Entrepreneurship | January 23, 2019

Boston Ujima Project is rebalancing risk, returns and power in local impact investing

Curt Lyon
Guest Author

Curt Lyon

ImpactAlpha, January 23 – A growing group of impact investors is distinguishing itself not simply by results of their investments, but how they are changing investing itself.

The Boston Ujima Project, for example, allows community members to invest, prioritize the types of neighborhood businesses needed and vote on what gets funded. For the neighborhood investment collective, the process, in many ways, is the outcome.

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The trend combines directing capital, while questioning the underlying assumptions of capital allocation. For example, who gets to make investment decisions? How can investors cede power to those targeted by their investments? How are risk and return divided and shared?

The focus on process challenges the investor-centric approach that is the norm even in impact investing. They fundamental shift: it’s not always about how much, but also about how. This is something we explored on ImpactAlpha, in “How investors can drive the shift from shareholder primacy to stakeholder capitalism.”

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At Transform Finance, we support investors and communities exploring how to invest in a way that puts the community at the center of design, governance, and ownership; that creates more value than it extracts; and that fairly allocates risks and returns. As part of this work, we have supported innovative efforts to reconceive community capital through workshops and we are undergoing a field scan and analysis of emerging efforts to democratize capital aggregation and allocation in transformative ways, rooted in the belief that community-led processes can contribute to the creation of healthy, thriving, equitable livelihoods.

The Boston Ujima Project is one such effort, democratizing capital aggregation and allocation.

Democratizing investment decisions

The Boston Ujima Project is creating a cooperative economic infrastructure for Boston’s working class communities of color.

Emerging out of years of community meetings and working groups, the founders set out to create a fund that allowed community members to set standards on the businesses they wanted to see, pool their own savings and others’ investment capital, and decide how those funds were allocated.

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Ujima just launched the nation’s first democratic investment fund. The fund targets small businesses, real estate and infrastructure projects within Dorchester, Roxbury, and Mattapan, three of Boston’s neighborhoods struggling with access to capital for its entrepreneurs, particularly those of color. The fund will administer both debt and equity investments (<$250,000), including microloans, working capital, and growth capital for small businesses, and some more flexible products for larger businesses, real estate, and infrastructure.

There are two fundamental features of the fund that are true to its deep economic democracy origin: how the risk and returns are divided among different groups of investors, and how investment decisions are made.

Sharing risk and return. The fund aggregates capital in several tranches, with unaccredited investors in Massachusetts having lower minimums ($50), higher return targets (3%), and more loan loss security. Institutional investors, philanthropic investors (PRIs), and accredited investors have higher minimums and lower return profiles, shifting the balance of risk towards those who can most afford to bear it. After the raise, Ujima members will vote on the allocation of the funds.

The tranches of the Ujima Fund


Balancing power. The way investment decisions are made is deeply participatory, with several points made available for communities to weigh in. Regardless of how much money one puts in, only the Boston resident members are able to vote in this process. The community base votes first on business standards which reflect their needs and are made priorities in the investment process. They also have the ability to put specific businesses on the table of the investment committee and fund manager for due diligence. Finally, the community has the final vote on all fund allocations and their terms, after the due diligence process.

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The deep community backing, present from Ujima’s origins in community organizing, also has the potential for other spillover effects. In our recent webinar, Aaron Tanaka of the Center for Economic Democracy (which incubates Ujima) explains how the participatory process and popular education components to their work will help members explore issues of capital and representation in other areas, from municipal finance to pension funds to their own savings. The vote of confidence from the community members not only ensures accountability, but actually de-risks Ujima’s investments by voicing that members will shop at the businesses once they are invested in, because they care about their impact in their community.

Investor implications

The Boston Ujima Project demonstrates what it looks like to move beyond the “what” (and, as Executive Director Nia Evans says in our webinar, the “who”) towards the “how.” Yes, the investments from Ujima will go to entrepreneurs of color and into products and services that promote the well-being of the community. But the transformative element that the field can learn from is the process by which the specific deals and their terms are decided.

An implication is that investors sometimes shouldn’t be able to ‘do well by doing good.’ Institutions with more capital, and therefore with more capacity to bear a loss, should be willing to be considered differently than a community member investing $50 of their savings, for whom the loss would be a lot more meaningful.

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Similarly, outside investors recognize through Ujima that the community knows what would be most impactful, which may reduce long-term risk. Regardless of the metrics used, implementing elements of deep stakeholder engagement will help guide capital towards its best use – and ensure that capital isn’t directed towards efforts that community members neither need nor want.

Investors moving into a community can adopt some of the elements of Ujima: hosting neighborhood assemblies in partnership with local organizing groups, formalizing community input into deal flow, establishing community business standards, and allocating risk in tranches based on ability to bear it.

Beyond Boston?

A question the Ujima staff and members face consistently is the question of scale. The fund, targeting at $5 million, has the ability to make real impact in the lives of those in the Boston neighborhood it intends to serve. The scale of its impact, however, is not defined by the amount of money, but by the ability to redefine Boston residents’ relationships to capital and who gets a voice in investment decisions more broadly. The aspiration is that participants in Ujima will become more engaged with other aspects of capital flow, and see themselves as having the ability to influence how those flows are carried out.  

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A broader impact of Ujima will come from putting into action a viable alternative model for others to follow, even when recognizing that the context of the fund is difficult to re-create since it was born from a long-term political organizing power.

Curt Lyon is the associate director of programs at Transform Finance.