Increasingly, place-focused foundations seek to have greater impact in their communities by considering options beyond traditional grantmaking to address critical issues like availability of quality jobs, access to fresh foods and safe child care. Enter CDFIs – logical partners for community foundations and private foundations wishing to engage in community investing. Foundations can make loans to CDFIs, co-lend alongside CDFIs, offer grant-funded credit enhancements for CDFI loans and even guarantee loans made by CDFIs. The creativity and innovation for community impact through social finance is tremendous. Partnering with CDFIs, foundations can leverage their philanthropic capital to invest in innovative solutions that build vibrant, prosperous communities for all.
To illustrate this growing partnership among foundations and CDFIs, check out “A Foundation Guide to Investing in Community Development Financial Institutions.” This guide draws heavily on insights from the Northwest Area Foundation and the Meyer Memorial Trust, two Philanthropy Northwest members with a track record of providing strategic support to CDFIs. Over the last few years, there have been a growing number of wonderful examples of these partnerships. In northern California the Humboldt Area Foundation successfully partnered with the Arcata Community Development Center for several community projects including land acquisition capital for a much-needed expansion of the local health care clinic. Back on the East Coast, The Baltimore Community Foundation gave the greenlight to shift 4% of its $125 million in endowment into impact investing last June, most of which will be invested in CDFIs in Baltimore. Communities Unlimited and the Arkansas Community Foundation partnered in 2016, putting $1 million into a loan fund for rural and low-income entrepreneurs. MACED, a CDFI based in Kentucky, and the Foundation for Appalachian Kentucky are long-time partners to improve quality of life in Appalachia; together they offer creative credit enhancements for small business lending where there’s a collateral shortfall.
Having lived in both worlds—in a senior leadership role at The Community Foundation Serving Richmond and Central Virginia and as Chief Impact Officer of Virginia Community Capital (VCC) a CDFI loan fund and CDFI bank—I witnessed the incredible opportunity to unlock capital for important community projects and entrepreneurs through these strategic partnerships. VCC has a long history of creative financing partnerships with foundations for community benefit. We partnered with a health care conversion foundation to partially guarantee a bridge loan for a vital community economic renovation and offered innovative financing incentives from a private foundation to finance energy efficiency rehabs in multi-family affordable housing units. A leading corporate foundation joined forces with VCC to provide interest rate buy-downs for entrepreneurs in a distressed business corridor. And, we deployed mission-aligned lending capital from a large, regional private foundation to spur job creation and economic growth in rural Virginia. Innovative and creative financing with philanthropic partners has always been a part of VCC’s DNA.
In 2016, we started asking ourselves a critical question: How can we help unlock even more capital, in even more places? Through our work, we recognized first-hand that place-focused foundations wanted a trusted, mission-aligned partner to walk with them as they engage in local impact investing; a qualified resource to help them navigate mission-aligned investing in a way that manages risk, yields a financial return and generates positive social and economic outcomes. We found that often foundations do not have the staff capacity or financial expertise in-house to maneuver the complex roadmap of sourcing, structuring, evaluating and managing the financial risk and social impact of these local investment opportunities. Toward that end, LOCUS Impact Investing, a new national social enterprise whose mission is to empower place-focused foundations to invest their capital locally to build prosperous, vibrant communities, was launched last May.
LOCUS leverages VCC’s 12 years of community investing experience where it grew $15 million to over $255 million of assets and recorded $1 billion of community impact. In preparation for the LOCUS launch, VCC strategically acquired the Center for Rural Entrepreneurship (Center), a national nonprofit with more than two decades of experience providing place-focused foundations with capacity-building expertise and tools to ready foundations to play a more significant role in economic development, including local impact investing. The Center’s empowering data-driven research, analysis and consultation services, provide the direction and tools foundations need to meaningfully engage in economic development action.
To help more foundations take on this new role of local impact investor, LOCUS offers a continuum of services. We offer empowering research and philanthropic analytic tools including Transfer of Wealth™ to help foundations understand their economic opportunities and formulate strategies related to economic development philanthropy. LOCUS can assess the community and regional landscape to identify investable opportunities and likely partners. Once mission-aligned opportunities are found, we offer transactional guidance including due diligence and deal execution along with servicing, monitoring and reporting on these community investments, all to help foundations mitigate financial risk and ensure community impact.
Foundations are increasingly engaging in this new frontier of place-based impact investing. Working creatively together, foundations and CDFIs can have a tremendous influence and transform the places we all care about. LOCUS is passionate about building the capacity of place-focused foundations to invest locally for impact. As we continue to learn and grow in this field, we want to hear your stories of effective CDFI-foundation partnerships. Please connect with me and share your stories and let me know how LOCUS Impact Investing can play a role to get needed philanthropic investment capital flowing in your community!
Pictured: Haynie Family Farm: An impact investing success story of a foundation (Jessie Ball duPont Fund), a CDFI (Virginia Community Capital) and a multi-generational family farm established shortly after the Civil War by the Rev. Robert Haynie, a freed slave and first African-American landowner in his Northern Neck (Virginia) county. In 2014, VCC made a loan to the Haynie Family Farm, drawing on resources provided through the Jessie Ball duPont Fund PRI, enabling the family to take the next steps toward a more stable and sustainable future, creating or retaining 35 jobs. Read the full story here.