Kat Bellucci:Last week on the show, Paul brought up the topic of socially responsible investing. He explained that it was the sort of investing that follows our beliefs. In other words, these are investments that invest in businesses that are focused on the same core values we try to live by: protecting the planet and the world our children will inherit. While Gina and I had numerous questions about the subject, the one topic that hit closest to home was the idea of community investments. Could you explain a little more about what this is?
Paul Petillo: We all know, in the business world access to money, more specifically access to credit, is key to success. Credit as we all know is a good faith agreement between you and a lender that whatever you borrow money for will be put to good use and will be paid back in the agreed upon time.
Unfortunately, this agreement is not offered to low-income individuals or communities. Lack of access to credit, equity, capital or basic banking services often keeps the poorer part of our population poorer. We often think of this as a global problem but it is very much a concern right here in the US.
Community investing makes it possible for local organizations to provide financial services to low-income individuals, and to supply capital for small businesses and vital community services, such as childcare, affordable housing, and healthcare.
Paul: That’s true. Just like you say in the intro to the show, raising women’s wealth or in this case, access to the opportunity to increase their financial standing will go a long way to eliminating poverty.
Kat: Why don’t banks and large financial institutions do something about this?
Paul: More than just the low profit margins that often come as a result of this type of investing, many larger institutions simply do not want to take the risk. This is where Community Investment Institutions or CIIs step in giving priority to people who have been denied access to capital and provide them with opportunities to borrow, save, and invest in their own communities. These folks are often creditworthy, hard working individuals but lack the assets required to secure any type of big bank agreement.
Kat: So what can we do?
Paul: First we need to understand how these types of investments work. Many of these investments work like mutual funds. But they do not invest in stocks; they invest like bonds. A bond is basically a loan that provides you with a yield or interest payment in return for your invested dollar. With CIIs, the returns are usually lower than the markets offer but the satisfaction return is much higher.
For instance, Access Capital Strategies, a fund run out of Boston by David F. Sand focuses his bond fund on financing for low- and moderate-income homebuyers, the development of affordable rental housing units, Small Business Administration loans, and economic development projects in urban and rural communities across the U.S. In some cases, you can actually use the fund to target a specific geographic area.
Kat: Are there opportunities for investors who don’t want to use a fund?
Paul: Absolutely. They need only find a community development bank or credit union that makes an effort at strengthening lower-income communities. This is often done by these institutions provide when they provide everything from checking and savings accounts, to CDs and IRAs, to mortgages and other loans focused on customers who may be turned away from larger banks and lenders. Women like Lisa Thompson working at the Louisville Kentucky Community Development Bank uses her resources to make loans focused on revitalizing poverty riddled neighborhoods. To date, she has made over $49 million in loans to her community creating over 1300 jobs in the process.
Back in 1974, the National Federation of Community Development Credit Unions was begun to help credit unions help their communities. They do this in a variety of ways. Not only do the promote programs to match the savings of low-income folks looking to by their first home, they offer education, grants and help fight predatory lending in these neighborhoods. Payday type loans often are the scourge of low-income wage earners who are met with unexpected financial needs. CDCUs go a long way in helping educate and bridge the gap between poverty and financial security.
Kat:You mentioned that these opportunities are not just here in the states but worldwide.
Paul: I have provided a link to all of these types of loan funds and banks on your blog. You can pick and choose from a variety of countries from Peru to Cambodia, from Mexico to Mongolia. Almost anywhere really. This might not be the best way to fund your retirement but it is certainly an excellent way to make money and feel good about your investment at the same time. As I mentioned earlier, there is a high satisfaction return.
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