New Money for Micro Lenders

ACCION International loans money to people on the economic fringe in Latin America. Getting the capital to make those loans is tough.

Community Capital Bank makes loans to small businesses in such depressed areas as the Bushwick section of Brooklyn. It can't afford half-page ads in the New York Times to attract depositors.

Both organizations were delighted recently when the Calvert Foundation gave them deposits and loans that totaled $415,000.

The deposits and loans were part of a new concept, called Targeted Community Investments (TCI), started earlier this month by the Bethesda, Md.-based Calvert Group, which manages 26 mutual funds.

Intended for "socially responsible" investors, the TCIs are notes that allow investors to make a deposit or loan at below-market rates but keep their principal and interest, which is still taxable.

"This is not a substitute for charitable contributions but rather an entirely new source of community funding," says Kathy Keeley, executive director of the foundation. "It takes social investing to the next level," adds C.S. Sorrell, president of Calvert.

The TCIs work this way: An investor purchases a TCI note from the Calvert Foundation (1-800-248-0337) for $1,000 or more. The notes run for one, three, or five years. Earlier this month, Calvert was offering purchasers of the notes 2.6 percent for one year, 3 percent for three years, and 3.8 percent for five years.

Calvert then reloans the money for community development or low-income housing at below-market rates. The typical loan is for 4 to 6 percent.

Calvert made two loans to Boston-based Accion - one for its US and one for its Latin American efforts. Accion plans to use the money for loans to "micro entrepreneurs" such as bakers, quiltmakers, jewelrymakers, and tailors in the US and Latin America.

Although Accion's clients are low income, they have a good record at repaying their loans. "The repayment rate is 98.5 percent - better than what the Latin American countries paid me when I was at Chemical Bank," says Terence Canavan, an Accion board member.

In the case of Community Capital, the certificate of deposit is at market rates. But the bank is pleased. "We are anticipating a stable, long-term deposit at a reasonable cost," says Lyndon Comstock, chairman of the Brooklyn-based bank.

Community Capital, whose deposits are insured by the Federal Deposit Insurance Corporation, will use the money to make loans to minority-owned businesses or housing. For example, its largest, single loan is to a minority-owned hardware store in Bushwick. "It's providing a service to a community that has had a hard time coming back from the blackout riots of 1977," Mr. Comstock says.

The foundation hopes to gradually increase its loan fund to $50 million in five years with $10 million of the money invested internationally. It now has a backlog of requests for funding of $5 million.

The TCIs are not insured. But the foundation will maintain a 30-percent loan-loss reserve to protect the investments. The Ford, Mott, and MacArthur Foundations, as well as Acacia Insurance (Calvert's parent) have contributed $3.2 million for the reserve. Calvert has contracted with the National Co-op Bank in Washington, D.C., to determine the integrity and financial soundness of the recipients.