Capital Impact Partners, a community development financial institution (CDFI) that has provided over $2 billion in financing over the last three decades to support cooperative and nonprofit borrowers, has launched an offering of up to $100 million of fixed-income investment notes. These notes function like bonds. Anyone who is willing to invest at least $1,000 and who lives in one of 47 states or D.C. (the security is not registered in Arkansas, Pennsylvania, and Washington state) can purchase one of the notes. The notes will help finance the nonprofit’s “nationwide efforts to create social impact for underserved communities.”
Based in Arlington, Virginia, with offices in Oakland, California and Detroit, Michigan, Capital Impact supports underserved communities in four priority sectors—education, health care, food and housing. It also has three lending program areas that cut across sectors—lending to cooperatives (the CDFI was originally a subsidiary of the National Cooperative Bank and maintains a strong co-op lending portfolio), lending that serves older Americans, and a focused place-based initiative in the city of Detroit. Capital Impact also makes equity-like investments in social enterprise through a $5 million investment pool. Additionally, Capital Impact has a “policy to practice” program that has helped incubate new programs, some of which have led to the development of separate nonprofits, such as the Grounded Solutions Network, an association that supports the development of community land trusts across the country.
Capital Impact CEO Ellis Carr explains the nonprofit lender’s overall approach:
We’re in year two of our five-year strategic plan. We have four strategic pillars—address systemic poverty, create equity, build healthy communities, promote inclusive growth. These are all foundational to what we do. Our lending aims to provide access to quality services in communities. That could be anything from investing in a healthcare service to serve the uninsured and underinsured, could be providing access to healthy foods, supporting and preserving affordable housing by working with mission-driven affordable housing developers, or access to high quality education by investing in educational facilities. That in a nutshell is what we do and how we do it.
Carr adds that the roles the CDFI plays vary situationally—from being a market maker (i.e., lending where no one will lend) to being a catalyst (i.e., helping de-risk a market so that conventional lenders will make loans) to being a “community quarterback” or convener that assists with the development of community-wide strategies.
According to Carr, since the initial announcement on October 11th, the nonprofit has already attracted over $35 million in investments from both “retail” (individual) and institutional customers. Carr says that investments made so far range from $1,000 to $5 million. “And we have had a number in between. We’ve seen the full gamut thus far.”
Carr noted that before launching the community investment note, the nonprofit spent two years figuring out how to do the capital raise:
It was incumbent on us to not replicate what is on the market, but look to the future, where socially conscious sources were. We talked to family offices, individuals, pension funds…we asked what is important to you. We were told that it needed to be easily tradable. So, you can get it through Scottrade, etc. We heard that it needs to be aligned with market rate. That is very nebulous. For me, one of the things that is important is that you help contextualize the rate-of-return-to-risk profile. A great way of doing that was to link to S&P. A third thing that we heard is broad distribution. We are available in 47 states. The last piece, which we did not solve for, is daily liquidity. We do offer a range of time horizons.
In the first offering, available terms are for five years at 2.5-percent interest, seven years at 2.8-percent interest, and 10 years at 3.2-percent interest (until the note is sold, the interest rate is subject to change). The financial return is modest, but comparable to what you might get purchasing US bonds (the current 30-year bond rate is slightly below three percent). Of course, investing in a CDFI is riskier than a Treasury note, but Standard & Poor’s did give Capital Impact a high AA rating—only o