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Three trends lead to surge in community investing
NEW YORK (4/26/11)--Community investing is poised for more visibility in 2011 as a result of three trends that could boost related investments from individuals and institutions, said the Social Investment Forum (SIF), Green America and the National Federation of Community Development Credit Unions in an April 13 news conference. Community investment involves capital from investors and lenders that is directed, often through community development financial institutions (CDFI) and other community investing institutions to underserved communities and individuals. Assets in community investing institutions rose more than 60% to $41.7 billion in 2010 from $25 billion in 2007, said the 2010 SIF report, the most recent data available. That reflects healthy growth in all categories of community investing institutions: community development banks, credit unions, loan funds and venture capital funds, said SIF. The three major trends include:
* Consumers breaking up with mega-banks due to high fees and other abusive practices. Community development credit unions (CDCUs) and community development banks have benefited from increased membership, assets and deposits in recent years, helped in part by dissatisfied consumers angered at mainstream banks' raising their fees and cutting back on credit throughout the recent recession, and by media campaigns to encourage consumers to dump abusive mega banks. * Rising institutional interest in community investing. Institutions in several categories are doing more community investing, in part due to SIF's education and outreach efforts with financial advisors, investment managers and religious institutions. Colleges and universities are now among the leaders in moving assets to community investments, providing market pressure for mutual funds and money managers to provide more socially responsible investment options. * Growing consumer awareness of community investing success stories. Most CDFI banks, formed after 1994 as small institutions, have grown at a greater rate than conventional banks of the same size by meeting pent-up demand. 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.
CDCUs and other CDFIs "have played a crucial role throughout the recession by providing credit to borrowers who have been shut out of the conventional capital markets," said Clifford N. Rosenthal, federation president/CEO and a member of SIF's board. "A major challenge that remains is that many of our institutions have been disproportionately affected due to the economic distress of the communities they serve, so the growth in socially responsible investments has been indispensable in allowing many of our member CDCUs to expand their services at a time where other lenders have tightened their underwriting guidelines." For CDCUs nationwide, this increased investment will be crucial, given law-makers' slashing of government spending in their attempts to rein in the deficit. "While the Treasury Department's CDFI Fund has thus far been spared from major budget cuts, we really don't know how it will fare in the future," Rosenthal said. "Most legislators acknowledge the benefit of investing in CDFIs through the CDFI Fund, where each federal dollar is leveraged approximately 27 times by non-federal sources, but given some legislators' bottom line-only approach, which has slashed a host of social programs, no initiative is safe from cuts, which is why we are especially pleased to see a general shift towards greater community investment by the mainstream capital markets," he said. He noted that "we have many member CDCUs that operate as the only regulated financial institution in some of America's poorest communities. If they go, only the predatory check cashers, payday lenders, and pawn shops will remain to fill the void, and for those of us in the CDFI community, this is simply not acceptable."


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