In communities that often don’t have access to traditional financing, community development financial institutions can be the catalyst for real change.
When families come to Hawai‘i Community Lending (HCL), it’s often because they’ve already looked into traditional ways of financing a home and have been declined. For example, they may not qualify for a mortgage because their credit rating is too low; or they may not have the cash saved up for a down payment or closing costs.
That’s where HCL comes in.
“We can take their high-interest credit cards and derogatory debt and consolidate it,” says Jeff Gilbreath, HCL’s executive director. “The average drop in debt-to-income ratio for clients who receive our debt consolidation loans is 7 percent. That’s 7 percent of their income that can now go toward mortgage qualification.”
HCL is what’s known as a community development financial institution, or CDFI. CDFIs are mission-driven financial institutions that provide financial services to underserved communities and people who may not be able to qualify at traditional banks or credit unions. HCL provides financial education and affordable loans to Hawai‘i residents shut out of mainstream financial institutions. This kind of lending creates much-needed opportunities for building wealth and financial stability, leading to long-term success and growth.
CDFI lending is important, transformative work, which is why the Hawai‘i Community Foundation created the Social Impact Investment Fund in 2020 as a three-year pilot project to drive positive social impact and a financial return through strategically invested capital. With an initial investment of $5 million, the Fund is focused on providing revolving, affordable debt capital to CDFIs that are either based or operating in Hawai‘i.
“Some of these CDFIs have been working in Hawai‘i for years, but they’ve been undercapitalized, so they have a lot of room to grow,” says Chris van Bergeijk, formerly HCF’s senior vice president and chief impact officer, who helped to start the program.
The program marks HCF’s first foray into social impact investing after more than a century as a grantmaking institution. Why venture into lending now? The Fund’s investments support, sustain, and scale philanthropic causes that provide a sustainable, long-term benefit to the community, making it a good complement to the traditional grantmaking approach. Loans made so far to the CDFIs have been in the $500,000 to $1 million range, amounts significantly larger than typically awarded through grants.
“There’s a recycling of philanthropic dollars, because eventually the funds are returned so they can be used again,” van Bergeijk says.
Van Bergeijk says it made sense to partner with CDFIs because these organizations already have processes in place to evaluate borrowers, manage risk, and ensure loans are going where they will do the most good.
Importantly, HCF looked for CDFIs that already have a pipeline of borrowers waiting for funds, van Bergeijk says. “We wanted to be confident we were not going to lend to an organization and then have the dollars sit there,” she said.
The Fund was launched with $1 million in seed capital from HCF, and bolstered with large donations from Bank of Hawai‘i and philanthropist MacKenzie Scott, as well as contributions from individual HCF donors.
In addition to Hawai‘i Community Lending, current HCF investees include Hawai‘i Habitat for Humanity Association, a CDFI that facilitates mortgages to help struggling families access homeownership; HHOC Mortgage, a CDFI focused on homeownership for low- and moderate-income borrowers and first-time homebuyers in Hawai‘i; Feed the Hunger Fund, a CDFI that provides financing for community-oriented enterprises that contribute to building sustainable food systems; Rural Community Assistance Corporation, a CDFI that offers financing for affordable housing development, environmental infrastructure, community facilities and small businesses in rural locations; and the Council for Native Hawaiian Advancement, a Native CDFI that provides access to capital, counseling, and financial education to Hawai‘i-based small businesses, nonprofit organizations, and low- and moderate-income families. HCF is even investing in Hawai‘i ‘Ulu Cooperative, a farmer-owned agricultural co-op.
HCF is now considering a permanent, expanded Fund. “So far, repayment has been solid and on track,” van Bergeijk says. “And the money’s not sitting around—the organizations are deploying the funds out in the community. That feels really good.”
To learn more about the Social Impact Investment Fund, visit hawaiicommunityfoundation.org/social-impact-investing-fund.