By Ellie Winninghoff
Community development finance institutions, or CDFIs, comprise a virtually invisible $30 billion industry of community banks, credit unions, loan funds and venture capital funds that serve minorities and low-income people. And they also are pioneering the financing of healthy food systems.
Among them are The Reinvestment Fund of Philadelphia and Coastal Enterprises Inc. of Wiscasset, Maine, which let individuals make investments that help finance sustainable agriculture and provide access to healthy food in poor neighborhoods.
As responsible lenders (they usually offer technical assistance along with their loans), CDFIs are a quiet success story. According to the Opportunity Finance Network (OFN), the CDFI trade group, the repayment rate on CDFI loans during the past 30 years is 98.6%. Historically, they focused on affordable housing, childcare, community health facilities and small business lending. Now, with funding from the Treasury Department's CDFI fund, they are in the midst of building industry-wide capacity to support sustainable agriculture and access to healthy and affordable food.
"If you can get a grocery store into a community that doesn't have one, or if you can expand a corner store [to include fruits and vegetables,] or if you can finance a food hub that connects farmers to institutional buyers of agricultural products like hospitals and schools, you can have a big impact on the economic being of people," says Pam Porter, EVP, Strategic Consulting, at the OFN. "It provides jobs and income, and it stabilizes property values. And it addresses a major public health crisis."
The health crisis she is referring to, of course, is the obesity epidemic that's having an economic impact on the country's health care system. Public health officials and economic experts are acknowledging the link between income and obesity. At a conference in Seattle last week, David Erickson, director of the Center for Community Development at the Federal Reserve of San Francisco, showed two maps of Los Angeles--one that displayed obesity rates by neighborhood; the other, income level.
"They are the same map," he said, illustrating the fact that a person's health is directly correlated with where she lives. "Access to health care will not improve a person's health," he said. "The zip code is more important than the genetic code."
Grocery Gap
One reason cited for the correlation between low income and poor health is the lack of presence of supermarkets. According to Patricia Smith, senior policy advisor at The Reinvestment Fund (TRF), an astonishing 23 million Americans live in food deserts characterized as low-income areas where healthy food is not available.
From the food retailer's perspective, though, there are obstacles to setting up shop in low-income areas such as the difficulty of keeping stores open in these neighborhoods, land assembly, environmental remediation, pre-development costs, and access to financing (many food retailers are small businesses).
TRF, with the help of seed financing from the state of Pennsylvania and support from the likes of Bank of America (which invests $1 billion per year in CDFIs, mostly as part of its Community Reinvestment Act obligation), created the Pennsylvania Fresh Food Financing Initiative in 2004.
Since then, TRF has provided financing totaling $100 million to 93 food retailers across Pennsylvania that offer healthy food in food deserts.
To measure impact, Smith says the goal will be identifying health outcomes based on body mass index rather than simply focusing on what foods people buy. In the meantime, she points out, these supermarkets serve as economic development tools. "They are economic anchors," she says, "and a gathering place to build social capital."
Individuals can participate in the TRF Loan Fund through a minimum $1,000 loan for a period of three to 30 years. Return rates vary from 2.25% invested for three years to 3.75% for ten years.
Modeled on TRF's success, other CDFIs engaged in similar public-private efforts include NCB Capital Impact in California, the Low Income Investment Fund in New York, IFF in Illinois and the ASI Federal Credit Union in Louisiana. And more is in the works, says food systems consultant Nessa Richman, who says that The Food Trust (TRF's nonprofit collaborator) has garnered support from The Robert Wood Johnson Foundation to lay the groundwork for similar projects in New Jersey, Colorado, Massachusetts, Maryland, Mississippi, Georgia, Tennessee, Texas, Arizona and Minnesota.
Financing The Source
As crucial as food access is, though, it's predicated on a sustainable food system and a healthy supply of farmers who have access to both land and the financing they need to produce that food.
Whereas TRF has focused on retail (and is now looking into production, aggregation and distribution and value-added processing), Coastal Enterprises Inc. (CEI) has focused on production. Since inception in l977, CEI has made $1 million in production loans (often in the form of micro-loans totaling $20,000 to $40,000) to farmers and $8 million in loans to food-related businesses.
"Farms are inextricably tied to their communities and the economics of their community, the landscape of their community, and the culture of their community," says Gray Harris, CEI's director of sustainable agriculture. "It's really a good fit because that's what we're about, too."
It's also a good fit because CDFIs have always provided gap financing, which is the high-risk capital that helps a deal actually get done. And according to Harris, CEI has found several ways in addition to healthy loan-loss reserves to reduce its risk.
For example, CEI has become a Farm Service Agency (FSA) lender--one of four CDFIs (most of whom are non-regulated lenders) to be granted that status. Although the paperwork is onerous, it means the government guarantees a portion of CEI's loans. "Any conventional bank can apply," Harris says. "But we're finding that they don't want to lend."
CEI also prides itself on its due diligence, which includes aspects of technical assistance. Due to a strong network, Harris can quickly size up a farmer's reputation, who his market is, and how he fits into the big picture. But she puts a lot of effort into understanding a farmer's cash flow and what it would take to make the loan request a stronger proposal.
"Numbers are just the beginning of the conversation," she says. "We want to get to yes. But the last thing we want to do is finance anybody into bankruptcy.
"No matter how inefficient," she adds, "there's a commitment in this shop to have someone who can take the time to work with people in this sector and strengthen it so it's a viable sector going forward."
CEI provides high-net-worth individuals two ways to invest in a range of targeted sectors aimed at achieving social and economic justice within sustainable communities. One is through its CEI Investment Notes, where accredited investors can make a minimum investment for a little as $5,000. Fixed returns range from 2% for three years to 3.5% for 10 years. Also, investors can request that the investment be targeted to a certain sector, such as agriculture, but only for a minimum of $1 million.
In addition, CEI's venture capital subsidiary, CEI Ventures Inc., is raising money for its third fund, called CV3, that invests in companies in Northern New England. Minimum investments are $50,000 for individuals and $100,000 for institutions.
A former investment banker, Ellie Winninghoff is a writer and consultant. Her impact investing blog is DoGoodCapitalist.com, and she can be reached at: ellie.winninghoff (at) gmail (dot) com.