Reflections as CCL’s First Fellow
In December 2020, I joined Community Credit Lab (CCL) as their inaugural Analytics and Operations Fellow with the hope that I could continue to learn how to make an impact through the power of finance. As a team, we have learned and grown together over these past few months to find better ways to improve access to affordable credit.
Now that I'm halfway into my fellowship with CCL, below, I'm sharing a few of my reflections on my experience, impact investing, and community lending.
Reflection 1: Not All Impact Investments Are Created Equal
The term impact investing has not only become more ubiquitous, but also more ambiguous lately. One of the questions I had coming into the fellowship was: what exactly is impact investing? I would soon find out that the term encompasses everything from investments into local small businesses investment funds to investments in Wall Street managed "socially responsible" funds. All target extremely different financial returns and different approaches towards achieving impact within communities that these investments seek to support.
Learning about the wide range of impact investments - I began to wonder how much impact can be prioritized by the larger Wall Street banks whose lifeblood is to make money for themselves and their investors? Recently, the banking industry has been pushed to pivot capital towards socially responsible initiatives - the influx of capital they deploy can have large effects across different communities. Whether it's good or bad is up for debate.
To explore this further, I researched two example "impact investments":
1) A large Wall Street Bank's $61.2 million investment to support the rebuilding effort of one of New Orlean's former largest public housing communities, Harmony Oaks Apartments, also formerly known as CJ Peet Houses. At its height, CJ Peete operated more than 1,400 public housing units. Currently, Harmony Oaks only offers 193 public housing units (Reckdahl, Ferguson).
2) The East Bay Permanent Real Estate Cooperative (EB PREC) helped Oakland residents directly buy back their blocks. With 93% of low-income neighborhoods in Oakland at risk or already undergoing gentrification, EB PREC's goal is to keep property in community hands and create collective wealth in Oakland (Beckon, Cortese, & Shuman).
The first example is a classic top-down solution - in this case led by the US Department of Housing and Urban Development - to rebuild public housing units. Though Harmony Oaks is now a lively community, the process of getting there meant ignoring resident pleas to avoid demolition and the following displacement of hundreds of families as construction went underway. In the second example, community residents drive the solutions by working with EB PREC to organize, finance, acquire, and co-steward land and housing on their own terms.
To help figure out what meaningful impact investments mean to me, the question I began asking was: who are the primary beneficiaries of the investment - the investors or community residents?
While I would love to believe that it can be both - in practice, I found that there's often a trade-off that must be made to center the success of communities that we are designing with and for.
At Community Credit Lab, we know that people and communities with fewer resources are charged more to access credit. We also know that this practice, known as the poverty premium, is not equitable and does not support people to build towards financial stability or achieve their goals. We facilitate equitable lending programs by focusing on:
Affordable Credit (defined as loans with interest between 0% and prime, with no additional fees);
Accessible Credit (people are not put through traditional underwriting processes that often deny them from receiving a loan);
Shifting Power (with community partners leading the design of the lending programs and having decision-making power on qualification criteria and terms).
To facilitate lending programs like this, we ask investors to value the impact of their capital over a financial return with patient capital at 0%. With this, we seek to reduce income and wealth inequality and increase collective wellbeing. Learn more about how impact investors could be sacrificing impact for financial returns in my colleagues' Impact Alpha article here.
Reflection 2: Create a Level Playing Field
As a former public service consultant - I was eager to explore an industry that can spur localized economic development without the limitations and bureaucracy that inhibits rapid innovation within the public sector. In reality, the more I delve into community investing and lending, the more I see how necessary it is for local and federal governments to play an integral role in the industry as funders, conveners, and regulators.
The United States has a long history of intergenerational inequality created by harmful policies that denied Indigenous, Black, and other People of Color access to wealth-building opportunities. A step towards rectifying the country's harmful legacy could be to make it more accessible for lower-income investors to invest while simultaneously providing them protection in case of losses and asking wealthier investors to accept additional risk for less reward (contrary to traditional financial structuring) - much like how the Boston Ujima Fund structures its own fund terms.
Increasing access to affordable capital is key to creating a regenerative system of shared wealth in communities, but capital alone isn't enough. Redistributing decision-making power is also necessary for communities, especially communities of color, to have a greater voice in the solutions that are deployed in their own backyards. There are countless ways that the financial system can redistribute power back to local communities. A start would be to open up constrictive regulations that limit how non-accredited investors with a net worth under $1 million choose to invest. Examples below:
Expanding laws like California's Cooperative Corporation Statute that allows co-ops to raise up to $1,000 per individual through the sale of memberships without requiring securities registration (Beckon, Cortese, & Shuman).
Redefine the Investment Company Act of 1940 to allow non-accredited investors to build community sovereignty and wealth by having the flexibility to invest in their own communities affordably.
Communities themselves should reap the financial rewards of investments that are deployed where they live. To help facilitate that, non-accredited investors should be more welcome, but currently, regulations limit how and where they can invest. As a result, community members aren't given the flexibility to invest in their own neighborhoods.
While regulation is necessary to protect lower net worth investors - there needs to be a balance to ensure community investors aren't excluded from the playing field.
Reflection 3: Pivot Power To Community Members
This seems obvious, but it's important to highlight what type of involvement is necessary for solutions and investments to be created that actually benefit People of Color and the communities they reside in.
As a former public service consultant, I was often the only one with lived experiences that resembled my federal clients' beneficiaries. These experiences allowed me to witness how dangerous and short-sighted it can be to have large-scale solutions created by those currently in positions of power. If funds and investors themselves are dedicated to maximizing their impact, they need to be comfortable ceding power to the communities they seek to support.
As the country continues to battle its long-overdue racial reckoning, more and more investment funds are eager to [literally] diversify their investment choices. But is it possible that injecting capital into communities of color, without their consent, has the potential to cause more harm than good? Funds looking to deploy their capital in local communities need to create and support a board of people that broadly represent those communities that can then decide how to deploy the capital in ways that matter.
Reflection 4: There is No "Right" Approach
This has been my biggest learning so far. There is no "one solution fits all" when investing directly in communities. In fact, community investment relies on very different context-specific approaches. What works in urban centers like Boston may not work in rural areas in Montana. Investment approaches should consider the available resources within a region, how people in a specific context may need to receive capital, and what ways people prefer to invest that capital. That's not to say that solutions developed in one context can't potentially be replicated to some degree. However, to be successful, the solution will need to be adjusted to meet the needs of people and communities living in the new region. Different ideas and solutions mean that we can continue to iterate and learn from each other to see what works and what supports people best.
At Community Credit Lab, we believe that there is no one right way, but numerous ways we can build towards a financial system that prioritizes humanity.
Through my work at Community Credit Lab, I've witnessed the many different solutions that are being tested and scaled to support communities. Working directly with policymakers, community organizers, and borrowers alike to design inclusive lending programs has given me hope that correcting the ills that American capitalism has inflicted on Indigenous, Black, and other People of Color is possible through collective action.
Alejandra Cuin Miranda joined CCL's team in December 2020 as an Analytics & Operations Fellow and will be working with us before heading to Wharton for her MBA in the Fall of 2021. She brings over four years of experience as a consultant at Accenture working in their Federal Public Practice in Washington, D.C. and their Ecosystem Partnerships & Ventures Group in Seattle, WA. Alejandra completed her Bachelor's of Arts in Economics & Latin American Studies from Wellesley College. Outside of work, she enjoys farmers markets, traveling by train, and coffee.
Beckon, B., Cortese, A., & Shuman, M. H. (n.d.). Community Investment Funds - A How-To
Guide for Building Local Wealth, Equity, and Justice (Working paper). National Coalition for Community Capital & The Solidago Foundation.
Ferguson, J. W. (2013, September 29). Mixed-income housing development thriving in New
Orleans. Galveston County, The Daily News.
Reckdahl, K. (n.d.). The Long Road from C.J. Peete to Harmony Oaks (Rep.). National