Social Investment Toolkit
Lisa Zaslow is a guest blogger and the views expressed herein are her own and do not necessarily represent the views of Shared Interest Society.
Lisa is a passionate fair trade and microfinance activist currently living in North Carolina, USA. She is the founder of Blue People Fair Trade Ltd., an online store that specializes in fair trade and environmentally friendly accessories from all over the world. If you would like to be a guest blogger, please contact us with your interest.
Investing can be tricky business. And stressful. Not to mention a headache. And, especially for the novice investor… simply overwhelming. Add to this trying to promote a worthy cause…in a bad economy! So how should I invest my money responsibly? How do I choose a cause? How will my money be spent? Let’s find out.
Socially responsible investing (SRI) is a broad based approach to investing that recognizes corporate responsibility and social concerns as valid and important part of investment decision-making. Today, one out of every nine dollars of US assets under professional management is following one or more of three core socially responsible investing strategies: positive and negative screening, shareholder advocacy and community investing.
Positive & Negative Screening is the practice of evaluating investment portfolios or mutual funds based on social and environmental criteria. Social investors seek to own profitable companies that make positive contributions to society.
Shareholder Advocacy involves socially responsible investors taking an active role as the owners of corporate stock.
Community Investing directs money from investors to communities that are not served by traditional financial service institutions. Local organizations provide access to credit, equity, capital and basic banking products otherwise lacking in these communities. In the US and around the world, community investing makes it possible for these organizations to provide financial services to low income individuals and to supply capital for individuals to start small businesses. They also help provide vital community services, such as affordable housing, healthcare and education.
We are going to concentrate on community investing in this post because it is both a sound investment option and an effective model for community development.
Why community investing?
Community investing is something that you can get into TODAY in the US just by going down to your local community development bank or credit union and starting a checking or savings account. The focus is on funding economic development in low-income areas, in contrast to the traditional approach.
What kind of community investments are there?
To have an impact here in the US and around the world you may choose to invest in one or more of the following:
• Community Banks and Credit Unions:
• Community Development Loan Funds:
• Microenterprise Loan Funds:
• Community Development Pooled Funds:
• Community Development Venture Capital Funds:
• Mutual Funds That Invest in Communities:
• Donations:
Do I need large amounts of money to invest? How much money do I need?
Many community investment institutions (CIIs) have a minimum investment as low as $1000. A venture capital fund may require anywhere from $500,000 to $1 million. Why not direct at least 1% of your portfolio towards community investment?
Who can invest?
Individuals as well as institutions, such as corporations, universities, hospitals, foundations, insurance companies, public and private pension funds, nonprofit organizations, American Indian tribes and religious institutions.
What kind of returns can I expect?
Most community development loans, microenterprise and pooled funds offer interest rates that run in the zero to four percent range, averaging around two percent. The interest rate on venture capital funds varies. You can usually choose an investment term of between one to three years.
Are the investments tax deductible?
Generally, if your investments are earning interest, then they are not tax deductible. If you choose to donate your principal and/or interest, then that donation may be tax-deductible. If you do decide to donate your investment, you may want to consult a tax-planner to advise you further.
What are the risks?
Community development loans, microenterprise, pooled and venture capital funds—as well as mutual funds with a community investment component– are not insured so there is a risk of losing your principle.
Do I need a financial planner to invest?
You do not generally need a financial planner to invest, although you may choose to consult one. However, if you invest as a venture capitalist, consulting a venture- capital-savvy financial planner is highly recommended.
Why isn’t donating to charity enough?
Community investments can have a much higher impact than charity because the entire amount invested goes to helping communities in need. Additionally, these investments provide the means for low-income people to use their skills and talents to improve themselves economically. Many of the institutions in which you can invest will also accept donations to fund their work. One option for donations is to fund a new village bank in an underserviced area of a developing country. You can sponsor a village bank for as little as $5000.
Although, fair trade sales in the US and Europe are growing, consumer demand isn’t the only ingredient needed to increase fair trade sales; financing for farmer cooperatives is also essential. Farmers in the fair trade system still have upfront costs and small loans are difficult to obtain locally. Cooperatives don’t have the assets or financial track records that conventional local lenders are looking for. They are either unable to get credit or are charged exorbitant fees for it. Community investment offers financial services to community based businesses operating in developing countries. Fair trade organizations are promoting economic development and they’re doing positive things for the environment. Shared Interest is the world’s only 100% fair trade lending institutions. So…when you are ready to invest…please don’t forget your Shared Interest friends.
Click here to learn how you can invest in fair trade.
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As an employee of a Community Development loan fund, I am thrilled to see your post. All Community Development Financial Institutions (CDFIs certified by the CDFI Fund) have a mission to provide opportunity and capital to underserved communities. I would strongly encourage your readers to check us out, and perhaps make a donation! http://www.pcgloanfund.org