Support Communities by Moving Your Cash to Alternative Banks!
Carry Your Cash to Drive Credit to Communities!
One of the simplest steps a foundation can take to leverage it's mission is to invest cash locally through community based financing. Cash deposits of $250,000 or less in community financial institutions, credit unions, or regional banks are low-risk FDIC insured investments that offer competitive rates of return while furthering philanthropic missions. Nonprofit loan programs offer alternative secured financing to communities with the help of foundations and individuals."Community banking" increases access to capital for low-income borrowers and businesses or regional initiatives.
It can also support regional initiatives through thematic lending programs like sustainability. When diversified across multiple insured accounts, community banking expands grantmakers' opportunities to reach targeted populations or geographic regions.
There are thousands of place and issue based lending institutions across the country that can put a foundation's working capital to service on the very same issues they grant around every day.
Learn more by viewing the resources in this section.
For more information and assistance contact Dana Lanza
Confluence encourages Foundations and Donors to move their cash assets to community banks, community development finance institutions, credit unions, and guaranteed nonprofit loan programs. We believe that this is a fundamental step in practicing mission-related investing. We have compiled an extensive list of resources for you here.
In this Section:
WhyYou Should Invest in Your Foundations Future Today by Moving Cash Deposits
There is incredible momentum building as more and more people and institutions publicly question the dominant financial system – from the Occupy Wall Street protests to November’s Bank Transfer Day. We at Confluence believe, however, that moving your foundations money should not just be a reaction to recent events, but should be a conscientious decision to place capital strategically and prudently. This is an opportunity for your Foundation to foster relationships with financial institutions that can better support your mission.
Moving your cash deposits is relatively costless, can provide you with the same or even better returns than current cash deposits, is often risk free and will align your money with your Foundation's values. For all of these reasons, Confluence Philanthropy has set the goal of re-directing $50 million in cash deposits to community banks and mission focused financial institutions before spring 2012.
We have provided a resource at the end of this website to get you started and we at Confluence Philanthropy are available to help you with the process.
Where to Carry the Cash?
Finding a mission-related banking institution to meet your foundation’s banking strategy depends on the characteristics of both your foundation and the mission supported financial entity itself.Below we have provided a list of the main kinds of community banks, thrifts, and credit unions that support local and socially responsible endeavors.
- Community Development Financial Institution (CDFI). A CDFI is a financial institution whose primary mission is to promote community development, providing credit and financial services to underserved markets and populations in low and moderate-income areas.They can be banks, credit unions, loan funds, venture funds and microenterprise funds—that are entitled to government financial assistance or technical assistance. CDFIs are certified by the Community Development Financial Institutions Fund (CDFI Fund) at the U.S. Department of the Treasury, which provides funds to CDFIs through a variety of programs. CDFIs may be subject to oversight by federal financial institution regulators or may be "unregulated" at the federal level, and subject only to the laws of the states in which they operate. The Opportunity Finance Network has developed a proprietary rating system, the CDFI Assessment and Ratings System or CARSTMwhich enables you to easily research a CDFI.
- Community Development Banking Institution (CDBI). A CDBI includes all banks that provide banking products and services in distressed communities, regardless of whether or not the bank is certified by the US government as a CDFI.Most community development banking institutions are regulated, insured depositories that can offer investors risk-free investment opportunities, including certificates of deposit, savings accounts and money market funds. These typically small- and mid-sized banks focused on low-income urban and rural markets that larger banks may find difficult to serve. Many community development banks have developed specific techniques to manage their risks, including in-depth market knowledge that informs customized market outreach and lending strategies, technical assistance, risk management protocols, extensive community partnerships and other support mechanisms.
- Minority Depository Institutions (MDIs)The FDIC’s Minority Depository Institutions Program promotes and encourages minority ownership of insured financial institutions. To qualify as a minority depository institution (MDI), an insured institution must be at least majority owned by members of socially or economically disadvantaged populations, or primarily serving minority populations.
- Low-Income Designated Credit UnionsBecause credit unions are chartered to serve and are owned by members located in specific regions or who are employees of certain firms, they may be particularly well-suited for targeted economic development programs. Many credit unions have taken a lead in outreach to the unbanked, includingthe provision of emergency loans, used car loans needed for transition work, microloans for small businesses, and appropriate mortgages for unconventional homeowners, such as those in manufactured housing or with unconventional documentation. "Low-income credit unions,” designated by the U.S. National Credit Union Administration (NCUA) through an examination showing that a majority of its membership (50.1 percent) qualifies as low-income members, are specifically designed to provide lending and saving vehicles for underserved communities or geographies and receive dispensation for non-member deposits, among other benefits.
- Environmental Banks. Currently there are a small number of environmental banks, though many banks and credit unions incorporate green lending strategies into their practice.A bank can play an environmental role in its ability to lend to environmentally beneficial projects and programs, from home improvement lending, to support for green businesses, to at the largest scale, lending for green infrastructure. Specialist environmental banks may offer the most obvious mission benefits, but the rapid development of green lending practices suggests that a wider range of opportunities may soon become available.
- Commercial Banks with a targeted geographic focus.Foundations may choose a local commercial bank as they service geographies of importance to a foundation’s mission and programmatic objectives. Mission-driven institutional investors may negotiate deposits with commercial banks on the condition that they maintain or locate branches in underserved neighborhoods. Sending an RFP to a mainstream bank can send a message of your preference for mission investing products such as loan programs for underserved areas and communities.Similarly, endowments may use the direct nature of banking relationships to engage banks on their environmental lending and operations, and to let them know that they choose their banking relationships in part by reviewing the sustainability of lending practices.
- Social Investment Funds.RSF Social Finance is an example of a group which provides an investment fund that serves as an alternative to bank CDs or money market accounts.It is a great place for your savings, with a minimum investment of $1,000 a guaranteed return and perfect record for returning capital.
How to get started in Carrying Your Cash
Once your foundation decides to expand its philanthropic impact with its the next step is to:
1. Determine your process.
Access weather your foundation will use the help of a consultant or manage the process internally. A foundation may choose one or a combination of its board, an investment committee, a financial consultant or an external consultant in selecting the criteria and the selection process.
Remember once the decision in made to carry the cash, do not let the extra work or the mechanics dissuade you or your board.For example if your foundation’s financial advisor does not like the extra paperwork that accompanies the due diligence and transfer process, remember it is usually a one-time investment.
Also try to determine how many institutions you will need to invest in.Some foundations may only want to or be able to hold a certain percentage of a bank’s assets and need to invest in multiple banks.Others may decide that they could achieve even greater social impact by placing cash deposits at multiple banks with different social goals. And still others may want to completely minimize transaction costs and only invest in one entity.Many organizations decide that they will invest up to the $250,000 federally insured level so if they have $1,000,000 in operating banks they target five institutions.
2. Determine the practical and qualitative factors that are most important to your foundation.
This includes the importance of location, banking services offered and mission and communities served.Evaluate the banking options that each potential bank is offering (on-line banking, wire transfers, payroll services ect.) and compare that with the communities served by a bank.Determine how the constituents of a potential financial institution are aligned with your foundations mission. In what geographic areas are they lending? Who are the primary borrowers? Are they small business owners? or individuals? Does the bank screen for any particular types of business activity, such as businesses that are involved in sustainable, environmentally-friendly businesses? Are the borrowers individuals in need of low-income housing?
3. Conduct preliminary due diligence on financial entities.
Due diligence should include using internet tools and accessing rates offered for checking accounts and CDs, checking possible references, and understanding the banks or credit unions process of opening new accounts, and customer service policies. The U.S. Treasury’s list of CDFIs, which is available online, is a great place to start.( Note, though, that there are many community financial institutions that could be doing work aligned with a foundation’s mission but do not have the CDFI designation because they do not meet the U.S. Treasury’s requirements of serving enough low income individuals).
4. Send a Request for Proposal (RFP).
If your process is more formal you may send an RFP to select institutions.The RFP is a written questionnaire that should be the back bone of the due diligence process, outlining your foundations needs and the goals it hopes to achieve and serve as a reference with respect to terms, services, rates, insurance coverage ect. the bank will provide. Confluence can provide you with sample RFPs as well as guide you through the process.
5. Complete the due diligence process.
After a bank responds to an RFP, the extent to which foundations examine the social impact of the institution ranges. Some foundations rely solely on ratings provided by various organizations with ratings mechanisms or identify banks within the CDARS insured network. Others will personally or have their consultant conduct interviews with potential banks to learn how they plan to meet their banking service requirements while impacting the community.Information on social and environmental impacts may be very qualitative and every effort should be made to gather actual statistics on communities served.
6. Transfer the cash and set up review process.
Each bank will then have its own paperwork requirements to open an account. When an account is being opened for a foundation, which is typically a corporate or trust structure, the bank will often require a copy of the foundation’s articles of incorporation and by-laws or a copy of the trust document (when a foundation is a trust). Most banks will require a resolution signed by the foundation’s secretary that authorizes the opening of the account (and banks often have resolution templates they can provide to the foundation). Finally, the bank will typically require copies of drivers’ licenses and signature cards for any foundation directors or trustees who have authority to sign on the account.