Mark Brandon is the Managing Partner of First Sustainable (http://www.firstsustainable.com), a registered investment advisory catering to socially responsible investors. In addition to Socially Responsible Investing (SRI), he may opine on social venturing, microfinance, community investing, clean technology commercialization, sustainability public policy, green products, and, on occasion, University of Texas Longhorn sports.

Wednesday, November 23, 2005

Leverage This Year's Charitable Contribution 5,000 Percent
The One Percent in Community Initiative will help your charitable dollars go much farther

Whether by design or fortune, I am glad that the deadline for tax deductible charitable contributions is at the tale end of the holiday season, when people are in a charitable mood. This year, some of our charity has been spent with disasters in Southeast Asia with the tsunami, Pakistan with the Earthquake, South America with Hurricane Stan, the food crisis in Niger, and of course, Hurricane's Katrina and Rita closer to home. We have had unprecedented calls for -- and needs for -- our charitable dollars this year. With the great need for help, we need to explore how to make those dollars go farther. The One Percent in Community Initiative can help your dollars go farther to the tune of 5,000 percent. Let me show you how.

Community Investing Explained

Much of this article is borrowed from Timothy Freundlich of the Calvert Foundation. Community Investing can be directed to four areas:
  • Affordable Housing helps enable low income families to afford a home mortgage.
  • Microenterprise Development enables low income individuals to start their own businesses with loans ranging from $50 - $10,000, levels that for-profit commercial banks will not touch.
  • Small Business Development picks up where Microenterprise Development leaves off with loans of more than $10,000 in a more structured vehicle
  • Community Development lending supports non-profits that help the disadvantaged.
How Your Charity is Leveraged 5,000 Percent

Suppose you were considering donating $20 to your favorite charity this year. You write your check and that $20 goes to help someone in need. A worthy cause to be sure.

Now suppose you had a $100,000 portfolio with a typical allocation of 60% equities, 35% fixed income, and 5 percent cash. If you directed one percent of your assets to community investing, you could take $1,000 (one percent) of your portfolio or 20% of your cash position, and direct it to a FDIC-insured CD at a Community Development Financial Institution (CDFI) like Shorebank. Compared to non-CDFI alternatives, you may sacrifice that same $20 per year in interest. But, the entire $1,000 is going to help people in need. One thousand dollars is 5,000 percent of $20. There you go.

How to Invest

As with any financial decision, you should first consult your financial adviser and determine the amount you feel comfortable investing, how long you can stand to have it tied up, where you want your investments to be directed (locally, nationally, internationally), and your risk tolerance.

Several vehicles are set up to receive community investments. They include:
  • Community Development Banks (CDB). These are for-profit entities that are regulated and backed by the FDIC.
  • Community Development Credit Unions (CDCU). These are just like any other credit union, only they have a directive on their lending activities.
  • Community Development Loan Funds (CDLF). These are unregulated and uninsured, but possibly yield more. Your returns will be below-market compared to conventional loan funds.
  • Community Development Corporations (CDC). Also unregulated and uninsured, this involves direct investment in a corporation that engages in these activities.
  • Microfinance Institutions (MFI). Unregulated and uninsured. Usually non-profit. They serve the poorest of the poor using a peer-lending model. Grameen Bank is the shining star in this field, though thousands are cropping up every year.
Links to CDFI Membership Organizations

Association for Enterprise Opportunity - the national membership organization for microcredit programs
CDFI Coalition - the national coalition and advocacy group for the CDFI industry with over 350 members
National Community Capital Association - umbrella organization for over 40 CDFIs
National Congress for Community Economic Development - a membership organization for 800 CDCs
National Federation of Community Development Credit Unions - membership group of 200 CDCUs

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