Public bond markets are becoming a reliable new source of capital for community development financial institutions that lend to low-income communities.
A successful $76 million offering by the Reinvestment Fund, a nationwide “CDFI” based in Philadelphia, pushed total capital raised through four such general-obligation bond offerings since last year to more than $350 million. Reinvestment Fund itself raised $50 million in one of the first such bond offerings last year.
The potential is huge. As of 2016, the U.S. bond market was more than $39 trillion, including $3.8 trillion in municipal bonds. Reinvestment Fund manages about $1 billion in assets.
“We are pleased to be participating in the transformation of the socially responsible lending industry,” Reinvestment Fund’s Donald Hinkle-Brown said in a statement. “The issuance of multiple bonds since 2017 has catapulted CDFIs into a new category creating access and strengthening impact.”
Access to the public capital markets lowers Reinvestment Fund’s cost of capital, Hinkle-Brown told ImpactAlpha and expands the investor base, at least for the handful of CDFIs that qualify for a rating from Standard & Poor’s. Reinvestment Fund said S&P Global Ratings had given both the issuer and the issue an AA- credit rating. CDFIs have traditionally relied on banks, which have financed the low-income lenders in order to satisfy requirements under the federal Community Reinvestment Act.
Among the investors in the latest issue were TIAA, the $1 trillion nonprofit asset manager, and QBE, the Australia-based insurance company.
Last year’s $50 million bond issue helped finance more than a dozen projects, Reinvestment Fund said, including grocery stores, health centers and mixed-use projects. In New Orleans, the financing helped the Rose Community Development Corp. transform a vacant church and former school buildings into a hub for arts, education and entrepreneurship.
The Local Initiatives Support Corp. was the first CDFI to issue a general-obligation bond, raising $100 million last year.
Capital Impact Partners, a nonprofit loan fund and federally-certified community development financial institution, or CDFI, later last year launched a $100 million fixed-income security available to retail investors for as little as $1,000.