A New Kind of Community Investment

Seattle Foundation joins an innovative guarantee pool that increases access to capital.

By Kris Hermanns, Chief Impact Officer

Throughout our community and our country, too many people struggle to access the capital they need to make their dreams come true. In the United States, we are fortunate to have a sector of lenders, like credit unions and community banks that have the expressed purpose of meeting the financing needs of people with low and moderate incomes and people who face barriers to mainstream financial products to purchase a home or start a business.

These barriers largely stem from longstanding policies within the lending industry that determine who can or cannot get financing. These methodologies purport to assess risk, but in reality, they amount to discriminatory and inaccurate profiling. Biased by design, they keep women, people of color, immigrants and refugees from opening businesses and other enterprises. Yet data show that women and minorities manage loans more responsibly than people who can access them more readily. They know how important resources are and don’t take financing for granted.

In response, Seattle Foundation has been on the lookout for more opportunities to support new investment tools that help people who have been locked out of traditional capital by investing in lenders that are experienced and committed to expanding opportunity through responsible financial products.

Recently we have had a chance to take part in something that’s never been done before: a new finance vehicle called the Community Investment Guarantee Pool (CIGP). Led by The Kresge Foundation, the CIGP is the first-ever philanthropic guarantee pool in the U.S., created to accelerate community investment nationwide. In essence, the CIGP leverages money sitting idle on balance sheets to centralize a source of credit enhancement for people and projects that need it most. By banding together, guarantors can mitigate their losses by sharing them pro-rata across the pool.

So far 11 guarantors, including Kresge, The California Endowment, The Rockefeller Foundation, The Annie E. Casey Foundation, and Seattle Foundation, have come together with a total of nearly $40 million in unfunded guarantees—a total the CIGP hopes to grow to at least $75 million on its way to establishing a permanent tool for community development finance. SeaFdn is the first community foundation participating in the Pool with a board approved investment of $1 million.

The CIGP shares SeaFdn’s commitment to racial equity and shared prosperity. The pool will support businesses and enterprises whose intermediaries and/or end users are women or people of color. To start, it has identified three areas of focus for guarantees: affordable housing, small business, and climate solutions. Potential guarantees could include housing projects designed to reduce CO2 emissions and save low-income people money on energy bills, support for developers of color who are growing the size of their projects, and start-up food co-ops that will create access to healthy food while creating jobs and generating economic activity.

In early December, Seattle Foundation is hosting a series of gatherings to talk about the opportunities the CIGP presents in our community. If you would like to learn more, please contact me at 206-388-1653.