Self-Help Credit Union

Recently, within a single week, I received two separate calls, one from a community foundation and another from a family foundation, both based in North Carolina, inquiring how to get started with values-aligned investing (“VAI”). As the volume and frequency of VAI-related conversations increases, it is evident the strategy continues to gain support in the marketplace. Provided my real-time interaction with these local organizations, I would like to share the advice I gave to them with all of you as well. 

Aligning with our experience, the first step I recommend an organization take in order to get its toes wet with VAI is to purchase a certificate of deposit (“CD”) through Self-Help Credit Union. Specifically, Self-Help offers the following three CDs, which generate either an environmental or social impact in addition to providing a competitive financial return:

  • Green Term Certificate
  • Women & Children Term Certificate
  • Go Local Term Certificate

Additional information available at: 

Self-Help is backed by the National Credit Union Administration (“NCUA”), which insures deposits up to $250,000 per entity, similar to how the Federal Deposit Insurance Corporation (“FDIC”) insures bank deposits up to $250,000 per entity. In other words, a CD issued by a credit union bears comparable risk to a CD issued by a bank. 

Interestingly, a 12-Month Self-Help Women & Children CD yields 2.12%; whereas a Bank of America 13-Month CD yields 1.50%. Similarly, a 24-Month Self-Help Women & Children CD yields 2.22%; whereas, a 25-Month Bank of America CD yields 1.30%. 

In summary, a Self-Help CD will relatively outperform a bank CD both financially and non-financially (i.e. social/environmental impact) while taking the same amount of risk.

When it comes to execution, The Gambrell Foundation prefers to accept the market-rate offered. In this scenario, the foundation would purchase a 12-Month Self-Help Women & Children CD yielding 2.12% and classify it as a Mission-Related Investment (“MRI”) provided it generates a market-rate return and aligns with the foundation’s unique mission. Another approach is to accept a below-market return on this CD and classify it as a Program-Related Investment (“PRI”). For instance, a foundation’s policy could be to accept half the market rate, in which case it would invest in the 12-Month Self-Help Women & Children CD earning a rate of 1.06% (=2.12%/2). 

Introduction to Program-Related Investments (“PRIs”)

Although PRIs are relatively new to The Gambrell Foundation, The Ford foundation originated the concept in 1968. A PRI is money that leaves the foundation’s corpus, counting towards a private foundation’s 5% annual payout requirement in the year made, and goes into the hands of a non-profit or for-profit entity. The primary distinction between a PRI and a grant is that a PRI comes back to the foundation after a predetermined term, increasing a private foundation’s annual payout requirement in the year reimbursed. In other words, a PRI is a recyclable, interest-bearing grant.

The IRS requires that an investment pass the following three basic tests in order to be classified as a PRI:

  1. The primary purpose of the investment is to further the foundation’s charitable mission.
  2. Income generation and capital appreciation are not a meaningful intention of the investment.
    • In other words, would an investor solely engaged in investing for profit make the investment on the same terms? When the answer is no, it means the foundation is accepting higher risk and lower return, thus satisfying this requirement.
  3. The investment can in no way participate in political activities, such as lobbying, campaigning, etc.

Creating, executing and monitoring a PRI requires a team approach comprised of a diverse set of skills, including programmatic, financial and legal. PRIs are customizable and can take various forms, including but not limited to:

  • Interest free or below market rate loan to a non-profit
  • Purchase of promissory note of a non-profit
  • Low interest rate deposit with a bank or other financial institution “linked” to lending for a charitable purpose (often housing or economic development)
  • Loan guarantee or letter of credit to enhance a charitable organization’s creditworthiness in a third-party loan transaction
  • Equity investment in a for-profit entity