The FWD #G24 • 526 Words
by Anne McLuckie, Marketing & Communications Manager, LOCUS Impact Investing
The Community Investment Guarantee Pool helps social enterprises access new capital and cut costs.
The affordable housing crisis in the United States has reached a critical juncture, with rising housing costs and stagnant wages leaving an increasing number of Americans struggling to secure a roof over their heads. This problem disproportionately affects low-income households and communities of color, who are more likely to be priced out of the housing market and forced into overcrowded or substandard living conditions.
The ramifications of this crisis extend beyond the realm of housing, with a lack of affordable options leading to a host of negative outcomes for individuals and communities. The housing gap leads to increased poverty and homelessness, reduced educational and employment opportunities, and negative impacts on physical and mental health.
The Community Investment Guarantee Pool offers a possible solution. A guarantee is a credit enhancement tool that can enable non-profits to unlock millions or billions of dollars for social impact.
What is a Guarantee?
A guarantee is an agreement between the guarantor and a lender whereby the guarantor promises to pay back a loan if the borrower cannot. In this way, it reduces risk for the lender. The lender can in turn pass this reduced risk onto the borrower in the form of lower costs to borrow. This then lowers the cost to construct affordable housing, by reducing the costs for financing it.
The Community Investment Guarantee Pool (CIGP) was created in 2019 by a collaboration of philanthropies and allied impact investors or guarantors. It is a novel initiative that uses guarantees to leverage the balance sheets of foundations and other institutional investors to enhance intermediaries’ credit in affordable housing, small business, and climate markets. As the guarantees are unfunded, foundations continue to keep their endowment invested in the conventional market.
CIGP receives and uses unfunded commitments from various foundations and mission-aligned investors (the guarantors) to issue financial guarantees to CDFIs, social enterprises, and other intermediaries (qualified beneficiaries). This helps qualified beneficiaries secure the capital needed to launch new programs/products or expand existing initiatives. Guarantors are also asked upon joining to support the CIGP infrastructure and evaluation alongside their guarantee commitment.
The pool targets the community development finance marketplace, which focuses on serving and benefiting communities of color, low- and moderate-income households, and other undercapitalized communities. In sourcing and considering guarantee opportunities, CIGP prioritizes those use cases that seek to advance social equity, particularly racial equity and innovation for the community development finance sector.
CIGP has found success in identifying compelling guarantees in the affordable housing market, constituting more than 80% of its current guarantee portfolio. The U.S. affordable housing market has a history of guarantee utilization, and affordable housing and small-business finance are core, well-established segments of the community development finance marketplace. Through this work, CIGP has learned two important lessons.
First, guarantees can be an important tool in helping experienced but smaller developers, including developers of color, secure early financing that allows them to be competitive. Second, but not least, guarantee programs can help mitigate credit risk (perceived or actual) for investors dedicated to racial equity and a more inclusive real estate development industry.
About CIGP
The initial guarantors that helped make CIGP possible are The Kresge Foundation, The Annie E. Casey Foundation, The California Endowment, Chan Zuckerberg Initiative, Common Spirit Health, Gary Community Investments, Jessie Ball duPont Fund, Phillips Foundation, Seattle Foundation, Virginia Community Capital, and Weingart Foundation. Since launch, the Robert Wood Johnson Foundation, Arnold Ventures, Winthrop Rockefeller Foundation, the California Wellness Foundation and the Sierra Club Foundation have also joined as guarantors. Learn more about CIGP by watching this short video produced by The Kresge Foundation.
About LOCUS Impact Investing
LOCUS Impact Investing (LOCUS) serves as program manager for the Community Investment Guarantee Pool. LOCUS is a national non-profit consulting organization that works with foundations and mission-driven investors wherever they are on their local impact investing journey to help them create lasting, meaningful change in their communities. LOCUS partners with mission-driven institutions to unlock more of their assets and deploy dollars to catalyze equitable economic development and make community-informed investments guided by innovative, effective, and equitable practices. LOCUS is a wholly owned subsidiary of the non-profit VCC Social Enterprises.