|It's a Wonderful Life|
Let’s say that you are among the large numbers of people who are desperately wondering how to prevent what’s left of their retirement investments and savings from vaporizing in the global economic meltdown.
If you’re a conscientious, concerned citizen, you may never have felt comfortable with where your savings were parked in the first place. Maybe they’ve been stashed in a socially responsible investment fund that screens out weapons manufacturers, but still funds big corporations that give little back to your community—like Wal-Mart. What should you do?
I called on Michael Shuman.
Michael Shuman blogs provocatively at www.smallmart.org and has been a leading voice for a growing movement to help people invest their money in the things that matter to them most—their communities, their quality of life, and the environment. He is also director of research and public policy at the Business Alliance for Local Living Economies.
I asked Shuman how small investors might shift their portfolios from Wall Street to their local communities. And his first answer was not encouraging. “This would be, sadly, a very short conversation,” he said. Admittedly, it is difficult to impossible to direct your equity investments or stock holdings, like the ones you may have in General Electric or a Fidelity mutual fund, toward community businesses. The maze of regulation and licensing to set that type of investment up is too intense and expensive for most community-scale ventures.
But as we considered the question more deeply and creatively, Shuman offered another possibility for the would-be community investor. “There’s a fair amount people are doing on the microlending side, with investors putting money into lending pools,” he said. And with that, he opened the gates to a world of quickly evolving financial vehicles carrying capital from ordinary people to the community ventures they want to support.
Oldies but Goodies
The appeal of investing in your own community isn’t new. If you’ve seen the 1946 film, It’s a Wonderful Life, you’ve witnessed Jimmy Stewart’s heroic speech to stave off a bank run on the Building and Loan Association. (It goes something like this: “I don’t have your money, George! It’s in Harry’s house! And Martha, your savings let the Wilsons build their house!”)
First, there is a network of loan and redevelopment funds that have quietly offered community-building investments for more than twenty years, using a variety of models with solid track records.
For instance, RSF Social Financing (www.rsfsocialfinance.org) is an investment fund on a mission “to fundamentally change the way the world works with money,” and that change began long before the collapse of 2008. The fund has been around for 72 years.
And second, there are credit unions, which keep the benefits of investing and banking closer to home. I spoke with Gene Pelham, president and CEO of the Rogue Valley Federal Credit Union (RFCU) (www.roguefcu.org), about his institution’s approach to community financing. “Virtually every dollar we take in stays in Southern Oregon,” he says. “And we’re committed to keeping it that way.” As a federally insured institution, RFCU must follow extensive regulations designed to protect every depositor. That protection still includes qualifying requirements for borrowers that don’t tend to welcome young or first-time entrepreneurs with more determination and inspiration than economic track record. Pelham doesn’t apologize for his credit union’s rigor. But he’s ready to embrace change in order to build his community. “All of us are going to have to take a little more risk in investing in each other,” he says.
Pelham hopes that Oregonians who are genuinely committed to community investment will think hard about where to put their own funds. “The threat I worry about,” he says, “is Internet banking. The INGs of the world can offer a higher interest rate because they don’t have our cost of service to the community and individual depositors. In fact, we subsidize them because they take in deposits through local institutions like us.” So choosing your money’s home on the basis of interest rate alone is likely to clash with the goals of community investment.
RFCU isn’t the only conventionally-chartered institution looking for ways to take part in new community investment strategies. One of the innovative programs of the E.F. Schumacher Society (www.smallisbeautiful.org) is SHARE, the Self-Help Association for a Regional Economy. The program couples a bank’s administrative capacity with a depositor’s willingness to take a chance on a community enterprise. According to the website, “Local SHARE members make interest-earning deposits in a local bank, which are used to collateralize loans for local businesses with a positive community impact … [bringing] a human face back into lending decisions.” SHARE reports that its members have placed their money in enterprises like Rawson Brook goat cheese, Jim’s draft horses, Marty’s Washing Machine Repair Service, and Bonnie’s wool-knit tights and sweaters for children. SHARE members often know their borrowers by name, and have “worked with them on community projects, asked for their products at stores, or hobnobbed, for instance, with the goats at the farm while buying a weekend party supply of Monterey chevre,” the website says.
Fund Your Community
“Vermonters stick to their roots and values, but have always embraced innovation—new ways to make life better,” says the homepage of the Vermont Community Loan Fund (www.vclf.org). VCLF provides loans, grants, and ongoing technical assistance for affordable housing, community facilities, local businesses, child care programs, and other projects “that benefit lower-income Vermonters.” It pays any investor who wants to back these activities an interest rate that has conventionally lagged behind mainstream investments, though it looks generous by current standards. The rates allow the loan fund to offer more affordable financing to community ventures.
Community loan funds are not FDIC-insured, but the Vermont Fund has implemented a series of successful safeguards: The Fund has a twenty-year record of lending without loss of a single dollar. At the top of the list is “active lending.” The Fund supports small-business borrowers through rough patches by providing technical and other non-financial services. VCLF never forgets the big picture—a local economy is only healthy when its businesses succeed.
In the Mid-Atlantic, investors can look to The Redevelopment Fund (TRF), a project that started small in Philadelphia’s inner city in 1985 and has grown to finance neighborhood revitalization across the region. TRF looks for the “point of impact” where investment can deliver its greatest financial and social return. The website offers dozens of success stories about how the loans helped build neighborhood-scale solar and wind projects or introduce fresh-food markets for the first time in economically stressed inner-city neighborhoods.
Community Investing Center (www.communityinvest.org) is another place to begin your search for local investing opportunities. Its website gets deep into the details, like the difference between a community development loan fund and a community development pooled fund.
Support Local Enterprise
If you’ve ever bought a share in a local farm’s harvest, you’ve participated in Community Supported Agriculture (CSA). Now consider Community Supported Enterprise (CSE). In a CSE, your up-front investment in, say, a woodworking shop or massage clinic earns furniture purchases or massages over a period of time.
CSEs can provide a lifeline for local businesses, especially in a troubled economy. The Preservation Trust of Vermont (www.ptvermont.org) tracks many local CSEs, like the Bee’s Knees, a restaurant that offers a CSE in Morrisville, Vermont. “Loyal customers saved [the Bee’s Knees] from closure,” says the Trust’s website, “by loaning the owner $1,000 each, to be paid back in $90 restaurant coupons per quarter, because the local food, live music, and community atmosphere … was important to them, a piece of their community worth investing in.”
Small Steps, Big Vision
Although local investment projects start at the grassroots, they are not seeking small changes. A section of RSF Social Finance’s mission statement captures what’s at stake: “Together, we’re creating a shift from financial transactions that are complex, opaque, and anonymous to those that are direct, transparent, and personal. Every decision we make is based on long-term relationships, not short-term outcomes.”
A skeptic might question this vision: Can local investments really succeed in a world dominated by powerful, global economic interests and corporations? But I turn to an old adage, sometimes credited to Joel Barker, Walter Lippmann, or half a dozen others, “Those who say it can’t be done should get out of the way of those who are doing it.”
Jeff Golden wrote this article for The New Economy, the Summer 2009 issue of YES! Magazine. Former County Commissioner and public radio host Jeff Golden is the author of Forest Blood, As If We Were Grownups, and the recently released novel .
Interested? , by Michael Shuman.