THE COMMUNITY INVESTMENT GUARANTEE POOL (CIGP) — store owner taking payment from customer

Guarantees Making a Difference

Where We Started

In 2019, a team of national and local impact investors came together to create an innovative way to advance community impact in affordable housing, climate, and small business with particular attention paid to advancing equity. These investors saw tremendous potential in creating a guarantee pool that could backstop promising projects and allow capital to flow to borrowers who faced challenges in accessing the resources needed to launch and sustain their projects. The result of this vision, the Community Investment Guarantee Pool (CIGP), is a platform for guarantors to deploy financial guarantees jointly and efficiently in the affordable housing, climate, and small business sectors. Two years later, CIGP is already proving itself a unique tool for impact, one that unlocks vital “but-for” dollars for projects headed by diverse stakeholders.

In addition to helping financial intermediaries manage risk and increase equitable access to capital for businesses on the ground, CIGP is committed to working with beneficiaries to develop insights and share learnings about the impact of this guarantee pool. For investor guarantors, the pool enables them to realize more transactional efficiencies and risk sharing benefits than they would issuing guarantees on their own. As a financial innovation and learning pilot, CIGP continually tests its own effectiveness as a model in the hopes that the lessons learned can inspire more philanthropic investors to leverage financial guarantees for mission-advancement.

A full theory of change has been developed that articulates the CIGP model, its expected outcomes, and its impacts. A key feature is to deploy financial guarantees that will catalyze additional investments totaling at least five times the guarantee amounts in the affordable housing, small business, and climate change sectors with a core focus on racial, gender, and economic equity. However, the CIGP model faced several early unknowns that would require intentional learning. Would there be a market need for guarantees in these sectors? How would this be impacted by the pandemic? How should the pool operationalize its racial, gender, and economic equity focus? Would beneficiaries be willing to pay for the guarantees and secure the CIGP model’s sustainability? Would guarantees truly shift behavior and help the community development marketplace advance equity?


Where We Are Today

As CIGP enters its third year, it is too early to definitively answer many of these questions, but an active evaluation and learning program is in place. Some of the unknowns are being illuminated such as the demand for the guarantees, its potential for leverage, and its effect on advancing racial equity in community lending practices. To date, CIGP has deployed $16.6M of its $38.1M guarantee pool across five affordable housing and two small business guarantees. These guarantees are expected to support up to $146M of underlying financings – well more than CIGP’s target of unlocking 5x additional capital. Moreover, the guarantees are already enabling projects to move forward that will ultimately provide 1,200 affordable homes and the retention/creation of over 550 small business jobs. There are also early signs of promise with respect to CIGP’s racial equity objectives. For example, all affordable housing lending enabled by CIGP’s guarantees have gone to BIPOC-led or owned developers.


A Case Study in Guarantee Use

MoFi Thrive Recipient

For MoFi, one of two small business beneficiaries in CIGP’s current portfolio, the $500,000 guarantee extended from the Pool provided this Montana-based CDFI with additional downside protection for a new working capital loan called Thrive that the organization developed for small businesses damaged by the pandemic who lacked access to bank financing. With two years of interest-only payments at an affordable rate along with a six-to-seven-year term, these loans provided entrepreneurs with a longer runway for recovery. In addition, MoFi focused outreach to communities that had the least access to conventional financing: businesses in low-income communities, and businesses owned by low-income people, women, and entrepreneurs of color. To better access these markets, MoFi partnered with Native CDFIs and used outreach strategies adapted from other lenders with success lending to Latinx business owners.

Early results are encouraging. Since launching Thrive in the spring 2021, MoFi has made 87 loans totaling nearly $5M through October – ahead of its own projections and about halfway to its overall volume target of $10M for the program. Approximately 33% of borrowers are female entrepreneurs and 20% of borrowers are BIPOC entrepreneurs. In describing the role of the guarantee,MoFi CEO Dave Glaser noted, “the value proposition the guarantee provides is clear; it enables CDFIs to be more of who they need to be. When we launch new products, having a guarantor come in and work with us to mitigate some of the risk is empowering on many levels. Most importantly, it allows us to reach further, and help underserved communities across the country through innovation.”


Opportunities for More Impact

In addition to its current portfolio of guarantees, CIGP has developed a pipeline of over $100M in future deals across all geographies and sectors including climate change, where it has adopted a more deliberate opportunity sourcing strategy. To meet this overall demand, CIGP plans to substantially increase the Pool’s capacity by adding new guarantors in 2022 and 2023.

These early successes demonstrate how CIGP can be a valuable resource for community development finance; however, there is still work to do. While all guarantees have been to Community Development Financial Institutions (CDFIs) so far, the CIGP team is now working with other types of beneficiaries to explore potential guarantee use cases, particularly in the climate change space. Additionally, the use of unfunded non-governmental guarantees has less precedence in the climate sector and will require continued market education. With the prospect of meaningful federal investment to accelerate the transition to a low carbon economy, CIGP’s guarantees could enable community development organizations to play a more leading role in this transition and to help leverage public dollars for greater climate justice.


A Focus on Learning

To help address these and other questions, a team of experienced evaluators and learning leaders led by impact evaluation expert and field builder, Jane Reisman, will provide a five-year emergent learning assessment to evaluate CIGP’s impact, make real-time adjustments to improve positive impact, and ultimately share formal learnings with the field. Additionally, work is underway to engage a consultant to help CIGP fully build its racial equity vision into its processes and procedures. And finally, CIGPs has established Financial Advisory Teams consisting of over two dozen experts in climate change and affordable housing (a small business advisory team may be launched pending funding). These teams bring diverse experiences and perspectives to CIGP, helping the pool be inclusive and expansive in its approach. As with the evaluation work, these teams will produce learnings that will inform the field about the role of guarantees in community development and their respective sectors.


Looking Ahead

CIGP is excited about its early progress and enthusiastic about the future. By deepening its understanding of how guarantees can lead to equitable community development and refining its operating model to more efficiently source, deploy, and service guarantees, CIGP aspires to engage more organizations in utilizing guarantees to advance impact goals and deliver a thoughtful, effective new economic development financial resource for communities.

CIGP has bold expansion goals for 2022, both for guarantor pool growth and guarantee deployment. See below for contact information if you would like to be a part of growing CIGP or learn more about the program:

Inquiries from potential investors/guarantors: Jim Baek

Inquiries from potential guarantee users/qualified beneficiaries: Fran Lutz

General inquiries: David Newsome


About CIGP

The Community Investment Guarantee Pool (CIGP) is a financing tool formed in December 2019 by a dozen impact investing organizations to create a pooled commitment of financial guarantees for intermediaries involved in affordable housing, small business, and climate lending. CIGP accelerates community investments by leveraging balance sheets for impact to make more and new types of community development transactions feasible. The initial guarantors that helped make CIGP possible include The Kresge FoundationThe Annie E. Casey FoundationThe California EndowmentChan Zuckerberg InitiativeCommonSpirit HealthGary Community InvestmentsJessie Ball duPont FundPhillips FoundationSeattle FoundationVirginia Community Capital, and Weingart Foundation. Since launch, the Robert Wood Johnson Foundation has also joined as a guarantor. Learn more about CIGP by watching this short video produced by The Kresge Foundation.

About unfunded guarantees

Unfunded guarantees are a financial tool in which a guarantor provides a beneficiary with assurances to compensate them for financial losses under specific circumstances. Importantly, in these transactions, the guarantor can use their balance sheet for the benefit of the recipient without expending any capital until the guarantee is called. While unfunded guarantees are not new to community development finance, CIGP is novel in providing guarantors with infrastructure though which to deploy guarantees and potential guarantee users with a single point of contact through which to access the balance sheets of multiple guarantors.

About LOCUS Impact Investing

The program manager for CIGP is LOCUS Impact Investing, a national social enterprise launched by Virginia Community Capital (a CDFI) to empower place-focused institutions to invest their capital locally to build prosperous, vibrant communities. LOCUS works with investors, underwriting guarantee commitments as well as monitoring and managing the portfolio for both impact and risk.


cigp windmills

Jim Baek Joins LOCUS Impact Investing as Executive Director of The Community Investment Guarantee Pool (CIGP)

Experienced Community Development and Housing Finance Practitioner Will Scale the Use of Guarantees to Help Lenders Unlock Additional Investment Capital

Richmond, VA —July 22, 2021LOCUS Impact Investing (LOCUS) has announced that Jim Baek has joined The Community Investment Guarantee Pool (CIGP) as Executive Director. LOCUS is a registered investment advisor, consultancy, and servicing organization that works with mission-driven organizations to accelerate investment that builds more equitable, prosperous communities. LOCUS is the program manager for CIGP, a first-of-its-kind platform that enables impact-aligned guarantors to unlock their balance sheets by pooling resources and sharing risk in financial guarantees to catalyze greater investment in structurally underserved or excluded communities. Mr. Baek reports to Sarah Stremlau, President of LOCUS, and will work closely with CIGP guarantors to refine and execute on the vision for the Pool.

Mr. Baek joins CIGP from Deutsche Bank where he served as Head of U.S. Community Finance as well as the Community Reinvestment Act (CRA) Officer. As Executive Director of CIGP, Mr. Baek will scale the guarantee program by attracting more guarantors to the pool and strategically deploying those guarantees around the country. To date CIGP has secured more than $38m of guarantee commitments from a dozen of the nation’s leading national and regional philanthropic institutions and health systems.

CIGP provides customized, unfunded loan guarantees to intermediaries throughout the United States in the affordable housing, small business, and climate sectors. These guarantees enable organizations to increase their lending capacity to more businesses and groups that have traditionally lacked equitable access to capital, in particular BIPOC- and women-led organizations. LOCUS became the program manager for CIGP in 2019.

“I am very pleased to welcome Jim to the CIGP team. Jim’s 20 years of experience working in community development finance and affordable housing, his deep transaction skill-set across the capital stack and knowledge of impact investing will be critical to building on the foundation CIGP has already established,” said Sarah Stremlau. “Jim brings a reputation as a changemaker as well as a demonstrated commitment to driving investment in lower-income and BIPOC communities across the country, an essential part of the LOCUS mission. He also brings a proven ability to foster a more equitable workplace, and we look forward to Jim supporting our efforts to embed DEI into our services and across the organization.”

LOCUS provides a range of consulting and investment services to current and potential impact investors through stakeholder education, investment strategy and policy development, strategic capacity building, community and economic development assessment, due diligence, fund aggregation, deal sourcing, and investment servicing, monitoring, and tracking. Clients include private foundations, community foundations, funder associations and collaboratives, fund sponsors, CDFIs, health systems and corporations. LOCUS is a wholly owned subsidiary of the non-profit, Virginia Community Capital (VCC), a regulated, certified CDFI with over $500 million in assets under management.

Ms. Stremlau added: “Whether you’re a mission-driven organization curious about how impact investing can advance your community-oriented mission or you already have a robust program in place, LOCUS’ customized, one-stop approach meets you where you are on your impact investing journey. Because we are specialists in impact investing as well as experts in community development in both rural and urban communities, we have a unique capacity to help organizations find ways to accelerate investment that builds thriving, more equitable communities. At the same time, we continue to innovate and champion new types of investment solutions like Invest Appalachia and CIGP. We believe CIGP’s novel approach has the potential to increase the use of guarantees at the national and regional levels to drive systemic change, and ultimately to change perceptions of risk when it comes to lending to BIPOC and women-owned and led businesses.”

“This is an exciting time to join the LOCUS organization. I am already impressed with the entrepreneurial and innovative foundation the organization has established in community development, and we are ready to push the boundaries even further to build more resilient communities in underserved markets across the country,” said Jim Baek. “For CIGP to be situated at the unique confluence of LOCUS as a one-stop shop for impact investment and VCC as a leading CDFI is exciting as it expands CIGP’s ability to influence systems change across the marketplace for affordable housing, small businesses and climate finance solutions.”

At Deutsche Bank, Mr. Baek was head of the Community Development Finance Group and oversaw the bank’s lending, investing and philanthropy for community development and impact in the U.S. As the CRA Officer he was also responsible for the bank’s performance under the Community Reinvestment Act regulation. Prior to joining Deutsche Bank in 2007, he underwrote affordable housing and community facility loans for the Low-Income Investment Fund and structured mortgage revenue bonds for Salomon Smith Barney. Mr. Baek is a graduate of Grinnell College (BA Political Science) and the University of Michigan (MBA). He serves on the board of IMPACCT Brooklyn, Restored Homes, and Project Rebuild, and is a former board member of Living Cities.

About CIGP:

The Community Investment Guarantee Pool (CIGP) is a first-of-its-kind platform that enables mission-driven guarantors to unlock their balance sheets by pooling resources and sharing risk in financial guarantees to catalyze greater investment in structurally underserved or excluded communities. Created in 2019, CIGP currently pools financial commitments from a dozen of the nation’s leading philanthropic organizations and health systems including The Kresge FoundationThe Annie E. Casey FoundationThe California EndowmentChan Zuckerberg InitiativeCommonSpirit HealthGary Community InvestmentsJessie Ball duPont FundPhillips FoundationRobert Wood Johnson FoundationSeattle FoundationVirginia Community Capital, and Weingart Foundation. Learn more about CIGP by watching this short video produced by The Kresge Foundation.

About LOCUS Impact Investing:

LOCUS Impact Investing is a registered investment advisor, consultancy, and servicing organization that works with mission-driven organizations across the country to accelerate investment that builds more equitable, prosperous communities. Our unique one-stop-shop model offers a comprehensive approach to community-oriented impact that includes stakeholder education, investment strategy and policy development, strategic capacity building, community and economic development assessment, due diligence, fund aggregation, deal sourcing, and investment servicing, monitoring, and tracking.. Ultimately we seek to increase the number of investors committed to community investing and to advance more effective, equitable investment practices that catalyze greater deployment of capital in lower-income and BIPOC communities across the country. LOCUS is a wholly owned subsidiary of the non-profit, Virginia Community Capital (VCC), a regulated, certified CDFI with over $500 million in assets under management.

 

Media Contact:

Chance Lee

Communications Coordinator, LOCUS Impact Investing

804.793.0980

chance@locusimpactinvesting.org


THE COMMUNITY INVESTMENT GUARANTEE POOL (CIGP) — City Skyline

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View full article and download report here: https://thegiin.org/research/publication/guarantees-issue-brief