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One year in, the Community Investment Guarantee Pool is increasing access to philanthropic credit enhancement

Social Investment Practice

Sarah Stremlau, President, LOCUS Impact Investing

The Community Investment Guarantee Pool (CIGP) was designed and launched one year ago to make credit enhancement more accessible – to both guarantee users such as community development financial institutions (CDFIs) and providers of the enhancement, foundations like Kresge. The Pool’s intent is to be a “one-stop-shop” for organizations that need a philanthropic guarantee to accelerate community development investment. I had the privilege of taking the helm of CIGP in September and have witnessed already in my tenure both the power of the Pool and the valuable lessons regarding the reality of deploying millions of dollars in guarantees for that purpose.

The first lesson is how powerful it can be when diverse types of entities truly collaborate. Founded by a unique mix of national philanthropies (Kresge, Annie E Casey Foundation, Chan Zuckerberg Initiative), local philanthropies (The California Endowment, Jessie Ball duPont Fund, Phillips Foundation, Gary Community Investments, Seattle Foundation, Weingart Foundation), a health system (Dignity Health), and a CDFI (Virginia Community Capital), CIGP benefits from the energy, networks, and resources of its founders. While each guarantor joined the Pool for unique reasons, common themes have emerged that have stoked that collaborative spirit, including the opportunity to learn collectively about guarantees, to share risk, and to see programmatic flexibility lead to increased innovation and impact.

As we have deployed our first $7 million in guarantees, another lesson has been the level of demand for unconventional, flexible financial products in community development. We have had conversations with dozens of leaders at CDFIs and other intermediaries who want to use guarantees to implement new programs or open new funds. In fact, our pipeline quickly exceeded our available funds to guarantee (though we are in the process of growing the Pool, so any interested guarantee users are welcome to reach out). Our first guarantees include:

  • $1.5 million to Genesis LA to bolster financing of public-supported supportive housing and naturally occurring affordable housing in LA County.
  • $2 million to Low Income Investment Fund (LIIF) to support a $20 million fund that will provide liquidity to affordable housing developers who have been adversely impacted by the COVID-19 pandemic.
  • $3.6 million to Local Initiatives Support Corporation (LISC) for their $36 million Diverse Developer Loan Fund to provide loans for minority-owned or -led developers with limited balance sheet.

High impact projects often have significant perceived risk. Credit enhancement allows entities to attract additional resources despite that risk. CIGP’s ability to co-create a guarantee supported by a dozen organizations is an attractive offering. Partners have reiterated that they value the availability a product that best meets their needs rather than having guarantee parameters strictly prescribed, as is the case with many existing credit-enhancement products.

This model brings its own challenges, as customization is time- and resource-intensive. It takes multiple conversations and stakeholders to design and approve a bespoke guarantee, even in a one-stop-shop. Balancing our time and resources with the qualified beneficiaries’ demand for flexibility and guarantors’ interest in innovation is no easy task and not one we claim to have solved. Fortunately, with so many partners sharing the vision of increasing capital deployment into the projects that need it most, there is tremendous energy and brainpower dedicated to solving this challenge.

We are a pilot program and are therefore continuously learning and improving what we do. As we peer ahead to the rest of 2021, we look forward to deploying more guarantees to support affordable housing, small businesses and climate projects in low-income communities and communities of color. We will be initiating a formal evaluation program, which will help us learn not only about the impact of our guarantees but also the effectiveness of the model and interactions between guarantors and the program manager (that’s me). We are also launching sector-level Finance Advisory Teams to help us ensure our guarantees are effectively and innovatively addressing the gaps in traditional finance.

We expect to learn a lot this year and look forward to sharing those lessons with other practitioners interested in using philanthropic guarantees to unlock and mobilize capital.

Sarah Stremlau is the president of LOCUS Impact Investing. Follow LOCUS on Twitter @LOCUSImpact.