of Owning as a Share of Income Almost Always Declines Over Time

In general, incomes, rents, and other expenses increase over time in relationship to the overall inflation rate, but not typically all at the same rate. If rents increase faster than wages, the renter’s housing expense ratio increases. If wage increases outpace rent inflation, the renter’s housing expense ratio decreases.

By comparison, if a homeowner’s wages increase at the same rate as inflation, their housing expense ratio decreases because only taxes and insurance are subject to inflation. The biggest part of their housing expense, the principal and interest, is constant. Even though the renter’s and the homeowner’s costs increase, the homeowner’s costs increase less. Annual increases in housing costs will almost always grow faster for renters than for homeowners.

Homeowners’ Housing Expenses Decline Over Time in Absolute Terms

Owning a home not only becomes more affordable relative to income, it also becomes more affordable in absolute terms. The homeowner’s real housing expenses decline over time because the principal portion of the mortgage payment is not really an expense. Instead, it builds the homeowner’s equity. And unless tax and insurance increases rise faster than the interest expense falls, the true housing expense decreases over time.

Put another way, ownership capitalizes on the power of buying a home by converting a portion of what would otherwise be 100 percent consumer spending (renting) into a combination of consumer spending and investment. And it does so without additional resources. The home buying investment simply converts some portion of an existing expense (renting) into an investment in real estate.

Homeownership’s “Affordability Big Bang”

The final meaningful financial benefit of homeownership is what I call the “Affordability Big Bang.” After a homeowner makes their final mortgage payment, all that remain are tax and insurance costs. The owner’s housing expense drops precipitously, often just in time for retirement, when incomes also often decline.

Homeownership Can Be Affordable Housing

If the nation is committed to helping all Americans achieve affordable, stable housing, we must do more to help low-income families and families of color own their own housing. Affordable homeownership is not the capstone of economic well-being; it is the cornerstone. And increasing access to homeownership would also help close the racial wealth gap. If America is going to effectively address its affordable housing crunch, as well as its racial wealth gap, policymakers will need to prioritize increasing access to homeownership—access that will foster financial stability and mobility for millions of Americans.

This post originally appeared on Urban Wire, the blog of the Urban Institute

Article by Mike Loftin, who has served as the CEO of Homewise, Inc. since 1992. Homewise is an effective nonprofit social enterprise, promoting sustainable homeownership in a way that improves the long-term financial well-being of modest-income families. Loftin led the creation and implementation of Homewise’s comprehensive business model that seamlessly integrates all the steps of the home purchase process. Fiercely focused on the long-term success of every homeowner, Homewise sustains an over-30-day delinquency rate that is less than 2 percent, compared with the Federal Housing Administration’s rate of more than 9 percent. Homewise has become New Mexico’s sixth-biggest mortgage lender and covers all of its operating expenses from earned revenue. Loftin drafted and led the campaign to pass Santa Fe’s inclusionary zoning law, which has been used as the model for similar ordinances adopted by other municipalities.

Previous to his work at Homewise, Loftin was a community organizer in Chicago, and his achievements included founding the Resurrection Project, a preeminent Chicago community-development organization serving several Mexican-American neighborhoods; organizing an antidisplacement campaign in Chicago’s Uptown neighborhood during his tenure with the affordable housing organization Voice of the People; and leading the Metropolitan Tenants Organization in the passage of Chicago’s Tenant Bill of Rights.

Loftin currently serves on the board of Excellent Schools New Mexico, served on the board of the University of New Mexico Anderson School of Management Foundation, and was a governor-appointed board member of the New Mexico Mortgage Finance Authority. Loftin holds a Bachelors in History from Northwestern University.

Welcome to the GreenMoney Interviews series. This issue features two Women of Color who are emerging leaders in SRI and community investing:  Kimberly Jones of Self-Help Federal Credit Union interviews Nicole Middleton Holloway of Natural Investments.

Find their bios at the end of the interview.

Kimberly Jones opens: When I was approached to write this article, I knew immediately that I wanted to speak with Nicole, to get her take on the impact that community investing has on communities of color, particularly now in the aftermath of the country’s response to the pandemic and the civic unrest that has occurred over the past year and a half. We had a spirited and lively conversation about impact investing and her own personal journey within this sector. Let’s begin…

KJ:  Hi Nicole. Thank you so much for agreeing to do this and let’s just jump into it. From your perspective, as a wealth manager, what does community investing mean to you and why is it important?

Nicole Middleton Holloway:  Community investing is an investment in a targeted community based on impact and need. It is typically an investment that doesn’t have market rate rates of return, because the point of the investment is to uplift a certain community need. It can be for a variety of different areas, from funding entrepreneurs and micro enterprises and other small businesses to focusing on specific communities, like low income, BIPOC (Black, Indigenous and People of Color) communities. It can be focused on healthy food systems, affordable housing, or wherever there’s a need. The investment can be an investment note or a CD, which is something that we, at Natural Investments do quite often through places like Self Help Credit Union or Hope Credit Union.

And they are so important because of the need for community institutions or funds, who are trying to address real critical social needs or divestment in these communities, as well as the systemic barriers that these communities have experienced for decades. There’s so much wealth disparity and those individuals, families, and institutions that have wealth and the ability to accept and incorporate community investing into their overall portfolio can have real impact. And at certain levels, for some clients, this is their primary focus area.

I’ve personally seen the benefit of a community investment as an entrepreneur and woman of color business owner. The ability to grow my business and my practice came out of the support that I received as a result of these funds invested into CDFIs (Community Development Financial Institutions.) So this is very personal as I come from a community that had been disenfranchised. But I also get to see how it’s exciting for an investor to be more engaged with their wealth and see that engagement with a community instead of just investing in a regular mutual or index fund.

KJ:  Are your clients who do community investing basing it on their own values and interests or are you pushing them to explore ways to have an impact?

NMH:  I would say it’s both. From the beginning of a client relationship, there is definite interest from clients wanting to invest for impact. But they don’t always know what those opportunities are, so they come to advisors like me or my team, because we have the knowledge base of what’s possible. They also work with us because we assess their financial needs and know what is appropriate for their level of risk tolerance. I certainly have clients who are really passionate and very vocal about things, like coming to me and asking, “how do I implement a reparations-based investment portfolio?”

KJ:  Say more about that. The pandemic and the civic unrest after George Floyd’s murder highlighted inequalities that have historically taken place in communities of color around the country. What role does community investing play in addressing these issues?

NMH:  The impact investing community needs to be front and center in investing in solutions to solve the issues that came from the 2020 pandemic and the uprisings about police brutality.

We don’t want investors to respond like I’ve seen it done with philanthropy, where there’s this hot issue of the moment and then a couple years later the priorities or focus changes. So, I often remind investors about the intersectionality of issues when creating an impact investing portfolio — how they can address these issues as a whole or as a theory of change and to really look at their entire investment portfolio as a catalyst to address issues systemically.

KJ:  This is a good segue into my next question. We’ve recently seen a spate of investments primarily led by white high net worth individuals and institutions. However, they don’t appear to “walk the talk”, as it relates to incorporating DEI (Diversity, Equity, and Inclusion) into their policies, their fund managers, their advisors, etc. What are your thoughts about this and what should the industry be doing differently to be more inclusive?

NMH:  Yes, this is great. In terms of increasing the ranks, having more people of color and more women of color and BIPOC individuals in leadership positions is really key. The impact investing industry has a real problem in the fact that it doesn’t make itself well known in communities of color. For instance, they’re not showing up in places, like the HBCUs (Historically Black Colleges and Universities) or other organizations where people of color who are new to the finance industry can find out about the job opportunities or professional development that is available in this sector.

KJ:  Some may say that if the money is getting into the communities that need it, what difference does it make who is placing the money? In your opinion, why is DEI important for this sector?

NMH:  At Natural Investments, we do a lot of impact investing and we have structures in our due diligence process which are really helping to maintain a diversity of perspectives on investments or a due diligence committee evaluating a new fund. There are barriers that get overlooked or due diligence processes that need to be updated. So, we’re trying to analyze that and address that, but it really helps if you have people with different perspectives, different expertise, or different backgrounds to help someone assess things such as risk; as opposed to doing what they’ve always done.

KJ:  So what has been your experience as a Black woman in this sector? Has it helped or hindered you in any way?

NMH:  My experience in financial services in general, especially when I first started, was maybe not as positive and thank God, I found the SRI or community investing industry because otherwise I probably would not be doing this work anymore. The SRI industry tries really, really hard and I appreciate the efforts and the willingness to have conversations to examine the way things have been done. And yes, there is acknowledgement that the SRI industry has not done enough, right? I do get frustrated and as a woman of color, I want the industry to go further.

As for being supported as an advisor and my career within the industry, I’ve felt very much supported. The advisors that I work around, both within Natural Investments and outside our firm, are really, really, intentional about trying to support my work, learning, and development as a professional. I am glad that I decided to get a lot of education and get my CFP (Certified Financial Planner) certificate because they have helped me be more confident as a professional. It’s also just been great that other advisors are raising my visibility and acknowledge me in the industry. For example, I got nominated for the young advisors to watch list through Financial Advisor magazine. I think those things really can help to uplift women of color advisors or people of color professionals in this industry to be able to be in this for the long haul.

KJ: Well, I have one final question and that is; what do you see as the future of Community Investing? Or better yet; what impact would you like to see?

NMH: Hmm…What I would like to see is more of a real influx and even greater amounts of capital flowing into community investments and into community investing in general. I would very much like the greater financial services industry within its various types of advisor roles to be more knowledgeable about community investing, because, you know, right now still, we’re a small segment of the industry. We need to be bold and brave and more diverse. I especially want to see more women and women of color led-funds, as I think there’s a huge difference when there’s female leadership at these organizations.  And even though there are now more women led-funds in the community investing space then  before, there’s still work to do. So, I’m all for that…I want to see more of that!

This interview has been edited and condensed for clarity.

BIOGRAPHIES

Kimberly Jones, Manager, Investor Relations, Self Help Federal Credit Union. Kimberly Jones’s professional career spans both the nonprofit and community development financial services sectors, with expansive senior leadership roles in arts management; business and resource development; community relations; and corporate philanthropy. Currently, she is an Investor Relations Manager with Self-Help Federal Credit Union, where she helps individuals and institutions align their banking and investments with their mission and values, helping to maximize their social and financial returns. Kimberly has held leadership positions that advanced the missions of creative organizations and community development financial institutions seeking to make a difference in communities in their footprint. She has been a founding board member of mission-driven organizations that support the growth and development of young artists, creatives, and professionals in the nonprofit sector. In 2015, Kimberly was selected to be a PLACES Fellow with The Funders Network, where she explored the role of philanthropy through an equity lens in low to moderate income communities. She has served as a grant/award reviewer for organizations that championed organizational excellence, community development, and environmental sustainability. Kimberly has a BA in Political Science from the University of Minnesota-Morris and an MA in Arts, Entertainment, and Media Management from Columbia College Chicago.

Nicole Middleton Holloway, CFP^® Nicole is a Certified Financial Planner ^TM, co-founder and CEO of Strategy Squad, an independent, family-owned wealth management firm based in the San Francisco Bay Area and an SRI advisor with Natural Investments. Her personal mission is to support women and conscious investors as they take confident steps towards financial independence, and help them live abundantly and make a positive impact with their wealth. Nicole was recently named one of the Young Advisors To Watch in the May 2021 issue of Financial Advisor magazine. Nicole is a proud mother and an Oakland native. She holds a Master’s Degree in Financial Planning from Golden Gate University, and a Bachelor’s Degree from the University of Southern California.