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Philanthropy and Capital: The Most Welcome Words I Ever Heard

Rodney Foxworth's new opinion piece for Next City ("Hear Us: Shifting Capital Isn’t Just About the Amount. It’s About Who’s in Control") is right on the mark.

For many years, when I was CEO of Inclusiv (formerly, National Federation of Community Development Credit Unions), we were fortunate to receive major investments from the Ford Foundation, among others. The foundation's endowment was doing well at that time, and along with large Program Related Investments (PRIs), it often provided a grant of 10% to go with the debt capital.

I remember (although my program officer claims not to) when he said the magic words, "You're not fully using our willingness to take risk." The foundation agreed to provide us capital for an innovative, ultra-high risk investment that we proceeded to make in our community development credit unions: secondary capital--deeply subordinated debt that acted as regulatory capital (with conditions) but would be the first money lost if the credit union suffered insolvency. It was the riskiest money that we could invest--and we could not have done it without the Ford Foundation's grants that built our net worth, which Rodney Foxworth points out is crucial.

Yes, we suffered some losses over the years. But thanks to the foundation's grants (and the CDFI Fund's) that built our net worth, we absorbed the losses. Secondary capital has proven extremely helpful in enabling low-income credit unions to leverage and grow, in turn investing more in their communities. It has become the vehicle for the federal government to invest billions through its recent ECIP program, years after it made similar though smaller investments following the Great Recession.

None of that would have been possible had the Ford Foundation not taken the risk to make its pioneering investment with us -- "only" a few million dollars, that we subsequently repaid. I hope they adequately appreciate the "win" that investment has achieved.


Clifford Rosenthal is the author of Democratizing Finance: Origins of the Community Development Financial Institutions Movement and a member of the NYS CDFI Coalition's Advisory Committee.

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