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SRI Investing and CDFIs Moderator: Saurabh Narain National Community Investment Fund Panelists: Mark

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Title: SRI Investing and CDFIs Moderator: Saurabh Narain National Community Investment Fund Panelists: Mark


1
SRI Investing and CDFIs Moderator   Saurabh
Narain National Community Investment
Fund Panelists    Mark Regier , Mennonite Mutual
Aid  Tracy Kartye, The Annie E. Casey
Foundation Art Stevens, Calvert Foundation
2
Outline
  • Total Return Financial Return Social Return
  • National Community Investment Fund
  • MMA Praxis Funds
  • Annie E. Casey Foundation
  • Calvert Foundation

W W W . NCIF. O R G
1
3
  • Total Return Financial Return Social Return
  • What is social return? Can we quantify it?
    Will Investors use this quantification to meet
    total return hurdles?

W W W . NCIF. O R G
2
4
Inputs, Outputs, Outcomes and Impact
INPUTS
OUTCOMES
OUTPUTS
ACTIVITIES
IMPACT
What would NOT have happened anyway?
What you put in
What you do
What did you produce?
What changed?
A deliberate analysis of interventions is
critical in generating long term impact in
distressed communities.
5
  • National Community Investment Fund
  • Quantitative Approach supplements Qualitative
    Approach

W W W . NCIF. O R G
4
6
NCIF Social Performance Metrics
  • Core Metrics
  • Development Lending Intensity (DLI HMDA )
  • of housing loans originated in investment areas
    (IA)/total housing loans
  • Development Deposit Intensity (DDI)
  • of branches in CDFI investment areas/total
    branches
  • Additional Metrics
  • Adjusted Development Lending Intensity (DLI -
    HMDA)
  • DLI minus of high rate loans High rate loans
    3 over index, per HMDA
  • DLI Low Income Borrowers
  • of HMDA loans that are made to low income
    people
  • DLI - Equity
  • of HMDA loans originated in investment
    areas/total equity of the bank

7
NCIF Social Performance Metrics
Quadrant 1
Quadrant 2
Threshold
Quadrant 3
Quadrant 4
Between 300 and 1400 banks in Quadrants 1-3
Threshold
8
NCIF Model CDBI Framework
  • Operate in highly distressed areas where
  • Poverty between 27.4 (median) and 55.1
  • Unemployment between 8.8 (median) and 32.3
  • Family income ratio between 25.5 (median) 64.4

Offer products suited to LMI communities
including credit builder loans, alternatives to
pay day loans, ITIN mortgages, church loans.
Offer financial services for under-banked like
low balance/low OD rate deposit accounts, debit,
credit or stored value cards, Individual
Development Accounts.
Offer financial training and literacy, budget
counseling, VITA services etc
Enters into partnerships with local public and
non profit organizations for generating long
term economic development impact.
CDBIs provide holistic economic development
impact in low to moderate income communities
9
National Community Investment Fund
  • NCIF is a non-profit private equity fund focused
    on
  • Providing patient capital to the Community
    Development and Minority Banking Institutions
    industry
  • Facilitating the flow of deposits and other
    funding sources to the industry and
  • Building the asset class of Community Development
    and Minority Banking Institutions.
  • Significant investment track record fund
    established in 1996
  • 25 million in equity and 68 million in NMTC
    capital
  • Cumulatively invested in 37 institutions in
    equities/debt
  • 73 of institutions are minority-focused, 68 of
    dollars are in minority-owned institutions.
  • 81.1 of institutions in urban markets
  • Unparalleled impact - 3 billion in more than
    74,000 development loans from NCIF investees
  • Thought leadership
  • NCIF Social Performance Metrics that are being
    adopted by investors and the banking industry.

10
  • Mennonite Mutual Aid

W W W . NCIF. O R G
9
11
MMA Social Investing
  • Stewardship Agency of Mennonite Church USA
  • Helping institutions and individuals combine
    faith and finance through wide range of
    diversified insurance and financial services
  • Nearly 65 years in faith-based, socially
    responsible investing
  • 1.55 billion in assets, all SRI
  • MMA entities
  • MMA Praxis Mutual Funds (7)
  • Mennonite Foundation (donor directed,
    institutional investment management)
  • MMA Association (individual and group health
    insurance)
  • MMA Trust Company (individual, institutional
    asset management)
  • Mennonite Financial Federal Credit Union (banking
    services)
  • MMA Community Development Investments (
  • Organizational objective Provide competitive
    range of financial services with the highest
    possible social impact
  • Personal objective Seek to bridge divide
    between socially-targeted assets and
    traditional investments

12
Holy Grail Impact Financial Opportunity
  • Metrics for metrics sake not a top priority
  • Interested in metrics that drive success and
    substantiate investment model
  • State of the art
  • Easily summarized
  • Comparable across industry
  • Relate--and differentiate--within broader
    investment field
  • Include impact narrativestory matters
  • Get a bigger piece of the pie, not just a bigger
    pie
  • Dont overlook SRI portfolios that are socially
    motivated but require traditional financial
    performance/structure
  • Need a garden hose, not an eye-dropper
  • Billions await effective, well-structured
    products that combine demonstrable impact and
    functional financial returns
  • Concessionary rates?make the case
  • Why? How? Who?
  • Todayuse metrics to demonstrate non-correlation
    (superiority?) to traditional investment products

13
What you can do
  • Understand what matters to the SRI investor
  • Market pressures (returns or impact or both)
  • Breadth as well as depth
  • Ability to go to scale, efficiently
  • Geographic and/or social targeting
  • Interaction of social metrics and financial
    performance
  • Look for new places to fit in SRI portfolios
  • Socially-targeted allocations are limited
  • Use social metrics to make the financial case
  • Capitalize on current market environment
  • Leverage skill as a financial, as well as social
    impact, institution
  • If seeking concessionary rates, be prepared to
  • Document impact (serving the poor is not
    enough)
  • Demonstrate need (why cant this be done without
    concessionary rate)
  • Provide simple but meaningful social metrics
  • Make retelling the story easy
  • Simple, meaningful social impact metrics
  • Readily-available, regularly-updated impact
    narratives and photos

14
  • Annie E. Casey Foundation

W W W . NCIF. O R G
13
15
Annie E. Casey Foundation
  • Established in 1948 by the founder of UPS
  • Mission is to build better futures for vulnerable
    children and their families
  • Geographic and programmatic initiatives
  • Casey Places
  • System and Service Reform
  • Strategic Initiatives

W W W . NCIF. O R G
14
16
Annie E. Casey Foundation
  • Established in 1948 by the founder of UPS
  • Mission is to build better futures for vulnerable
    children and their families
  • Geographic and programmatic initiatives
  • Casey Places
  • System and Service Reform
  • Strategic Initiatives

17
AECF Approach and Philosophy
  • Social investments complement grantmaking and
    provide an additional philanthropic tool
  • Seek double bottom linefinancial and social
    return
  • Seek to fill a financing gap
  • 100 million (3) allocation of endowment
  • Different risk profile from other foundations
  • Place based and thematic investments
  • Flexible terms but always invest through
    financial intermediaries
  • Leverage/co-investment requirement
  • Influence other investors and share risk
  • Systems in place to track financial and social
    returns

18
AECF Investment Types
  • Program-Related Investment
  • Direct link to mission/program
  • Primary purpose to achieve social impact
  • Below-market financial return
  • Any financial instrument
  • Mission Related Investment
  • Direct link to mission/program
  • Market rate
  • Any financial instrument
  • Mission Related Deposit
  • Insured
  • Market rate
  • Builds relationship between financial institution
    and program/site

19
Example ACCION Texas
  • AECF focus on improving family economic success
    in San Antonio
  • Interest in creating/sustaining micro and small
    business
  • ACCION Texas, an established micro and small
    business intermediary
  • Why its a good deal
  • Investment goals fit tightly with program goals
    and strengths of intermediary
  • Initial 500,000 loan at 3 for 5 years with
    follow-on investment of 500,000 in year 3
  • Geographic targeting to AECF neighborhoods of
    interest
  • Grant support for staffing/operations
  • Financial and programmatic requirements
  • Financial covenants
  • of loans and average loan size
  • Job creation
  • Demographic information

20
Example Bankers Trust
  • AECF deposit in recognition of the strong
    partnership between Bankers Trust and the Jim
    Casey Youth Opportunity Initiatives (JCYOI)
    Program in Des Moines
  • Collaborate on the Opportunity Passport a
    financial program for youth transitioning out of
    foster care
  • Why its a good deal
  • The bank actively facilitates relationships with
    participating youth and provides impact data
    directly to JCYOI
  • 100,000 market rate CD renewed twice since 2005
  • JCYOI staff evaluate relationship and recommend
    renewal or withdrawal of deposit prior to
    maturity
  • Impact data include of IDA accounts and total
    invested
  • Financial statements and CRA report considered in
    investment decision

21
AECF SI Results to Date
  • Financial results
  • Expected annual return of 3.2 for entire
    portfolio (mostly PRIs)
  • All investments current with no capital losses
  • Currently best performing portfolio in endowment
  • Leverage/co-investment
  • 305 million in direct co-investment
  • 109 million leverage from guarantees
  • Project financing generates significant
    additional indirect public and private leverage
  • Influence
  • PRI Makers Network
  • More for Mission Campaign
  • Individual investments and program/topic areas

22
AECF SI Results to Date
23
Demonstrating Impact
  • Tie impact directly to investor social goals
  • Accurately track data that is a direct result of
    financing activity
  • housing units financed broken out by
    affordability
  • jobs created and associated benefits if any
  • Ultimately want to be able to identify
  • What was done?
  • How well was it done?
  • Is anyone better off?
  • Have solid track record of related financing
    activity
  • e.g. experience as an affordable housing lender
  • Dont forget financial performance!

24
  • Calvert Foundation

W W W . NCIF. O R G
23
25
Balancing Head and Heart in a Recession
  • Current Trends from Social Investors
  • Recovering from the initial shock / Forced to
    rethink strategy
  • Community Investment still carve out or falling
    in PRI, MRI space
  • Shifting focus from Social to Responsible and
    Sustainable
  • Looking for Outcomes as well as Outputs
  • Using Poverty or Demographic data to link project
    information
  • Green provides a different set measurables
  • Failure of Alternatives is leading larger
    institutions to look beyond Fixed Income for
    Impact
  • Current Concerns for Mainstream Investors
  • Avoiding Hot Money when short term rates are so
    low
  • Low Rates means Social Impact Comes for Free to
    Investors
  • Still relate local to unsophisticated
  • Opportunities for Mainstream Investors
  • Big is not beautiful
  • Using the opportunity to build relationships /
    Explain your strategy
  • Media markets are hurting- Marketing has never
    been cheaper to tell your story
  • Brokered CDs

26
Calvert Note Model
  • Securitizing a loan pool for convenient and safe
    access to CDFIs

Investors
Partners
CCI Note
Affordable Housing
Individuals Foundations Faith-Based Nonprofits
High Net Worth Corporations
165 million Loan Pool Diversified
Professionally-Managed
Investor Capital
Microfinance
Community Development
Institutional Investors
Social Innovations
Capital Support
Balance Sheet
Donor Capital
27
Contacts
  • Mark Regier
  • Director, Stewardship Investing
  • MMA
  • (574) 533-9511, mark.regier_at_mma-online.org
  • Tracy Kartye
  • Senior Social Investment Analyst
  • Annie E. Casey Foundation
  • Art Stevens
  • Relationship Manager, Calvert Foundation
  • (301) 280-1365 / Art.stevens_at_calvertfoundation.org
  • Saurabh Narain
  • Chief Fund Advisor, National Community Investment
    Fund
  • (312) 881 5826/snarain_at_ncif.org
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