Monthly Archives

February 2021

Love1
By CNote, Migration V2

CNote Recognized as Fund Manager in ImpactAssets 50

BETHESDA, Md., Feb. 23, 2021—CNote is thrilled to announce that we have been selected as a manager in the ImpactAssets 50 2021 (IA 50), which recognizes a diverse group of impact fund managers who demonstrate a commitment to generating positive impact.

IA 50 Fund Managers are experienced impact fund managers with a minimum 3-year track record and $25 AUM.

This year marks the tenth edition of the IA 50, and despite a tumultuous year, total assets under management (AUM) among selected fund managers jumped to a record $228 billion in 2020, up from $181 billion in 2019. 

“We are tremendously proud to have been recognized as a top impact fund manager by ImpactAssets,” said Yuliya Tarasava, co-founder and COO of CNote. “Our commitment to deploying capital to underserved communities in order to build a more inclusive economy has always been at the core of what we do and has been a huge part of achieving this recognition.”

This year’s list revealed several investing trends.  

CDFIs Take Center Stage: Seven Community Development Financial Institutions (CDFIs) were selected in this year’s IA 50, reflecting the critical role CDFIs have played during the COVID-19 pandemic—from distributing PPP loans to supporting small businesses within rural, indigenous and low-income communities, and communities of color. These organizations represent both national and locally-focused community funders and manage a combined $18.7 billion in assets which are catalyzed for creating jobs, building affordable housing and financing community services in underserved low-income communities. 

Investment Targets: In 2020, the global pandemic and subsequent economic downturn affected communities worldwide, and IA 50 fund managers focused on some of those hardest hit. A total of 63% of managers targeted investment in rural communities, while 54% specifically benefited people of color and 48% were focused on advancing women-led businesses. Two-thirds (67%) of managers said their firm focused on underdeveloped markets where the market is relatively new, emerging, or subject to systemic challenges. 

 Diversity and Inclusion: While fund management remains overwhelmingly non-diverse, IA 50 fund managers are leading with diversity. This is especially true of the IA 50 Emerging Impact Managers, where 51% reported more than half of their investment professionals were women and 54% said more than half of their investment professionals were people of color.  

Impact and Financial Return: Impact fund managers remained focused on delivering both positive impact and investment performance. A total of 87% of IA 50 fund managers targeted market rate or above rates of return and 92% delivered either in line or above their target returns. Emerging Impact Managers reported similar results, with 63% targeting market rates of return or above, and 98% delivering either in line or above their initial target returns. 

“The growth we’ve seen in the IA 50 over the past decade is reflective of the growth, maturity, and increased diversity of the impact investing industry as a whole,” added Sandra Osborne Kartt, CFA, Director, Investments, ImpactAssets. “Along with the Emeritus and Emerging Impact Manager lists, this year’s IA 50 represents the vast array of impact themes and strategies available to impact investors today.”

  

About CNote 

CNote is a women-led impact investment platform that uses technology to unlock diversified and proven community investments to generate economic mobility and financial inclusion. We empower investors to directly align their values with their investments through innovative cash and fixed income offerings.

We deploy capital through our CDFI partners, which are private financial institutions with a primary goal of delivering affordable lending to aid financially disadvantaged individuals and communities. These community partners benefit from CNote’s investments through access to new sources of capital that are often more flexible and mission-aligned.

Since 2016, CNote has been developing technology to unlock access to investments in racial equity, economic justice, and gender equity and help close the wealth gap in underserved communities across America. Interested in making a difference with your investments? Learn more about CNote’s Impact Investments.

 

About the ImpactAssets 50 

The IA 50 is the first publicly available database that provides a gateway into the world of impact investing for investors and their financial advisors, offering an easy way to identify experienced impact investment firms and explore the landscape of potential investment options. The IA 50 is intended to illustrate the breadth of impact investment fund managers operating today, though it is not a comprehensive list. Firms have been selected to demonstrate a wide range of impact investing activities across geographies, sectors and asset classes. 

The IA 50 is not an index or investable platform and does not constitute an offering or recommend specific products. It is not a replacement for due diligence. In order to be considered for the IA 50 2021, fund managers needed to have at least $25 million in assets under management, more than three years of experience as a firm with impact investing, documented social and/or environmental impact and be available for US investment. Additional details on the selection process are available here.   

The IA 50 Emerging Impact Manager list is intended to spotlight newer fund managers that may demonstrate future potential to create meaningful impact. Criteria such as minimum track record or minimum assets under management may not be applicable. 

 The IA 50 Emeritus Impact Manager list illuminates impact fund managers who have achieved consistent recognition on the IA 50. 

 

About  ImpactAssets 

ImpactAssets is the leading impact investing partner for individuals, families and philanthropists tackling the world’s greatest challenges by investing in the world’s brightest ideas. We make it easy for our clients to “discover, connect and invest” in game-changing entrepreneurs and funds. Founded in 2010, ImpactAssets increases flows of money to impact investing with our 100% impact investment platform and field-building initiatives, including the IA 50 database of private debt and equity impact fund managers. 

The ImpactAssets Donor Advised Fund is an innovative vehicle that empowers donors to increase the impact of their giving by combining it with strategic, sustainable and responsible investing to build a sophisticated philanthropic endowment. The Fund currently has more than $1.4 billion in assets in 1,400 donor advised funds, working with 350 wealth advisors across 60 financial services firms. 

 

Learn more at www.impactassets.org  

Love1
By CDFIs, CNote, Migration V1

5 Crucial Differences Between CDFIs and Traditional Banks

There are many American communities that are underserved by the traditional banking industry. Low-income and minority communities typically experience the most lack of access to quality financial products and services. According to a 2018 FDIC survey, 22 percent of households are underbanked or unbanked. This means that these individuals have no formal relationship with a traditional bank or access to credit. 

When basic mainstream financial services such as checking, savings, or money market accounts are not accessible, households are forced to rely on alternative financial services like check-cashing services, pawnshop loans, auto title loans, payday loans, and paycheck or tax refund advances. These types of financial services are associated with high-interest rates and fees and keep those already suffering from financial disparity stuck in a cycle of ever-increasing debt.

The most striking difference between Community Development Financial Institutions (CDFIs) and traditional banks is their mission. CDFIs strive to deliver responsible and affordable lending to financially disadvantaged communities across the country. In contrast, traditional banks are focused only on generating profits to satisfy their shareholders’ expectations.

In addition to their missions, CDFIs and traditional banks also diverge from each other with their structure, the types of loans and financial products they offer, their underwriting practices, structure, support services, and loan servicing. Here is a breakdown of these five crucial differences between CDFIs and traditional banks.    

Difference #1 – How CDFIs vs. traditional banks are structured

CDFIs operate as banks, credit unions, loan funds, and venture capital funds that have qualified to receive the designation from the U.S. Treasury Department’s CDFI Fund.  Each type of CDFI has its own legal structure and offers a different range of financial products and support services for their particular customers in low-income communities.    

As depository institutions, CDFI banks and credit unions are regulated by federal and state agencies. CDFI banks are FDIC-insured and organized like traditional banks except they must devote at least 60 percent of their total lending and other services to benefit low-income communities. CDFI credit unions are member-owned nonprofits so the profit is shared with members through higher rates on deposits and lower rates on loans. Many credit unions offer National Credit Union Administration (NCUA) insurance coverage that mirrors FDIC coverage but is designed for CU participants.  

An electable board of directors is accountable to the membership that governs the credit union’s policies. CDFI banks and credit unions offer lower fees and interest rates for people with low credit scores as well as refinance programs to help people escape predatory loans. 

Most CDFI loan funds are structured as nonprofits and must follow the state laws where they function. They also must undergo independent third-party audits that are conducted by certified public accountants. Loan funds and venture capital funds are not regulated by federal banking regulators because they’re not federally insured financial institutions. Venture capital funds usually take seats or observer rights on the boards of their portfolio companies. Some become part owners in the companies they invest in. 

In contrast, traditional banks are structured to optimize profit for shareholders whereas CDFIs focus is on serving their communities. Traditional banks offer higher fees and interest rates for people with lower credit scores, limited or blemished credit history, and minimal assets. 

Difference #2 – Types of financial products and programs

CDFIs believe that individuals and businesses deserve access to the necessary financial products and resources to purchase a first home, open a local store, or expand an existing enterprise. CDFIs make funding available to support startups, nonprofits, micro, and small businesses, affordable housing, consumers, and commercial real estate.  Often, these loans help launch projects that wouldn’t otherwise get off the ground.

CDFI microloan rates are competitive with Small Business Administration (SBA) loans from banks and typically offer lower interest rates with a higher likelihood of approval. The Federal Reserve Bank of Minneapolis recently reported that “CDFIs can save business owners an average of more than $2,700 per loan when compared to market rates.”

The financial products offered by CDFIs are designed to support the specific needs of the borrower as most are fixed-rate and self-amortizing with lower origination fees. This keeps payments predictable and allows borrowers to decrease the principal so the loan is actually paid off at the end of the term.  

Conversely, traditional banks generally don’t offer startup or micro-business loans of any kind. Banks tend to provide funding for established small businesses. When it comes to housing, consumer, and commercial real estate loans offered by banks, terms can be restrictive. This is because traditional banks are focused on maximizing profit for their shareholders and small loans (those under $250,000) while,  less profitable than large business loans, require the same amount of manpower to originate and monitor 

This leaves significant gaps in lending when it comes to startups and small businesses receiving the funding they need. According to a 2016 report “The State of Small Business Lending” by the Harvard Business Review, more than 60 percent of small businesses look to secure loans under $100,000. 

Difference #3 – Business Underwriting and eligibility assessment

In order to better serve and increase lending to a wider range of business owners, CDFIs work with borrowers that may have lower credit scores or minimal credit histories. By nature, startups and new small businesses have less assets, collateral, and owner equity. 

As a result, CDFIs don’t rely on FICO scores alone to assess the creditworthiness of loans but also consider a borrower’s credit history to understand their character and payment history. CDFIs also strive to approve loans more quickly and assist borrowers that aren’t yet capital-ready with other credit-building products, counseling, or technical assistance.

In their report “Innovations in Underwriting”, The Opportunity Finance Network (OFN) and Wells Fargo found that “innovative underwriting strategies by CDFIs don’t undermine risk management or portfolio quality. Rather, the new strategies analyze past and current portfolio activity to inform new practices.” This helps to “align CDFI policies with its practices while maintaining asset quality.”    

Traditional banks are constrained by credit-score-driven underwriting models that make it difficult to meet the funding needs of small businesses. Unlike CDFIs that seek to make lending more inclusive, the aim of commercial banks is to narrow down the pool of borrowers that are eligible for loan products to mitigate excessive risks that lead to increased credit losses.  

Difference #4 – Support services and technical assistance 

Most CDFIs offer technical assistance services and training programs related to homeownership, small business and capacity-building support, business coaching, and mentoring and advisory services. These services educate and assist borrowers in making major purchases or business topics like cash flow, marketing, and management. When more businesses succeed and grow,  job growth is boosted in low-income and minority communities.

Traditional banks don’t offer technical assistance services as they are unable to be directly involved in providing guidance for business operations due to lender liability regulations. 

Difference #5 – Loan servicing flexibility 

CDFIs seek to ensure that their lending is supportive and responsible for the borrower since they’re invested in growing the prosperity of the community they’re a part of. Traditional banks are less flexible when it comes to restructuring debt in order to achieve maximum profits for their shareholders.

CDFIs can more easily adjust their lending terms to accommodate the needs of their borrowers when they’re facing financial challenges. This may include deferment, forbearance, and loan modifications, as well as expansion loans to help small businesses further enlarge their operations. CDFIs recognize that by making amendments to loan terms, they are increasing the probability that a borrower can successfully recover from the hardship and repay the loan in full.

According to the OFN’s analysis 20 Years of CDFI Banks and Credit Unions, “despite CDFI banks experiencing higher delinquency rates than all banks, they experienced lower net charge-off rates than all banks, suggesting that CDFI banks’ missions compel them to manage delinquencies rather than charge-off late loans.”   

Final thoughts

As mission-driven lenders, CDFIs are working to help those that are underserved by traditional banks become participants in the economic mainstream. They offer low-interest loans with flexible terms to finance small businesses, nonprofits, microenterprises, commercial real estate, and affordable housing. 

CDFIs are better equipped to support low-income communities than traditional banks because they place helping the community above profit maximization. This results in the creation of financial products and loan terms that create the best possible outcomes for both investors and borrowers.  

 

Love0
By CNote, Migration V2

Where We Are and Where We’re Going: A Look at the Wisdom Fund

When we launched the Wisdom Fund in 2019 as an investment vehicle that increases capital, access, and lending for businesses owned by women of color, no one was anticipating 2020, with its pandemic, political divisions, and socio-racial upheaval. Among 2020’s most poignant lessons, however, was one that inspired the fund: women of color don’t have equal access to opportunity in this country. That’s why the work we’re doing with the Wisdom Fund today is arguably more necessary than it was when we launched it two years ago. Therefore, in the spirit of Black History Month, not to mention Women’s History Month in March, we’d like to provide an update on the Wisdom Fund, including sharing the progress we’ve made, the lessons we’ve learned, and the work that remains.

A First-of-its-Kind Fund

If you’re unfamiliar with the Wisdom Fund, it’s an impact investing opportunity that we created in partnership with CDC Small Business Finance and four Community Development Financial Institutions (CDFIs) in 2019 to funnel money from accredited investors — institutions, funds, foundations, family offices, and individuals — into business loans for low-to-moderate-income women, especially women of color. While we knew that women are the fastest-growing group of entrepreneurs in the country, we also knew that women of color don’t have the same access, privilege, and opportunity as their white counterparts. Therefore, we wanted to create an innovative investment opportunity to address these disparities, fix these social injustices, and provide women of color with more access to capital and small business coaching.

Early Results

Through Q3 2020, The Wisdom Fund initiative has deployed 100% of capital to small businesses led by women of color. This lending activity has gone on to create or maintain over 225 jobs in communities across America. Further, the average loan size for program participants was right around $47,000. We’re excited to share these early results but have aspirations for the program, both around growing the amount of investor capital that’s committed to these under-funded borrowers and around the coaching services and changes, we hope to champion around the lending process for women of color entrepreneurs.

Providing more than capital: Funding Change

A key component of this initiative from the very beginning was to learn how we, as the financial services industry, can improve the lending process for women of color. For us, that meant taking a holistic approach to better understand how women of color are being treated, assessed, and evaluated from a risk perspective as it relates to lending.

Donica is the kind of entrepreneur the Wisdom Fund looks to support.

The Data Speak for Themselves — So Do Women

Thanks to our partners at ICA, an Oakland-based CDFI that invests in high-potential businesses, we’ve been able to do a historic, 10-year look back at women of color borrowers’ experience with lending. ICA’s preliminary analysis produced three key findings. First, women of color were not riskier borrowers than other demographics. ICA’s analysis shows that there was no statistically significant difference between the credit risk1 among women of color and other groups of borrowers. Second, women were, on average, a lower credit risk than men: ICA found that the probability of defaulting on loans was between 2 to 4.5 percentage points lower for women than men. Lastly, despite those other two findings, our analysis also shows that women of color typically receive lower loan amounts than other borrowing groups, but are sometimes charged higher interest rates.

As we conduct additional research we hope to isolate causes for these disparate outcomes and work with our partners to change the lending process to address them. To that end, The ICA team is working to expand on the research and looking for additional CDFI partners to join the initiative by sharing lending data. They are hosting a webinar on February 18th for those interested in partnering with them.

These preliminary findings are demonstrative of a foundational goal of the Wisdom Fund: to collect borrower data on demographics, business characteristics, loan terms, performance metrics, default rates, missed payments, and more. Given that our CDFI partners, unlike traditional financial institutions, can collect this kind of lending data, we stand to build a unique data set based on historical performance that stands to inform mainstream lenders, shape the future of our industry, and create more opportunities to support women of color.2

Whereas we anticipate the data being able to speak for themselves, part of what we want to do going forward is to similarly give women of color borrowers the chance to speak for themselves: to share their stories, challenges, and successes. We can’t and don’t assume that we knew how women of color borrowers feel about the life cycles of their loans. Therefore, over the next five months, we’re taking a human-centered design (HCD) approach to better understand the human side of the data we’re collecting.

To do this, we’ve partnered with Impact Experience, an organization that works with businesses to help generate trust, think about strategic initiatives, and dive deep into biases and structural racism in the financial services space. Impact Experience is taking the lead on surveying between 50 and 60 women of color borrowers, half of whom are Wisdom Fund borrowers, to gain insights into the various ways that lenders can better serve them. Additionally, Impact Experience will survey 20 CDFIs to better understand the challenges that community lenders face when women of color come to them for lending. 

After Impact Experience completes its surveys, we’ll invite roughly 30 participants — including women of color borrowers and lenders — to a two-day, virtual experience where we’ll collectively take a deeper dive into the core challenges and opportunities around unlocking more capital for women of color. This will be a chance for these women to share their first-hand stories with us, including the good, the bad, and the ugly of our current lending practices. By the end of this virtual gathering, we want to not only identify the mechanisms for removing barriers for women of color to acquire loans but also create broader networks for these women so that they can grow both their wealth and their businesses. 

From start to finish, we anticipate this being a five-month process, and the final phase will include a report out of stories, insights, and solutions that we’ll share broadly with our peers across the financial services sector so that we can collectively create systemic change and unlock lending opportunities for women of color.

We know that change won’t happen overnight, but we also know that change won’t happen by itself. Therefore, as we continue to channel impact investment dollars into women of color-owned businesses through the Wisdom Fund, we, along with our partners, are equally committed to giving those same women the opportunity to have their voices heard and to share their struggles, successes, and ideas with us. After all, if we’re going to drive wealth creation for women of color in the United States, then we need to emphasize listening to, collaborating with, and learning from these same women of color borrowers as much as we can.

—

This piece was authored by Danielle M. Burns, MBA, AIF®, VP of Business Development at CNote. She is also an internal champion of the Wisdom Fund and is leading the human-centered design work on this project.

 

 

 

Love0
By CNote, Migration V2

CNote’s January Impact Roundup

Welcome to the January edition of the CNote Impact Round-Up, a monthly publication, where we take you through some of the most impactful and popular things we recently shared, discovered, or learned.

From big industry news to op-ed pieces, we’ll paint an entertaining and full-spectrum picture of everything that you need to know in the sustainability and impact investing space.

How Did Business’s Role in Society Change in 2020? By Harvard Business Review

Harvard Business Review takes a look back at some of the biggest stories of 2020, and how they’ve changed business’ role in society forever. Among these stories is how investors continue to trend towards accepting ESG. According to a Morgan Stanley survey, “80% of asset owners are integrating ESG into the investment process, up from 70% in 2017.”

Check out the full article here

How a Biden Administration Will Boost ESG and Impact Investing by Barrons

What can the Biden-Harris administration do to ensure that the ESG and Impact Investing fields continue to grow? This article discusses some of the policy changes and investment trends that investors can expect to see; such as prioritizing social businesses, supporting clean energy, and boosting CDFIs. 

Check out the full article here 

Biden Administration Pledges Support for CDFIs & MDIs by the Credit Union Times

The Biden Administration made a commitment to support the CDFI program when Janet Yellen met with representatives of CDFIs and Minority Depository Institutions. 

“Dr. Yellen and Mr. Adeyemo pledged their commitment to increasing CDFIs and MDIs’ small business lending capacity – including capital and technical capacity – so they can continue to expand and grow and deliver support to those hardest-hit by this crisis and lift up communities that have been denied access to mainstream banking and lending services,” the Biden Team said.

Check out the full article here

How Investing in Women Helps Everyone During a Pandemic By Ebony Perkins

The United States is facing what some experts are calling a “female recession’.  Many of the most deeply affected industries during the pandemic, such as retail, childcare, and entertainment, have a majority female workforce. This has resulted in women being more susceptible to economic hardship and layoffs. 

Perkins discusses how investors seeking high impact can have a direct and positive effect on women and their families by tailoring their funding choices. 

Check out the full article here

CDFIs plug tech holes to close wealth gaps by American Banker

COVID-19, and the subsequent economic recession laid bare not only the inequities that exist in different communities but also among the organizations, like CDFIs, that support them. 

Check out this article to see how CDFIs are increasing their technological capabilities to be able to process more loans and drive more capital into vulnerable communities. 

Check out the full article here

CNote selected as Real Leaders 2021 Top Impact Company

We are thrilled to announce that Real Leaders has selected CNote as a 2021 Top Impact Company.

CNote was selected based on the calculated impact from our most recent B-Impact Assessment, most recent impact report, and other company financial statistics.

The 2021 award winners include game-changers such as Tesla, Beyond Meat, Patagonia, and 147 other well-respected impact brands of all sizes and from a variety of industries. 

Check out the full article here

How to add Impact Investing to client portfolios through CDFI Loans by Morningstar

A fantastic and comprehensive resource from Morningstar on how CDFI loans can fit into a client’s financial plan and also make a positive social impact.

Check out the full article here

Impact Investors Could Be Credit Unions’ Path to Long-Term Resilience by Yuliya Tarasava

2020 has shown us the value of being prepared for drastic shifts in lifestyle and business; in other words, the value of being resilient. For credit unions, one way of becoming more resilient is through impact investors, who can help them quickly adopt new technology while providing mission-aligned capital. 

Check out the full article here

Black advisers share wide-ranging views of Capitol Hill riot and its fallout by Investment News

On January 6th, rioters stormed the Capitol building. The events from that day highlighted, amongst other things, the racial divide that still exists in our country. CNote’s Danielle Burns shared her views on what happened that day and how we can move forward and heal as a nation.

Check out the full article here

We hope that you enjoyed this month’s Impact Roundup! Was there anything that we missed? Connect with us on Twitter (@gocnote) and leave us any comments, ideas, or feedback that you have. Until next month!

Love0
By CNote, Migration V2

Important Update About Product Rate Changes and CNote’s Commitment to Offering Sustainably-Priced Capital

CNote has updated the interest rates for two of our offerings. These changes will only apply to new investors, existing investors will remain at the rates reflected in their executed investment documents. 

These changes are a function of historically-low interest rates prevalent across financial markets and in response to feedback from our community-lender partners regarding capital costs and their ability to lend on various financing terms. 

It is our belief that these changes strike a strong balance between offering CNote investors competitive and impactful financial investments and assuring that our community-lender partners have a sustainable capital source that allows them to deliver on their promise of building a more inclusive and fair financial system for underserved communities and borrowers. 

What are the changes? 

CNote has made the following changes for prospective investors in these offerings: 

  • The Flagship Fund rate is moving to 2.50% from 2.75%. 
  • The Wisdom Fund is moving to 1.00% from 3.50%.  

Who are these changes applicable to?

These changes are only applicable to new investments. Existing investors with outstanding investments will not be impacted by these changes. If an existing investor initiates a new investment into a CNote product or rolls over an existing CNote investment upon maturity those investments would be at these new rates.

Why is CNote making these changes? 

The primary reason we are making these changes is to assure our community lender partners have access to sustainably-priced capital so they can provide financing to their communities on competitive terms and at rates that support their growth. We detail additional reasons for each offering below.  

Wisdom Fund 

The Wisdom Fund aims to empower and build wealth for female-BIPOC entrepreneurs through small business ownership. In the historically-low interest rate market and uncertain economic times, CNote wants to ensure that our community-lender partners are not lending to women-of-color borrowers at a higher rate than for other demographics. Doing so would directly contradict the objective of the offering and impair the ability of our community partners to deploy sustainable financing to those end borrowers. 

The move to 1.00% assures the downstream women-of-color borrowers have equal access to fair capital and supports the sustainability of our community-lender partners. 

In the long run, we believe this change is the correct one as it best aligns with our company’s mission of closing the wealth gap and this offering’s objective of supporting entrepreneurship by women of color across America. 

Flagship Fund

The Flagship Fund is a diversified CDFI investment that offers flexible liquidity and has a broad impact mandate. Over the last year, CDFIs have been highlighted and pursued by investors and philanthropic funders as an efficient and financially responsible tool to reach their impact goals. A change in suggested return to 2.5% is justified given the interest rate market overall and the recent funding dynamics in the CDFI industry. 

I have additional questions, who should I contact? 

Inquiries from institutional investors should be directed to info@mycnote.com.

For retail or existing investors, please contact support@mycnote.com. 

You can also contact CNote toll-free at: (800) 449-6275