Microcredit and Community Investment
The October 30 issue of The New Yorker has an interesting article by Connie Bruck, "Millions for Millions", exploring the development and ramifications of microcredit and microfinance. This concept has become prominent since its "godfather", Muhammad Yunus, won the Nobel Peace Prize this year.
Much of the article focuses on whether microcredit/microfinance should be non-profit or for-profit. This debate has some relevance to considerations by colleges and universities, and other substantial institutions (e.g., churches and synagogues) about whether they should deposit some of their funds in neighborhood banks. The banks can then lend to small local businesses and civic organizations, funding local development that can improve the social health of the neighborhood.
This approach, called community (re)investment, seems like an attractive additional way to move toward the goals of neighborhood improvement that institutions now try to implement by community service, service-learning, and similar volunteer efforts.
Hesitations about community investment arise because of concerns about fiscal prudence and maximizing investment income. The data show that microcredit loan defaults are very infrequent, and neighborhood banks specialize in assessing such risks.
Maximizing investment income is a different issue. If an institution has made trying to improve a neighborhood one of its priorities, does it make more sense to maximize return on investment and then use the money to fund neighborhood improvement programs, or to accept a slightly lower return on an investment that enables the neighborhood to help itself?
These options are not mutually exclusive, and some of each might be the most productive strategy.