Philanthropic commitments to cover loan losses could catalyze hundreds of millions in financing for affordable housing, small business and climate action at almost no cost – as long as there are no calls on the guarantees.
Nine foundations, a health care system and a nonprofit lender committed more than $33 million from their balance sheets to the Community Investment Guarantee Pool, a new clearinghouse to demonstrate the utility of such guarantees. No capital changes hands unless a guarantee is triggered; in most cases, no capital need even be set aside.
“Socially motivated investors can leverage their balance sheets without requiring current liquidity to create a backstop and help minimize risk, allowing more traditional capital to feel comfortable putting their dollars into community investments,” said Locus Impact Investing’s Teri Lovelace. Locus, part of Virginia Community Capital, will manage the guarantee pool.
Sample use cases. Locus will select and underwrite the guarantees and track metrics including units of new and preserved affordable housing, living-wage jobs created and , megawatts of solar power produced. Sample use cases: First-loss protection for a portfolio of affordable housing loans and an additional loan-loss reserve for a pool of small-business loans to female entrepreneurs of color.
The Kresge Foundation, which spearheaded the initiative, has its own portfolio of nearly $100 million in guarantees across 30 deals, including a recent $3.3 million first-loss guarantee on loans for solar power and battery storage systems to help low-income residents save on energy bills.
Shared risk. Kresge, which committed $10 million to the pool, was joined by Annie E. Casey Foundation, California Endowment, Chan Zuckerberg Initiative, CommonSpirit Health, Gary Community Investments, Jessie Ball duPont Fund, Phillips Foundation, Seattle Foundation, Virginia Community Capital and Weingart Foundation. Rockefeller Foundation provided grant support. The funders will share equally in the risk of each guarantee.