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Resources : Economics As If Values
Mattered
Faith and Finance
Second in a three-part series redefining land, labor, and capital.
Reprinted with permission from Sojourners
Magazine December 1993
BY CHUCK MATTHEI
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BENEATH ALL OF THE EMBOSSED certificates deposit books, and daily
market reports, investments are human relationships. Capital, after
all, represents labor and land. and whether it is accumulated from
wages or donations, rents or product sales, inheritance or other
unearned income, we might appropriately ask three questions: With
whom are we called to enter into economic relationship? What is
the purpose or intended product? Are the interests of the parties
fairly balanced? In other words, who should have use of our money
and what should be their obligation to us and our claim upon them?
 In
the religious community in recent years, there has been steadily
growing interest in "socially responsible investment."
From the share- holder resolutions of the Sisters of Loretto (dubbed
"The Stinging Nuns" by Time) against the health and safety
practices of the Blue Diamond Coal Company, to the South Africa
divestment campaigns, to various attempts at screening out weapons
producers major polluters, and alcohol and tobacco companies - and
affirmatively selecting companies with fair labor practices or environmental
sensitivity - hundreds of religious institutions and many parishioner
are trying to integrate faith and finance.
There is a social mortgage on capital, resulting in the need for
economic initiatives that can effect a just distribution of equity
and earnings. Within the spectrum of social investment activity,
"community investments" are the best reflection of gospel
priorities. Community investments target resources to the poor:
meet urgent needs for housing, employment, and essential services:
and support structural change in the economies of low-income communities-objectives
that are difficult, if not impossible, to achieve through conventional
securities. Moreover, community investments compare well with many
conventional options and, thoughtfully chosen, can be a responsible
course for any investor.
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Community Investment Options
FOR MOST PEOPLE, investment decisions begin with opening a bank
account. It's not always easy to choose the most responsible institution,
but you can review a bank's CRA File (the federal Community Reinvestment
Act requires banks to provide a measure of service to the communities
from which they draw capital), talk with bank officers, and, perhaps
most helpful, ask community development organizations about their
actual experiences with local banks.
There are a small number of community development banks that welcome
non-resident deposits. Best known are the South Shore Bank, which
since 1970 has been dedicated to revitalizing a neighborhood on
Chicago's South Side, and the newer Community Capital Bunk. in Brooklyn,
New York. The Elkhorn bank established in Arkansas by South Shore
was the original model for the Clinton administration’s pending
Community Development Banking and Financial Institutions Act.
Among conventional institutions, Vermont National Bank's Socially
Responsible Banking Fund is the most innovativeinitiative.
Any depositor may participate, and the bank is committed to using
all designated deposits in or near Vermont for affordable housing,
family farms, small businesses, and environmental conservation.
In a relatively short time, the SRB Fund has grown to more than
S60 million. Last year, in the difficult climate of continuing recession,
the bank would have recorded a decline in overall deposits except
for the unique appeal of this program. And though some initially
feared that community investment might be riskier and less profitable
than conventional lending, the SRB Fund had the lowest delinquency
rate of any department in the bank.
Most low-income communities are poorly served by banks, and some
not at all. But in 300 communities across the country, community
development credit unions (CDCUs) provide basic consumer banking
services. All credit unions are financial cooperatives, owned and
controlled by their members. Unlike parish, workplace, and other
traditional credit unions, however, CDCUs are defined by the geography
of a low-income continuity and are allowed to accept non-member
deposits to bring additional resources into under-capitalized areas.
According to the National Federation of Community Development Credit
Unions, based in New York City, CDCUs currently manage more than
S500 million in deposits. The federation will direct potential investors
to individual credit unions, and it also manages a central fund
to enable large investors, through a single
investment, to channel funds to many CDCUs.
BOTH COMMUNITY development banks and credit unions are chartered
and regulated financial institutions that offer a full range of
savings, checking, certificates of deposit, and other options, with
the protection of federal (or state) deposit insurance. Community
development loan funds (CDLFs), on the other hand, are non-profit
corporations that fulfill their charitable purposes through the
activity of borrowing and lending.
CDLFs are distinguished by their ability to commit 100 percent
of the capital under management to community development, by their
flexibility, and by their analysis of poverty and philosophy of
development. From the outset, the movement has set for itself a
three-fold mission: 1) to assist those who need capital in meeting
their immediate needs and changing the patterns of ownership that
perpetuate their poverty; 2) to engage those who have capital in
reflection on the origins and social responsibilities of wealth:
and 3) to challenge those who manage capital to recognize the credit-
worthiness of the poor and allocate resources more equitably.
Most CDLFs serve metropolitan areas or states: several are regional
or national in scope. They solicit loans from many individual and
institutional investors, on terms set by the investors within parameters
established by the fund. The money is pooled and used to finance
a broad spectrum of community development and service programs,
including community land trusts, worker-owned businesses, soup kitchens,
health clinics, and day-care centers.
The National Association of Community Development Loan Funds in
Philadelphia counts 44 member funds, with others in development.
Together they have placed more than S135 million in project loans
throughout the United States. The association provides training
and technical support, and administers a program of peer reviews
or self-regulation. Its central fund also enables large investors
and donors to distribute loans and equity capital among member funds.
The Episcopal Church has made a S1.6 million Investment in the central
fund, several charitable foundations have provided large loans,
and Citibank recently made a $1.1 million equity grant.
In addition to these institutions, there are other business development
and micro-enterprise funds affiliated with the Association for Enterprise
Development, and a variety of additional community investment programs.
Together they offer a broad spectrum of opportunities for conscientious
investors, and many will utilize a combination of investment vehicles.
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Social Impact And Financial Performance
EVEN MODEST INVESTMENTS can have considerable impact. To date,
loans made by NACDLF members alone have been responsible for the
development of more than 18,000 units of affordable housing, the
creation or preservation of more than 4,000 jobs, and vital services
for many thousands more.
In some cases a fund will provide all of the financing for the
first project of a young organization; in others, it will be the
“missing piece” of a much larger financial package. NACDLF
members’ loans have leveraged at a rate of more than 10:1—but
even more significant, more than 2,000 loans have gone to first-time
borrowers, both organizations and individuals, who had nowhere else
to turn, but now have a credit history and a record of real economic
and personal achievement.
Perhaps the most important contribution of a community development
lender is this catalytic effect on other institutions. The New Hampshire
Community Loan Fund’s (NHCLF) first loan, for example, went
to a small group of low-income families who were threatened with
displacement by the pending sale of their mobile home park. They
had neither the security of owners nor the legal protection of tenants.
NHCLF established a co-op conversion program, offering a combination
of community organizing, technical assistance and financing to mobile
home parks throughout the state. Over time, the success of these
efforts persuaded several banks and the state housing finance agency
to alter their policies and extend mortgage loans—and the state
legislature passed a bill giving mobile homeowners a first-right-of-refusal
before their parks can be sold to any other party.
The financial performance of community investment institutions
has been equally impressive. NACDLF members report loan losses of
approximately one-half of 1 percent, with investors protected by
loss reserves and the funds' equity. Community development banks
and credit unions typically perform better than industry averages.
Of course, care must be exercised in the selection of an intermediary,
and community investments are not the most lucrative options in
the financial markets, but there should no longer be any doubt that
they can be a prudent - and faithful - commitment.
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Mobilizing Religious Commitment
THE EARLY FORAYS OF the churches into community investment in the
1960s produced mixed results and some substantial loan losses. The
lesson of that experience is the value of qualified intermediaries.
A qualified intermediary has already assembled a staff, board,
committees, and consultants with the necessary mixture of social
concern and financial skills. It assumes responsibility for evaluating
applications and negotiating, documenting, managing, and monitoring
project loans. In most cases, the investor's legal claim is on the
entire portfolio of the intermediary, and you are not dependent
on the individual performance of the projects you support. When
needed, the intermediary will provide or locate technical assistance
for the project.
As new models and a new generation of intermediaries began to emerge
in the late 1970s and early '8Os, religious institutions and representatives
did play a central role - and they still do. The Boston Community
Loan Fund was initiated by Old south Church, a United Church of
Christ congregation, reaching out to other denominations and secular
organizations in a broadly ecumenical effort. The New Mexico Community
Loan Fund was sponsored by the New Mexico Council of Churches and
the Catholic Diocese of Las Cruces. And religious investors provided
a substantial portion of the initial capital for virtually all of
the new institutions, with Catholic orders of women often in the
lead.
The process of proposing, debating. and implementing community
investment commitments with your own board of trustees can be enlightening,
enlivening, and also quite challenging. Make sure that you bridge
the common gap between social justice and investment committees,
and include financial decision makers in the process from the outset.
Use community investment practitioners as advisors to review practical
experiences and relevant precedents. Ask for a detailed description
of the percentage allocations and performance of each type of security
in your current portfolio, as the basis for accurate comparison—and
then establish clear principles, specific criteria, and an appropriate
percentage for community investments.
Most important, use the process of investment planning as an opportunity
to renew and enlarge the faith of your community. Though a serious
business decision, the commitment to community investment is also
an opportunity for reflection on the relevance of the gospels in
modem life. It is an occasion for evangelization—a decision
that not only applies to institutional resources but may inspire
many individual members as well.
When Rev. Douglas Theuner was called to be the Episcopal bishop
of New Hampshire, he initiated a relationship with the New Hampshire
Community Loan Fund. First he made an investment from the bishop's
discretionary fund. and then he went to the trustees of the diocese
to propose a much larger investment from the resources in their
stewardship. He and his wife have made a personal investment, and
now he is convening a series of meetings in all of the regions of
the diocese to encourage the participation of individual parishes
and parishioners.
Similarly, the leadership conferences of Catholic religious orders
in the New England area launched a collaborative investment program
in law-income housing, using the services of an established intermediary.
Individual orders can determine the amounts and terms of their investments:
a steering committee establishes the social criteria and priorities;
and the intermediary performs the financial evaluation and manages
the loans. The program was announced in what some would call a prayer
service and others might call a political demonstration in City
Hall Plaza in Boston, and news of the event immediately brought
inquiries from numerous individuals and other religious organizations.
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Anticipating Reservations
THERE ARE NOW many good examples, but one can still expect some
hesitation in response to a community investment proposal. Virtually
everyone will ac knowledge the potential social benefits, but many
trustees will be concerned about financial issues—and perhaps
even their legal ability lo take this action.
Individuals are free to make any investments they choose, but trustees
have specific legal and fiduciary responsibilities in their management
of corporate assets. In a legal memorandum prepared for the
Episcopal Church, however, New York attorney William McKeown concludes
that community investments are permissible. He says, in part "...Charitable
purposes, and particularly religious purposes, are not as readily
measured in monetary terms as commercial or business purposes are.
The law recognizes this fact: “...A charity's governing board
must manage the assets o an ongoing enterprise in order to carry
out its purposes, not merely to conserve assets and generate income."
Traditionally, investors and investment managers are concerned
about risk, return, and liquidity: preserving wealth, deriving
income, and maintaining sufficient flexibility to meet changing
personal needs or take advantage of new market opportunities. The
practical relevance of these considerations is obvious, but
Christian tradition offers unique perspectives and may
impose unique criteria.
All investments involve some element of risk. Each intermediary
or project must be evaluated realistically and the portfolio balanced
carefully. But it is a mistake to assume that community investments
are inherently riskier than conventional investments, if they are
properly packaged, they may be just as secure, and sometimes even
more so. The record briefly cited above bears witness - as does
the fact that most of the dramatic losses in the Savings & Loan
and banking industries in recent years have come at the upper end
of the market.
In any event, financial risks must also be weighed against the
vulnerability of a project's intended beneficiaries. What is the
risk of human suffering if the project does not proceed? The central
metaphor of the Christian faith is the story of Jesus coming to
terms with risk, fear, and sacrifice. The challenge for Christians
is not to avoid all risk, but to accept necessary risk for the right
cause.
A greater concern for many investors may be the rate of return.
The potential varies from project to project, but in general, community
investments offer only modest returns, the lower end of conventional
market opportunities.
At first, trustees may respond to a community investment proposal
by com- paring its anticipated return with the overall portfolio
average, but this is like comparing the proverbial "apples
to oranges." Most community investments should be compared
with other fixed- rate securities or deposit accounts, not equities.
Properly calculated, it should be possible to transfer a meaningful
percentage of virtually any portfolio to community investments with
limited impact on total return.
The need for income may also bear some scrutiny. Religious institutions
typically look to investment income for both operating expenses
and mission funds. It is understandably tempting to make every effort
to maximize return if those earnings are supporting charitable programs.
However, community investment can enhance the social contribution
of the church, even if it somewhat reduces investment earnings,
because the combined impact of charitable gifts and investments—of
social services and community economic development—will be
greater than the impact of a somewhat larger grant fund alone would
have been.
If $100,000 from bonds paving, say, 7 percent is moved into community
investments at 4 percent, the institution will lose S3.000 per year
of grant- making capacity. But for every grant dollar lost. S33
of community investment capital will be committed to similar purposes!
Catholic Worker founder Dorothy Day was fond of reminding religious
leaders that money lending at interest was forbidden in the early
church. Most church members today are neither aware of this prohibition
nor can they imagine its rationale. But the economist John
Kenneth Galbraith explains that the "economy" in biblical
times was very primitive. Most people labored to meet their basic
needs - and borrowed only when they did not have enough. In that
context, it was considered inconsistent with the spirit of Christian
community io lake advantage of someone in a time of distress
bv imposing an interest charge.
With the advent of market capitalism, people began to borrow in
order to go into the marketplace and make more money. In this context,
it seemed reasonable to expect a share of the profits. Nonetheless,
despite the dramatic economic changes of the past two millennia,
it is important to acknowledge that there are still millions who
labor to meet basic needs and are unable to do so because they lack
access to the capital necessary to acquire productive
resources. If the "least of these" are truly the focus
of a Christian economy, one cannot help wondering if early Christian
traditions might yet have relevance. Finally, there is the
concern for liquidity, investors typically accept lower return on
some investments in exchange for lower risk or greater liquidity,
and this can also be a barrier to increasing the volume of capital
for community development. Here it is useful to repeat that community
investments offer a wide range of opportunities and terms, from
liquid accounts to deposits and loans of virtually any length. Remember
that the term "faithful" implies not only belief and commitment,
but perseverance as well.
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The Widows Mite
ULTIMATELY, investment should be as much of a sacrament as any
other act of a faithful person. Many charitable institutions
define their charitability solely by their use of investment
earnings, not the nature of the investments themselves. But the
consistency of ends and means is a basic tenet of moral philosophy.
Mahatma Gandhi, who recognized the inescapable relationship between
faith and finance when he said. 'To the poor, God can only appear
as a loaf of bread," also observed:
They say' "means are after all means.” I would say, "Means
are after all everything." As the means, so the ends. The Creator
has given us control over means, none over the end. Realization
of the goal is in exact proportion to that of the means.
The investments referred to throughout this article as "community
investments" are still known to many as "alternative investments."
To date, in fact, they have been an experiment for most investors.
Now, with the successful record that has been established, and with
gospel imperatives in mind, perhaps it's time for community investment
to become the norm of religious practice.
The Interfaith Center on Corporate Responsibility, which tracks
the social investment initiatives of 250 Protestant ' denominations,
Catholic orders, and other religious institutions, estimates that
their community investments currently total approximately S250 million
(with the United Methodist General Board of Pensions accounting
for SIOO million in low-income housing). It is an impressive amount
of money—but it still represents only two-thirds of 1 percent
of ' the S35 billion value of these portfolios. '
When Jesus compared the offerings made by the wealthy men and the
poor widow, he observed that the measure of faith is not the number
of dollars, but rather the degree to which we give of our substance
rather than our surplus. Religious institutions have provided critical
leadership in the community investment field, affecting the lives
of thousands of low-income people, and set valuable precedents for
other institutions and individual investors. But we can do better.
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Resources : Economics As If Values
Mattered
The Value of Land in Economics
First in a three-part series redefining
land, labor, and capital.
Reprinted from Sojourners Magazine November 1993
BY CHUCK MATTHEI
Faith and Finance
Second in a three-part series
redefining land, labor, and capital.
Reprinted from Sojourners Magazine December 1993
BY CHUCK MATTHEI
The Spirit Of Work
Last in a three-part series redefining
land, labor, and capital.
Reprinted from Sojourners Magazine March 1994
BY CHUCK MATTHEI
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