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How Does Community Investment Work?

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Investors provide capital through opening savings, checking, IRAs or money market accounts at Community Investment Institution banks and credit unions. There are also loan funds and venture capital funds available.
The capital from these investments is utilized in the form of loans to individuals and organizations that have been turned down from the traditional financial institutions. These loans are used for the creation of small businesses, affordable housing, education and many other forms of community development in underserved districts. The Community Investment Institution will provide training and support to ensure the success of the loan. At the end of the investment term, the investor receives his/her principal plus a return.

If you are nervous about the risk of investment, community development banks and credit unions are federally insured per depositor up to at least $100,000. This is the same rate as traditional banks and credit unions. Communityinvest.org says, "The community development loan funds and venture capital funds are not insured or regulated, but do employ lending and management strategies that ensure their stability, and also have credit enhancements." There is always some risk involved in any investment strategy, be it traditional investment or socially responsible investments.

In the U.S. the focus is primarily on rebuilding communities through personal loans, but the mission with international CIIs is much broader. International CIIs specialize in helping emerging countries from years of conflict and war and in helping recently democratized nations. Developing nations have a different dynamic than the U.S. Self-employed people often comprise 50% pf the labor force. International CIIs provide skills, capital and credit to these self-employed people in order to help them start small businesses. These loans are referred to as micro enterprise loans. These are the most common vehicle for community investing abroad. There are also available small and medium enterprise loans which help create small businesses and jobs and develop the middle class in poor countries. International Community Investment Institutions closely supervise, monitor and train their borrowers.

Next Page: How Do I Know Which Community Investment Vehicle Is Right For Me?

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