What is 'Community Investing'

Community investing refers to direct investments into poor communities via community development banks, credit unions, loan fund and microfinance institutions. Community investing is closely tied to socially responsible investing and focuses on economically improving disadvantaged communities by offering banking services and small loans to fund businesses, non-profit groups and affordable housing initiatives.

BREAKING DOWN 'Community Investing'

Community investing can have a real and immediate impact on the well-being of a community by increasing economic activity. Often it provides financial services to communities that have traditionally been underserved. Investments can take the form of cash deposits in community banks, purchasing debt from nonprofit loans funds, and equity investments in real estate.

Among the organizations accepting investments are community development loan funds, community development banks (CDB) and credit unions (CDCU), community development corporations (CDC), and small business investing companies (SBIC). Often these institutions obtain certification as community development financial institutions (CDFI). CDFI loan funds typically provide financing that is not available from traditional banks. These include consumer loans, home mortgages, small business loans, and loans to finance affordable housing. Investments in CDBs typically take the form of certificates of deposit or equity. Like CDFI loan funds, CDCUs seek to provide financial services to low-income populations. Investments in CDCUs usually take the form of CDs and subordinated long-term debt. CDCs concentrate on affordable housing development, commercial real estate and other economic development activities. SBICs typically seek equity investments, typically for 10 years.

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