Community Investment Proves to Be Beneficial

By Chris Clem, Pacific Northwest Student Organizer

Generally, the term community investment refers to the investment of capital into a surrounding community through community development financial institutions, such as credit unions and organizations such as Community Capital Development (in which Seattle University also invested). These institutions function by providing capital to smaller community-based projects, rather than lending to big businesses with unsustainable practices. In turn, this lending to the surrounding community fosters economic growth and development in the immediate area. However, although the practice generally refers to investing in an area that immediately surrounds your college campus, the same positive outcomes can be extended to an international sphere and still prove to be beneficial in financial, social, and environmental spheres.

During the 2009-2010 academic year, Seattle University began its community investment campaign. In March of that year, the Board of Trustees Investment Committee approved an investment of $500,000 into the third and newest microfinance fund with the organization Global Partnerships. Global Partnerships, although it does not lend directly to the surrounding Central District of Seattle, is a Seattle-based organization whose strategy is to combat poverty in Latin America. The strategy of Global Partnerships is to invest in and provide capital to microfinance institutions throughout Latin America. Microfinance aims to provide capital to individuals who are consistently outside of the scope of traditional financial institutions. The keystone of microfinance is that it offers very small sums of capital that people can afford to pay off in a short time (i.e. a $20 loan). This therefore allows them to gain access to affordable loans that enable the establishment and continuation of local business ventures.

During this last summer of 2010, this new fund reached its cap of $20 million through donations and investments from individuals, foundations, institutions, and corporations that are committed to responsible investment. Since then, the fund has been applied to the microfinance institutions of Latin America and has proven to be lucrative in both financial and social returns. Ron Smith, Seattle University’s vice president for finance and business affairs, expressed that the decision to invest in Global Partnerships and microfinance “has been on of [the] best investments in the economic downturn.” Overall, this investment has a 4 percent annual return on a five-year investment. Although these types of investments tend to not have the highest initial returns on paper, as Smith goes on to say, they appear to be much more dependable and less volatile than traditional forms of investment. Therefore, in the long run, these investments offer a much more sustainable and reliable form of return.

However, in addition to bringing a stable return to investors, the social benefits of such investments into organizations such as Global Partnerships has even more of a long term impact. Global Partnerships’ main focus is a “microfinance plus” strategy, which aims at providing funding for ventures that are traditionally not funded by microcredit lending. For example, Global Partnerships funds not only simple business ventures, but also lends to health and education projects, which create much more sustainable programs and healthier populations. Over the years, much of the microfinance industry has been criticized for charging high interest rates and profiting from the impoverished, similar to predatory lending in underserved communities in the United States. However, Global Partnerships aims at creating a balance between providing much needed, affordable services and access to capital that developing nations need and earning a fair return for the investors. The organization also strives to offer low interest rates to individual borrowers in order to extend their impact to rural business as well.

All in all, community investment can be employed on a local or an international scale. From an investor standpoint, the returns on such investments are generally more stable and nonvolatile, which ensures a safe investment. However, more importantly, the impact of such investments clearly make a difference in the lives of those who are affected, allowing them to escape predatory lending practices while providing an opportunity to succeed. Community investment, whether local or abroad, confronts and works to solve countless issues, and as Ron Smith states, “it’s a social justice issue and that’s what we’re all about.”

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