3c hapter - Index of

The Biggest- Impact Financial Sector You’ve Never Heard Of 93
Game Plan for Locavestors
There are more than 800 certifi ed CDFIs in the United States with more
than $30 billion in total assets. They can be community banks, credit
unions, loan funds, or venture capital funds, but they must be certifi
ed by the Treasury Department as such. They typically operate in
underserved markets and make loans to small business owners and
individuals who don’t qualify for traditional bank loans. Community
development loan funds, in particular, present a little known but interesting
investment alternative. The loan funds get the bulk of their funding
from low- interest loans or grants from banks, endowments, and the
government, but many allow individuals to invest as well, for a modest,
fi xed rate of return. Think of a community development loan fund
as a CD- like investment that gets put to productive use in your region.
Pros:
• Community loan funds are geographically focused, so you can put
your money directly to work in your region.
• They typically pay investors a fi xed return, currently in the low to
mid- single digits. While returns are modest, the risks are also very
low, as loan funds have an excellent track record of returning lenders’
money and typically absorb any losses themselves.
• As with a CD, you’ll be able to lock in better interest rates with
a longer- term loan.
• CDFIs experience very low charge- off rates, in part because they
are willing to work with their borrowers to help them succeed. In
fact, CDFIs help borrowers build credit and go on to be successful
banking clients.
• In addition to individual loan funds, investors can put money in
Calvert Foundation’s Community Investment Notes, which are in
turn invested in CDFIs. The minimum investment is $1,000, and
the notes are available from major brokerage houses.
Cons:
•
Interest rates are low and, while funds deposited or invested with
CDFI community banks are FDIC insured, nonbank community
loan funds are not.