---------- Forwarded message ----------
Date: Mon, 11 Jan 1999 10:16:01 -0500
From: Maryellen Lewis <[EMAIL PROTECTED]>
Subject: [cd4urban] personal investments for economic justice
This discussion list sponsored by the Community Development Society.
Please send all replies to [EMAIL PROTECTED]
=================================Dear Colleagues:
As you know, there are now a range of investment instruments in the U.S.
and Canada for individuals who choose to support microenterprises,
Community Development Financial Institutions and other strategies combining
a "social return" with a "financial return" for investors. Danyal Sattar
<[EMAIL PROTECTED]> from the International Association of Investors in the
Social Economy just posted this article from the European edition of the
Wall Street Journal, reviewing similar investment opportunities in Europe,
which I thought might interest you.
Sincerely,
Maryellen J. Lewis
Program Leader/Community Capital
MSU Center for Urban Affairs
1801 W. Main Street
Lansing MI 48915
---------------------------------------
Weekend -- Money Matters
Ethical Investing: Funding Job Creation: Small Is Beautiful
---
European Start-Ups Are Financed by Investment Clubs
By Kevin J. Delaney
01/08/1999
The Wall Street Journal Europe
Page 11
(Copyright (c) 1999, Dow Jones & Company, Inc.)
Job creation is a favorite slogan for Europe's politicians, yet
unemployment remains persistently high. Yves Barnoux and his friends,
however, have been creating jobs since 1986.
In 1986, Mr. Barnoux, 55 years old, and more than a dozen friends formed a
Paris investment club called the Cigale du Chemin Vert and began
contributing roughly 200 French francs ($36) each month to a fund used to
buy minority shares in small businesses, giving them seed capital to get
off the ground.
By the time the club closed 10 years later (its lifespan is limited by law
and the number of participants and their donations varied), they had
invested 150,000 francs in 11 different businesses and played a direct role
in creating 70 jobs. After taxes, the members just about broke even (the
French government gives them credits for helping out young businesses.) But
that isn't the whole point.
Quietly and steadily, groups of small investors have been doing what the
policy makers haven't been able to pull off: they are mobilizing their
savings to create permanent jobs in the private sector.
"I own mutual funds and those are good for making money," Mr. Barnoux
explains. "But you don't know exactly what they're investing in and whether
it corresponds with your ethical values."
He and members of the 100 Cigale clubs that exist in France are directly
involved in selecting their investments, and have a bias toward businesses
that create jobs and have a strong social ethic.
Scattered across Europe, there are more than a dozen other financial
instruments that allow investors to pursue that same goal with their
savings: the creation of jobs. The products generally do this by taking
shares in or extending credit to the small start-up companies that are
traditionally some of the most dynamic job creators and that have
difficulty getting loans from banks.
As investments go, the instruments aren't much to get excited about -- the
returns, if any, are often just a few percent a year. But for people
motivated by the idea of putting their money to work to ease joblessness,
they offer an intriguing option. There are few reliable statistics on how
much individuals have already invested in Europe's various job-creating
programs or how many positions they have helped to establish. But
structures that accept individual investment have created more than 15,000
new jobs in France since the 1980s, according to numbers supplied by
Finansol, a Paris nonprofit organization. And it has required as little as
1,200 European currency units ($1,400) of an investment per job created,
according to the International Association of Investors in the Social
Economy (Inaise), based in Brussels. (The investment required to create a
job is particularly low when very small businesses, like the ones from the
Cigale fund, are involved.)
"On the job creation side, the interest is definitely growing," says Danyal
Sattar, a researcher at Inaise. "It's a tool people can use to regenerate
and reinvigorate communities."
In some cases, this sort of investing is a fairly hands-on process. Mr.
Barnoux's Cigale club, for example, meets monthly and spends hours
reviewing prospective projects. During their first 10-year cycle (Mr.
Barnoux has since helped start a new club), they looked at 130 businesses
and only 11 made the cut. Among them were a company that manufactured
rock-climbing practice walls (it eventually went bust), an
alternative-energy research group (which today has 10 workers), and a wood
frame-making business (its lucrative Middle East contracts dried up during
the Gulf War, forcing it to close.)
The Aston Reinvestment Trust offers another model for direct investment in
job creation. One of the first community development funds in Europe, ART
sells shares in the trust and then lends the money out to small businesses
and nonprofit organizations in Birmingham, England. After 18 months, the
investments have created 30 jobs and helped to sustain 105 others in
organizations from a metal-casting business to a drug-addiction treatment
center.
Although individuals can sell their shares in the trust, it isn't expected
that they will make any money from their investment. And, in fact, there is
no insurance against the loss of their funds.
Aside from direct investment, there are several other safer and easier
structures that allow individuals to put their savings toward the cause of
employment. The easiest is through special savings accounts and term
deposits, known as "soft banking." They generally require the depositor to
accept a below-market interest rate with the understanding that their money
will be lent to small businesses or associations that normally would have
difficulty getting loans from banks. The return on their savings that they
forfeit goes to cover the higher cost of lending to smaller, riskier
organizations.
The Caisse Solidaire Nord-Pas de Calais, for example, offers depositors 2%
interest on two-year term deposits. After 13 months of operation, it has
collected 17 million francs in deposits and helped create 200 jobs in the
local area. "It's about convincing people to invest in their own region,"
says Benoit Granger, a Paris consultant who has studied socially
responsible investing. "The job creation is metaphorically for the
depositors' children, their nephews, etc."
Two soft-banking initiatives will begin in January, when the Banca Populare
Etica in Padua, Italy, and National Westminster Bank's "community bond"
program in the U.K. are expected to begin taking deposits. Banca Etica's
President Fabio Santiado projects that his program will create about 12,000
new jobs in Italian nonprofit groups next year through funding from its
36-month certificates of deposit and three-, six-, and 12-month bonds with
interest rates around 2%. Distribution agreements with three large Italian
banks mean that the Banca Etica products will be sold in 3,000 retail
branches. And in the year 2000, they will be available in all 13,000
Italian post offices. NatWest's program is expected to have a similarly
broad distribution, as it will be marketed to the bank's seven million
private customers.
"People are more interested in this sort of program these days," Mr.
Santiado says.
And he is convinced that Europe's low interest rates right now are helping
the cause, as the tiny spreads between traditional bank savings-account
rates and the lower rates for "ethical" accounts make it easier for
depositors to decide to switch over. These accounts generally carry the
same guarantees on the depositors' principal as traditional accounts.
(There are dozens of other soft-banking instruments in Europe with less
explicit commitments to job creation but whose funds are directed toward
"socially responsible" projects in areas like organic agriculture and
renewable energy, such as those offered by the Netherlands' Triodos Bank.)
Investors also have the option of investing in job creation through a
handful of French mutual funds. France's Caisse des Depots & Consignations,
for example, has helped create an Insertion Emplois fund that invests at
least 90% of its money in French bonds and businesses listed on the stock
market that are creating jobs and reintegrating the disadvantaged into the
work force (Carrefour, Vivendi, and L'Oreal are among the fund's largest
holdings.) As much as 10% of its assets are directly invested in smaller,
nonlisted businesses with the same priorities and associations that help
fund start-up companies. Insertion Emplois has delivered an overall return
of 45% since its founding in mid-1994. But it remains relatively small,
with 155.5 million francs in assets as of October.
Working on a different model, the Eurco Solidarite fund administered by
Credit Lyonnais invests mainly in bonds and then gives half of the profits
to shareholders and distributes the other half to development projects in
Europe, businesses trying to create jobs for the disadvantaged and
nonprofit groups working with the disadvantaged.
These funds and most of the other instruments designed to help create jobs
-- with the exception of the Cigale clubs -- are available to people who
live outside of the area or country where they are offered. But there are
some caveats. The direct investment products, for example, don't carry the
same guarantees that traditional savings plans do, so you risk losing a
portion of your money if the borrowers default or the companies go belly up.
Perhaps the biggest problem for many investors is that, while there are a
growing number of research companies monitoring the performance and
integrity of larger-scale ethical investments (funds that won't invest in
tobacco stocks, for example), there is nobody keeping an eye on most of the
job-creation vehicles. In the absence of hard, independent data on the
instruments' efficiency, there is always the knowledge that you have done
some good.
Copyright © 1998 Dow Jones & Company, Inc. All Rights Reserved.
------------------------------------------------------------------------
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