Mixed use buildings are going to require innovative financial and ownership mechanisms. Drew Tulcin begins the discussion. …
How to Finance the Sustainable Urban Village
A key foundation to building the sustainable urban village we all want (in whatever form that is for you) is to ensure there is capital – money – both for people to finance the creation / construction efforts, as well as sustainable institutions to hold money for the urban village. This article details the financial institutions, methods, and mechanisms which do exist already today that are helpful to all of us. The article includes where to learn more on these efforts. The future can be now. [Please note that mention of any financial institution or product is not an endorsement or recommendation. One should always do their own investigation and due diligence before making an investment decision.]
Socially responsible financial institutions
Sounds like an oxymoron, no? If we are going to stay in the conventional banking world of financing things, we’d like to see those institutions using our money be entities that are healthy for the world and in-line with our values. And, they should be part of the solution and not furthering the problem.
There are a number of institutions which play the financial game and embrace social, community and environmental values. In addition, they are seeking to utilize the financial markets and build marketplaces which are healthy.
- Credit unions: In general, a credit union should be a safe(r) option for places to put your money and to borrow. They are membership based, so consist of others like you. They have stricter requirements to keep them more accountable to their membership. NM has a number of options, most of which are happy to have you join. [Disclaimer: the author holds an account in Guadalupe Credit Union.]
- Permaculture Credit Union (www.pcuonline.org): One particular institution, located inSanta Fe,NM, with a charter to operate nationally, is PCU. This green focused institution practices what it preaches. For example, customers borrowing for a car loan get a discount the better the gas mileage of the vehicle. [Disclaimer: the author serves on the board.]
- Community Banks: This is the name for a bank, but one that only has a few branches and is limited in its size. They are also regulated by a different overseer than the national institutions. Historically, they have known the community better in which they lend and care about it. Their loan underwriting paperwork is not sent off to ‘some mountain’. Decisions can usually be made by local staff. NM has a number of these, including Community Bank, Los Alamos National Bank, Century Bank, Charter Bank,
- Sustainable banks: Again, what may seem a contradiction is building momentum. There are a number of explicitly mission-driven banks. One California Bank, e3bank, New Resource Bank, Rabobank, and Triodos are a few (these last two with Dutch roots). A good summary is available at www.sustainablebusiness.com/index.cfm/go/news.feature/id/1759.
Financial means to access capital in new ways
There are a number of interesting new methods to access capital, especially through the internet and they are legal. They are actually built upon old ideas of fostering community, making things affordable for everyone and building trust. Take old concepts and making them new. A few examples draw upon crowd funding, imagine an eBay or online auction for debt.
- Prosper. The biggest and oldest of the online providers. Directly connecting borrowers and lenders, individuals who can invest as little as $50. The website boasts $250 million in personal funds invested / loaned to date.
- Vittana. This is focused on educational loans to foster more opportunity for the next generation and is currently just working internationally in developing countries. It is listed here as it is a model for how trust and simple ideas spurred by technology can make a difference, where young people can multiple their earning potential and benefit their entire community through education financed by others.
- Crowd funding in general has really taken off with a number of sites offering similar services. Kickstarter focuses on projects, mostly for artists. Indiegogo is quite large and works with a wider range of efforts. Some specialize in non-profits. Caveat Emptor, buyer beware, but an interesting tool, mostly for smaller quantities of money (< $10,000)
The financial housing catastrophe, among other problems, has made it harder to finance just about anything these days. While some loans were made that shouldn’t have been and some financial vehicles should not have been created, to have the pendulum swing all the way back to not lending at all throws the baby out with the bathwater, as well as conquers many other metaphors I can mix.
Financing is a tool. It is neutral. The financial marketplace exchanges more than $1 trillion a day, so it has liquidity – money – so makes sense for us to tap it for things we want to accomplish. Ignoring major financial markets typically means an uphill effort with lots of promotion to access smaller sources. There are some tools which aren’t well known or haven’t yet been used widely in the context of financing our sustainable community. These are growing, with great prospects. A few are:
- Community guarantees. As the name implies, it is a collective promise to pay. People have to know one another and there must be trust, but it is a classic concept. Imagine form literature…with this letter, I give you my good word this person is upstanding and should be provided up to 100 pounds. I will cover it.
- Cross collateralization. Financial terms like securitization and secondary market have become a bit tarnished as of late, but there are financial tools which help reduce risk and can help with investments. One potential is to pool capital, as is often done with bonds. This term is just the idea that you have people vouch for each other and put up support, like a guarantee, for others. This is how the Mohammad Yunus’ Grameen Bank was set up, with five ladies working together with one getting a loan at a time. Imagine 100 people all part of the same loan financing.
- Social investment bond. This is a very ingenious idea out of theU.K.to avoid high costs later through investment today. Imagine you knew inSanta Fethat 100 people would unfortunately have drunk driving accidents each year and that each such accident had a total cost of $100,000 – insurance, property, legal, hospital, etc. (Let’s hope little loss of life). That is a real cost carried by a community of $10,000,000 each year. This is real money being spent or wasted (This is probably under-estimated, but is an example). Wouldn’t it make sense to develop programs today that could reduce that number and that expense? A community could invest in alternative programs: more police, awareness of the problem, alcohol abuse prevention programs, etc. And finance it through the savings of reduced DWIs.
- Tax credits from land conservancies there is a very important tool that provides capital and nurtures the earth, conservation easements. This is explained from the horse’s mouth by the NM Land Conservancy, see the box.
Communities in which to learn more
There is an established triple bottom line financing sector. This isn’t a weird thing. More than $1 in every $9 invested dollars has some sort of socially responsible characteristic.
The best online resources I use for community investing, which is the label for most of the items mentioned above, is at The Community Investing Center (www.socialfunds.com) and the national association US SIF: The Forum for Sustainable and Responsible Investment (Formerly SIF – the Social Investment Forum).
Communities where you can learn more about these topics include:
- SoCap – Social Capital Markets, holds an annual conference in October in the SF Bay Area.
- Slow Money, sparked by NM’s own Woody Tasch, held its first conference in Santa Fe, and has since traveled the nation. Regional chapters focus attention on local investing.
- Bioneers, a New Mexico based organization, holds its annual conference in Marin County, CA, in October. You can also find them here doing local activities, including a new Native initiative.
- Net Impact, this 20 year old group began as students for responsible business (SRB) and grew as its alumni base grew. In Portland at the end of October, more than 2,000 people will convey to see about corporate social responsibility and social enterprise.
There are options to the financing conundrum for our sustainable community. Solutions exist now. Accessing them still requires hard work. Working together to foster the community in which we wish to live is not easy. Together we can make progress together. To explore these concepts and ideas further, you are invited to continue the conversation by leaving a reply!
Drew Tulchin lives in Santa Fe. He is Managing Partner of Social Enterprise Associates (www.socialenterprise.net) a ‘triple bottom line’ consulting firm specializing in a triple bottom line consulting firm helping businesses, NGOs, government and foundations to ‘do well by doing good’.