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Community Investing – Making Capital Accessible (Part 1)
There are five priority neighbourhoods in Saint John, NB where the poverty rates are 30% to 50% and the home ownership rates are less than 2%. A consortium of non-profit organizations called ONE Home decided to address the issue by piloting a home ownership project consisting of three semi-detached units. The Saint John Community Loan Fund extended a three year loan of $35,000 to the $400,000 project which leveraged a conventional mortgage from the local credit union. The housing is built and future home owners are moving in.
We have all heard such phrases as “giving credit where credit is due” and “banking the unbankable.” Community investment works in that space. The Canadian Community Investment Network Co-operative (CCINC) defines community investment as “financing and technical assistance that targets the underserved; including individuals, communities and community (or social) enterprises.” In reality, the line between community investment, social finance and impact investing is blurry. All describe financing whose intention is to develop opportunities and improve conditions for individuals and their communities. It might be focused on income generation, community renewal, affordable housing, or environmental sustainability.
The actual community investment financing product varies. It can be in the form of debt such as a loan, mortgage, or credit line: money that has to be paid back in monthly installments. It can be a loan guarantee: that is, one institution (or individual) holds money to offset the risk of lending at another institution. It can also be equity: shares of ownership in an enterprise, if the business succeeds you pay back at an agreed term to the investor. Most providers back up financing with technical assistance in order to increase the chances of a successful project and minimize the risk of financial loss.
Organizations that deliver community investment are diverse. But they all operate independently from government and share the goal of a blended (financial and social and sometimes environmental) return on investment. Grants can be part of the financing mix but cannot be its sole component. If it is, the provider becomes a foundation, which provides non-repayable grants.
The majority of community investment organizations are organized in the form of nonprofit corporations with volunteer boards of directors. The sources of capital for community investment funds are diverse. They include loans, loan guarantees, equity and donations from private citizens, associations, the government, and other mainstream financial institutions.
Some of the main categories of institutions engaged in community investment include quasi government organizations such as the Community Futures Development Corporations and Aboriginal Financial Institutions both set-up in the 1980s by the federal government; a number of Credit Unions; Community Economic Development Investment Funds found in Nova Scotia; national pools such as the Canadian Alternative Investment Co-operative and Tenacity Works; regional pools such as Ecotrust; community loan funds such as the Montreal Community Loan Association; and peer lending groups like PARO in Thunder Bay.
Last year the Canadian Community Investment Network Co-operative found that there was a minimum of $1.4 billion devoted to community investment in Canada managed by 487 organizations. Is this a lot, or too little? When compared to other countries like the US and UK, it compares well, however, we are often not counting the same things. So, until we get better at that, we need to focus on Canada. What is the demand? And where is it heading? How can we help it grow?