When first lady Michelle Obama and former NBA star Jalen Rose give kudos to a community organization, it’s worth taking note. When that organization turns out to be a financial institution, it might raise a few eyebrows. But first, a little background.
The global financial meltdown has ravaged nearly every sector of the American economy. From international conglomerates to small businesses, few have been immune. As unemployment swept through neighborhoods and towns, home foreclosures were at record highs. Dreams of upward mobility and comfortable retirements were shattered and the resolve of communities nationwide tested.
In the wake of this crisis a new economic engine emerged – community development financial institutions (CDFIs). These entities, which are mainly low-profit or nonprofit organizations, focus on revitalizing communities and supporting their growth. At a time when access to traditional means of financing has dried up due to the financial crisis, this has proven critical to the nation’s economic recovery – and to communities and neighborhoods around the country.
The impacts of community-based financing institutions have not gone unnoticed. According to the Harvard Business Review, community-centric financers have breathed new life into entire sectors of the American economy. NCB Capital Impact, a Virginia-based nonprofit, has been a key player in this movement. As a certified CDFI, Capital Impact prides itself on investing in high-impact areas of social need.
Scott Sporte, Capital Impact’s chief lending officer, says the organization exists to strengthen communities by using its resources to improve access to healthy foods, housing, health and elder care and education in low-income communities. He emphasizes that Capital Impact’s approach is cooperative, with a focus on leveraging existing partnerships and community strengths and fostering relationships.
Over the course of 20-plus years, Capital Impact has financed $500 million for developing charter school facilities, provided more than $550 million in loans to community-based health care providers and created nearly 29,000 new jobs for low-income individuals.
So it should come as no surprise that in 2011, Michelle Obama appeared at the launch of Capital Impact’s chief healthy food initiative, California FreshWorks Fund. The California FreshWorks Fund is a $200 million public-private loan fund focused on eradicating food deserts by providing low-income communities of color and low-income rural areas with access to healthy food. The fund offers loans to enable farmers and produce distributors, grocery stores and markets in those high need areas to offer fresh produce and healthy foods. The first lady’s acknowledgment of this work – especially in the realm of healthy food – was a sure indicator that Capital Impact, a leading financial backer of the fund, had hit the mark.
Based on the Capital Impact’s impressive track record, the W.K. Kellogg Foundation invested $6 million through its mission driven investing (MDI) arm to support financing of charter school facility expansion, construction and renovations in the foundation’s priority places of New Orleans, Mississippi, Michigan and New Mexico – and to support healthy foods initiatives in urban areas.
Capital Impact’s financing of charter school facility expansion has been nothing short of life-changing for students in urban areas across the country. Success stories are aplenty, but one notable beneficiary of Capital Impact’s financing model was the Jalen Rose Charter School in Detroit, an inner-city charter school aimed at providing educational opportunities to underprivileged children. The school used a $1.1 million loan from Capital Impact to finance an expansion of the school – creating space for 480 high school students and new jobs for the local community.
“Capital Impact’s depth of experience in communities, its cooperative approach and diverse network of alliances made it a natural fit for the W.K. Kellogg Foundation’s mission driven investment portfolio,” said John Duong, a member of the foundation’s MDI team.
What separates Capital Impact from a typical financial lender is its approach to repayment. Whereas for-profit investors normally set exit terms for borrowers that have little or no connection to social impact timelines, Capital Impact can flexibly structure financing around the timetables that make the most sense for the community-based borrowers, and support the achievement of the intended social change before exiting the investment.
In short, Capital Impact works on a case-by-case basis with borrowers to establish repayment terms that work best for the borrower – a novel concept in finance.
At a time when unemployment rates in some states are hovering in double digits and national home ownership rates are at their lowest in decades, there is comfort in knowing that community-focused groups such as Capital Impact are working on economic development the right way – putting people and communities, not profits, first.