College Investment Choices Could Buoy Local Economy

Author: Hilary Eisen

There is a Community Investment (CI) initiative on campus working to persuade Middlebury College to invest some of its endowment in our local community. As students, are very fortunate to attend Middlebury and reap its benefits. One of the great things about Middlebury is its location in Vermont. The College has a strong connection with its home state through Dining Services, student volunteer work and many other channels. We could, however, do more to connect economically with the area - especially in the realm of rural poverty. CI is an excellent opportunity for the College to assist Vermont residents.

With CI, the College has the opportunity to redirect some of its reserves from traditional monetary institutions into the local community. Rural poverty is a reality that often does not penetrate our Middlebury "bubble." Unfortunately, it is widespread in Vermont. Through CI Middlebury has an opportunity to help alleviate this situation.

Many people and non-profit organizations are underserved by traditional financial institutions and cannot obtain loans through conventional means - usually because the amount they are requesting is too small or because they do not already have an established credit history. The idea behind CI is that a business, organization or individual - the College in this case - - invests its money in a Community Development Financial Institution (CDFI) through which the capital becomes available to local residents in the form of small to medium loans with low interest rates.

This enables recipients to make improvements to their homes and businesses and purchase land they are renting, among other possibilities. These loans present a way for many people to begin the rise out of poverty. Loans to non-profit service organizations enable these organizations to better serve the community and benefit the region as a whole.

CDFI are for-profit organizations, similar to "normal" banks. Their primary objective, however, is to promote community development. They serve areas that demonstrate economic distress and lack access to loans or equity investments. Target areas also tend to have a low-income population.

While they are not currently regulated by the federal government, a CDFI investment is no riskier than putting the school's money into any of the venture capital funds on Wall Street, and has proven exponentially safer and more reliable than the dot-com investments of recent years. Due to the small size of the loans that CDFIs give out and the mentoring relationships they develop with their customers, CDFIs have a lower failure rate than traditional financial institutions.

The Vermont Community Loan Fund, a logical choice of a CDFI for the College to invest in, loans over $3 million each year and in 15 years of business has never been unable to repay an investor. The return rate on CDFI investments is anywhere between zero and 4 percent, depending both on how large the investment is and how generous the investor feels.

The College has accumulated a substantial endowment, which it invests in a wide variety of monetary institutions. We are proposing that the College transfer one percent of its invested endowment to a Vermont-based CDFI. This money would then go towards providing small, low-interest loans to residents of Vermont otherwise unable to obtain financing through regular loan operations. Recipients might be small-business owners, farmers or non-profit service providers, just to name some potential beneficiaries.

What we are proposing is a sound financial choice. Investments in CDFIs have a return comparable to that of bonds or other low return options. Unlike a bond however, the invested money goes to support sectors of the local community that need the money. Basically, it's a win-win situation. The College gets the same return on its investment as it would otherwise, and we can support local community development.

CI is not a radical, left-wing idea. Other NESCAC colleges, including Williams, have already invested money in CDFIs and have had good returns. CI is a great opportunity for Middlebury College.