
Community Investing
In finance, the term “community investing” refers to institutions and investment products that are intended to support economically disadvantaged communities. As of July 2020, there were nearly 1,030 financial institutions delivering various services to underserved communities that received certification from the CDFI Fund. Of these, roughly half consisted of loan funds, which are institutions that pool capital from investors in order to lend money to entrepreneurs in relatively impoverished communities; while about 40% consisted of CDFI-affiliated banks and credit unions who use depositors’ funds to support the communities in which they reside. In 1994, the United States Congress passed the Riegle Community Development and Regulatory Improvement Act, giving rise to the Community Development Financial Institutions Fund (CDFI Fund). Through this new institution, financial service companies could apply for tax credits and other incentives in order to help fund investments in economically disadvantaged communities throughout the United States. The practice has become increasingly popular throughout the world, driven in part by coordinating institutions such as the United Nations Principles for Responsible Investment (PRI). Today, community investing forms part of a larger trend in the investing community. In the United States, for example, there are several types of Community Development Financial Institutions (CDFIs), such as community development banks (CDBs) and community development credit unions (CDCUs).

What Is Community Investing?
In finance, the term “community investing” refers to institutions and investment products that are intended to support economically disadvantaged communities.
In the United States, for example, there are several types of Community Development Financial Institutions (CDFIs), such as community development banks (CDBs) and community development credit unions (CDCUs). These institutions provide capital to underserved communities through personal credit, real estate development financing, business loans, and other financial products.



How Community Investing Works
Today, community investing forms part of a larger trend in the investing community. Increasingly, both retail and institutional investors have come to view social and environmental impacts as a central consideration in their investment decision-making process.
Under the framework of the United Nations-based PRI, for example, over 3,500 participating financial institutions have pledged to steer their portfolios toward investments with high environmental, social, and governance (ESG) factors. As of March 2020, those institutions collectively represent assets under management (AUM) of over $103.4 trillion.
Yet while community investing is part of this global shift toward responsible investment practices, it also has a specific meaning in the United States. In 1994, the United States Congress passed the Riegle Community Development and Regulatory Improvement Act, giving rise to the Community Development Financial Institutions Fund (CDFI Fund). Through this new institution, financial service companies could apply for tax credits and other incentives in order to help fund investments in economically disadvantaged communities throughout the United States.
Real World Example of Community Investing
As of July 2020, there were nearly 1,030 financial institutions delivering various services to underserved communities that received certification from the CDFI Fund. Of these, roughly half consisted of loan funds, which are institutions that pool capital from investors in order to lend money to entrepreneurs in relatively impoverished communities; while about 40% consisted of CDFI-affiliated banks and credit unions who use depositors’ funds to support the communities in which they reside. Altogether, there was roughly $141.2 billion invested in CDFI-certified institutions as of 2019.
Increasingly, there are also some fixed income and alternative investment vehicles that specialize in community investing. For example, the Community Investment Note — offered by the non-profit financial firm Calvert Impact Capital — is a fixed-income security that allocates capital to various community investment initiatives. Since its inception in 1995, roughly $2 billion had been distributed through these notes as of December 2020.
Related terms:
Assets Under Management – AUM
Assets under management (AUM) is the total market value of the investments that a person (portfolio manager) or entity (investment company, financial institution) handles on behalf of investors. read more
Community Development Financial Institution (CDFI)
The Community Development Financial Institutions (CDFI) Fund promotes economic revitalization in distressed communities with financial assistance. read more
Environmental, Social, & Governance (ESG) Criteria
Environmental, social, and governance (ESG) criteria are a group of standards used by socially conscious investors to screen investments. read more
Fair Trade Investing
Fair Trade Investing is the act of investing in companies or projects that promote economic, social, and environmental goals. read more
Fixed Income & Examples
Fixed income refers to assets and securities that bear fixed cash flows for investors, such as fixed rate interest or dividends. read more
Green Investing
Green investing consists of investment activities that focus on companies or projects committed to the conservation of natural resources. read more
Impact Investing
Impact investing aims to generate specific beneficial social or environmental effects in addition to financial gains. Learn about impact investments here. read more
Nonprofit Organization (NPO)
A nonprofit has tax-exempt status for furthering religious, scientific, charitable, educational, literary, public safety, or cruelty-prevention causes. read more
Socially Responsible Investment (SRI)
Socially responsible investing looks for investments that are considered socially conscious because of the nature of the business the company conducts. read more
Tax Credit
A tax credit is an amount of money that people are permitted to subtract, dollar for dollar, from the income taxes that they owe. read more