Many low-income communities throughout the United States as well as in other countries lack access to capital through conventional channels. When loans from commercial banks are unavailable, it can be difficult for people living in economically disadvantaged areas to secure affordable housing or start a small business.
Community investment organizations step in to fill the gap by offering basic financial services in underserved communities. In addition to providing loans, many of these organizations offer education and technical support to help their borrowers succeed.
These community development finance institutions (CDFIs) work to create jobs, provide affordable housing, and finance small business development. The CDFI designation is available to banks, credit unions, community load funds, and affordable housing developers what meet criteria of the U.S. Department of the Treasury.
Sharing some similarities to CFDIs, microfinance or microcredit organizations frequently operate in developing countries, where a loan as small as $25 may be enough for an entrepreneur to start a business and build a better life for his or her family. Many of these community investments pay below-market returns in favor of high social impact.
It is common for socially conscious investors to direct a portion of their assets to community investments. Overall, about 3% of the assets First Affirmative manages for individual and institutional clients are invested in CDFIs and similar investment vehicles.