A year later, the Community Investment Guarantee Pool improves access to improved philanthropic credit
The Community Investment Guarantee Pool (CIGP) was designed and launched a year ago to make credit enhancement more accessible – both to guarantee users such as community development financial institutions (CDFIs) and to providers of credit enhancement. enhancement, foundations like Kresge. The Pool’s intention is to be a “one stop shop” for organizations that need philanthropic assurance to accelerate investment in community development. I had the privilege of taking the helm of CIGP in September and have already witnessed in my tenure both the power of the pool and the valuable lessons regarding the reality of deploying millions of dollars in collateral for this purpose. .
The first lesson is how powerful it can be when various types of entities actually collaborate. Founded by a unique blend of national philanthropies (Kresge, Annie E Casey Foundation, Chan Zuckerberg Initiative), local philanthropies (The California Endowment, Jessie Ball duPont Fund, Phillips Foundation, Gary Community Investments, Seattle Foundation, Weingart Foundation), a system (Dignity Health) and a CDFI (Virginia Community Capital), CIGP benefits from the energy, networks and resources of its founders. Although each guarantor joined the pool for unique reasons, common themes emerged that fueled this collaborative spirit, including the opportunity to collectively learn about guaranties, share risk, and see programmatic flexibility lead to innovation and increased impact.
As we deploy our first $7 million guarantees, another lesson has been the level of demand for flexible and unconventional financial products in community development. We’ve had conversations with dozens of CDFI executives and other intermediaries who want to use collateral to implement new programs or open new funds. In fact, our pipeline quickly exceeded our funds available to guarantee (although we are in the process of developing the pool, all interested guarantee users are welcome to contact us). Our first guarantees include:
- $1.5 million to Genesis LA to strengthen funding for public supportive housing and natural affordable housing in LA County.
- $2 million to the Low Income Investment Fund (LIIF) to support a $20 million fund that will provide liquidity to affordable housing developers who have been impacted by the COVID-19 pandemic.
- $3.6 million to the Local Initiatives Support Corporation (LISC) for its $36 million Diversified Developer Loan Fund to provide loans to minority-owned or minority-led developers with limited balance sheets.
High-impact projects often carry significant perceived risk. Credit enhancement allows entities to attract additional resources despite this risk. CIGP’s ability to co-create a guarantee supported by around ten organizations is an attractive offer. Partners reiterated that they appreciate the availability of a product that best suits their needs rather than having strictly prescribed collateral parameters, as is the case with many existing credit enhancement products.
This model brings its own challenges, as customization requires a lot of time and resources. It takes multiple conversations and stakeholders to design and approve a bespoke warranty, even in a one-stop shop. Balancing our time and resources with qualified beneficiaries’ demand for flexibility and guarantors’ interest in innovation is not an easy task and we do not claim to have solved it. Fortunately, with so many partners sharing the vision of increasing the deployment of capital to the projects that need it most, considerable energy and intelligence is being devoted to solving this challenge.
We are a pilot program so we are continually learning and improving what we do. As we look to the remainder of 2021, we look forward to rolling out more guarantees to support affordable housing, small businesses, and climate projects in low-income communities and communities of color. We will launch a formal evaluation program, which will help us learn not only the impact of our guarantees, but also the effectiveness of the model and the interactions between the guarantors and the program manager (that’s me). We are also launching sector-level financial advisory teams to help us ensure that our guarantees effectively and innovatively fill the gaps in traditional finance.
We expect to learn a lot this year and look forward to sharing those lessons with other practitioners interested in using philanthropic guarantees to unlock and mobilize capital.
Sarah Stremlau is the President of LOCUS Impact Investing. Follow LOCUS on Twitter @LOCUSImpact.