Investing in Change

By Jain, Vinay | Stanford Social Innovation Review, Spring 2006 | Go to article overview

Investing in Change


Jain, Vinay, Stanford Social Innovation Review


Calvert Community Investment Notes take social investing mainstream by Vinay Jain

Many Americans think making money and creating social change are two entirely different endeavors. Don't tell that to a small but growing group of investors in Calvert Community Investment (CCI) Notes, issued by the Calvert Social Investment Foundation, a nonprofit based in Bethesda, Md. CCI Notes combine the attraction of a fixed-income investment with the impact of philanthropy, allowing socially conscious investors to integrate their personal financial portfolios with their altruistic goals.

A CCI Note works a lot like a CD (certificate of deposit) from a traditional bank: Investors buy a note for a set length of time, after which they are paid back the principal plus a fixed rate of interest. Unlike a conventional CD, whose capital is mostly invested in traditional for-profit businesses, the capital raised from CCI Notes is lent exclusively to organizations creating social change. You may not get rich investing in CCI Notes, but you will have the satisfaction of knowing that your money is being used to do good things.

CCI Notes are sold in denominations of $1,000 or more, for one-, three-, five-, seven-, or 10-year terms. The note pays investors a below-market fixed rate of interest, which accrues annually on the anniversary of the note. Investors choose their own rate of interest - between zero and 2 percent for one- and three-year notes, and between zero and 3 percent for the longer-term notes. Keeping interest rates low allows more money to go to work for communities in need. Currently, about one out of every six investors chooses the zero percent option.

The Calvert Foundation has sold more than $95 million worth of notes to about 2,400 investors, and has made loans to more than 195 organizations. All 50 states and more than two dozen other countries host CCI Note recipients, which fall into four categories - microcredit lenders, affordable housing providers, community developers, and small-business lenders.

For most of its 10-year history, the note has been sold by a small number of brokers. That is about to change. Investment firms Charles Schwab and Piper Jaffray recently began trading CCI Notes electronically, and Merrill Lynch and American Express are considering selling them as well. In all likelihood, many more investors will soon find it easy to buy and sell CCI Notes, which could mean substantially more money going to fund social change.

Using Money to Raise Money

The YouthBuild Philadelphia Charter School teaches lowincome high school dropouts between the ages of 18 and 21 practical construction skills while allowing them to earn a high school diploma. Students might spend one week learning to lay floor tiles, and the next week learning how to write a college essay. Every year the students remodel one or two abandoned homes for low-income families. The students do everything - rewire the electrical system, repair the plumbing, and restore the ceilings and walls - all the while receiving a traditional classroom education.

In 2005, the school awarded diplomas to 120 students, yet despite this success, YouthBuild and similar programs have had a tough time getting financing from a traditional bank. That's because banks and other for-profit financial institutions tend to view these types of programs as risky investments. Fortunately, community-lending organizations can sometimes fill the gap. In YouthBuild's case, The Reinvestment Fund (TRF), a Philadelphia lender, stepped in to provide a series of annual bridge loans to YouthBuild so that it could pay off its debts while waiting for grants and other income.

TRF gets some of the money that it lends to YouthBuild from CCI Notes. The Calvert Foundation began investing in TRF in 1995 with an initial loan of $50,000, which has since grown to about $2 million. With Calvert money in hand, TRF is able to raise additional money from private banks. …

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