Investing for Profit

An introductory guide to socially responsible investing

CONTENTS


Introduction: What this guide is about.

The purpose of this guide is two-fold: (1) to examine briefly some questions about the theology and practice of church financial investments, and (2) to present a quick overview of some alternative investment opportunities for individuals and church congregations.

In recent years local churches and church agencies have sometimes been quick to adopt the financial practices of commercial institutions without thoroughly examining the long-term economic, political and theological conse quences of these practices. Part one of this guide raises some questions which should help the church (and individual members who have money to invest in long-term savings) to evaluate and choose the appropriate investment vehicles.

In this context, we are speaking of long-term investments (usually a year or longer) as opposed to current operating expenses. Funds which are held in checking accounts to meet current expenses are not the primary focus of this paper, although there are now banks which offer standard services with specific criteria on how customers' deposits may be used.

The traditional view of socially responsible investing has put the emphasis on negatives: don't invest in gambling, tobacco, weapons, etc. Although there is nothing inherently wrong with criteria like these, they are incomplete. What should we do?

Part two of this guide is intended to provide an introduction to some "alternative" investment options which consider social responsibility as well as opportunity for financial gain. Note that these descriptions should not be considered a recommendation to invest (or not invest) in any specific organization; many important details are of necessity omitted from this brief overview. Rather, prospective investors are encouraged to request further information from any of the agencies listed on the resource page.


Investing: Who Really Profits?

The Church and Biblical Economics

There are two primary characteristics which are commonly used to judge the quality of investments: rate of return (how much extra money do I get back for every dollar invested) and safety (what are the chances that I will get back at least the amount of money invested). But economic, political, and theological considerations should lead us also to examine some other qualities.

In the United States, the major church denominations hold enormous economic and political power. For example, U.S. churches collect, disburse, and invest billions of dollars annually, and church members control hundreds of billions of dollars in personal income. The Church may be active or passive in the use of her power; she may exercise that power intentionally or by default. As with most institutions, if her power is not focused for a specific purpose, then it will generally work to maintain the status quo.

How do we--as the church and as individuals--exercise our economic and political power?

For what purpose was the church called into being; and for what purpose does the church exist? Are the church's financial resources being used directly for that purpose?
The world's major industrial corporations are successful, in part, because their managers understand the value of putting all available resources back into building the business. New industries are born when entrepreneurs borrow (from investors or stockholders) to underwrite the growth of the enterprise. By definition the church's assets are held in trust for God. The church, instead of investing in IBM or AT&T, should seek to invest all possible resources towards building God's kingdom. "Seek first the kingdom of God, and his righteousness, and all the things that you have need of will be provided to you; it is your Father's good pleasure to give you the kingdom. Sell what you have, and give alms; provide yourselves a treasure in the heavens that does not fail. For where your treasure is, there will your heart be also." (cf. Matt. 6:33, Luke 12:30-34). In other words, if we devote our full attention to the central task (reaching for God's kingdom), God will provide us sufficient resources for the task.

Circumstances in which the church is legally required to maintain long-term investments in large amounts (such as ministerial pensions) do not absolve us from using those funds for ministry and mission in the most immediate ways possible. As long as there are poor, hungry and homeless people in the world, those who do not have the luxury of personal investments rightfully have first claim on our "investments."

Jesus had many things to say about money and investments. To his disciples he gave the instructions, "Take nothing for your journey, except a staff; no wallet, no bread, and no money, not even an extra tunic" (Mark 6:8-9, Luke 9:3); he overturned the tables of the money changers in the temple (Mark 11:15-19); he told a parable about a rich farmer who planned to build bigger barns following a bountiful harvest (Luke 12:18-21); he challenged a young ruler to sell everything he owned and give away the proceeds to the poor (Luke 18:18-23); he said "Do not store up for yourselves treasures upon earth...but instead treasures in heaven." (Matthew 6:19-20).

"The earth is the Lord's and the fullness thereof; the world and those who dwell in it" (Psalm 24:1). Whatever we have to invest and whatever we invest in belongs to God; it is God to whom we are responsible for all investments.


Alternative Investments

Apart from the direct "investment" of funds in ministry and mission, there are are at least four major types of "socially-responsible" investment options (listed below). Although they are not as well known as the "Fortune 500", all of these types of investments are well established in the financial community and have been available for a number of years. As their popularity has grown, so has the variety of opportunities available to investors. Not all of these investments pay as high a financial return to the investor as the conventional Wall Street menu, but the return in human interest, considering how the investment is ultimately used, can be far greater. Further information may be requested from any of the agencies listed on the resource page.
  1. Church Development Funds are generally used to provide loans for new construction or renovation of local church facilites (but rarely for mission-related projects). Investment in church development funds is usually restricted to members of the denomination sponsoring the fund; rates of return on investments are usually comparable to commercial bank certificates of deposit. Contact your denominational office for further information.
  2. Community Development investments include credit unions, banks, and loan funds which lend to community owned businesses, low-income housing developments, alternative energy companies, and cooperatives of all kinds.
    Community Development Loan Funds have the purpose of assisting community-based projects which directly benefit low-income individuals. Such organizations are often denied access to conventioal sources of capital, despite financially sound projects. Borrowers from the funds include community land trusts, housing cooperatives, worker-owned businesses, and other programs working to guarantee long-term control and ownership of economic resources.
  3. Socially-Responsible Money-Market and Mutual Funds are similar to other money market and mutual funds in investment options and rates of return, except that they use specific social criteria for choosing where money is invested. Mutual funds typically use criteria such as company employment practices, environmental responsibility, and community service in picking investments. They may seek to avoid investing in industries such as weapons development or manufacture, tobacco, beverage alcohol, gambling, or environmentally destructive activities. Usually investments in companies doing business in or supporting repressive governments are excluded.
  4. International Micro-Enterprise Loan Funds provide very small loans to help get small businesses started.

Church Development Funds

Building New Churches

It goes without saying that the best way to use any and all resources available to the church is to enhance those activities which are central to the purpose of the church: the maintenance of worship, the edification of believers, and the redemption of the world (cf. United Methodist Discipline, Par. 201, 1992). While church buildings are not necessarily essential for those activities, generally they facilitate worship, fellowship, study and other forms of ministry by local churches and agencies of the church.
Although several church denominations have development funds, most of them are restricted to investors who are members of the denomination. The United Methodist Development Fund is presented as an example of this kind of investment.

United Methodist Development Fund.

Like most denominational investment funds, the United Methodist Development Fund (UMDF) is restricted to investors with direct church affiliation: church bodies, agencies, and institutions related to the United Methodist Church, and individual members of the church.
The purpose of the fund, which is administered by the National Division of the General Board of Global Ministries, is to make first mortgage loans to United Methodist churches, districts, city societies, district un ions, or Annual Conference church extension agencies for the purchase, construction, expansion or major improvement of churches, parsonages, or mission buildings. (UM Discipline, Par. 1414.10, 1992).
Investments in the fund are in the form of either Flexible Investment Notes or Term Notes in the minimum amount of $100. The Flexible Investment Notes, which have no fixed term, recently paid 3.5% interest, accrued monthly; interest may be paid semi-annually or accrued and compounded. Normally the Flexible Investment Notes may be redeemed at any time upon demand.
The Term Notes are issued for one and four year terms, and the interest rates paid depend on the term. Interest is accrued monthly and added to the principal, or it may be paid semi-annually; fall 1996 rates were 6% for one-year Notes and 7% for four-year Notes. All Notes are unsecured obligations of the UMDF; however, since the fund began in 1965, it has not foreclosed on any mortgage property and all Notes and Certificates of Participation (equivalent to Flexible Investment Notes) presented for redemption (more than $100 million to date) have been paid promptly.
A prospectus which includes additional information can be obtained from
The United Methodist Development Fund

Community Development Investments

Community Development Investments include credit unions, banks, and loan funds which lend to community-owned businesses, low-income housing developments, alternative energy companies, and cooperatives of all kinds. All of these institutions seek to serve individuals and organizations (especially low-income and minority clients) who are unserved or under served by the conventional banking system. Some of these institutions also provide technical assistance and consultation for their clients.
The South Shore Bank of Chicago, for example, offers a full range of conventional banking services (including transactions by mail) and is insured by the FDIC. In 1973, the South Shore Bank was purchased by the Illinois Neighborhood Development Corporation (INDC) following a $40 million decline in the bank's assets and pervasive community deterioration. INDC successfully revitalized the bank through broad policy changes which have helped to preserve neighborhood integration and keep rents affordable for lower-income families in Chicago.
Similarly, the Vermont National Bank maintains a Socially Responsible Banking Fund through which depositors' investments are used for loans in affordable housing, agriculture, education, conservation and small-business and non-profit organizations. One recent loan enabled a non-profit group to purchase a mobile-home park which had been in danger of being acquired by developers. Bank customers can deposit money in passbook accounts, money-market accounts, individual retirement accounts, and certificates of deposit--all of which offer the same competitive interest rates and the same Government insurance as the bank's regular accounts.

Community Development Loan Funds (CDLF's) have the primary purpose of assisting community-based projects which directly benefit low-income individuals. Such organizations are often denied access to conventional sources of capital, despite financially sound projects. Borrowers from the funds include community land trusts, housing cooperatives, worker-owned businesses, and other programs working to guarantee long-term control and ownership of economic resources.
Terms on which investors make loans to member funds vary from fund to fund; generally, funds prefer a minimum loan size of $1,000 for a minimum of one year. Loans of three or more years are particularly useful. Often the investor chooses the interest rate--in the range between zero percent and the prevailing money market rates. Low interest investments permit more loans to very low income groups.
Although CDLF's are typically smaller than more conventional investment funds, they have an impressive record of financial and social accomplishments. By taking the initiative, they can often leverage additional financing from other sources; and they can help borrowers to build a credit history needed for loans from other sources. One fund (the Institute for Community Economics) reported that $512,000 in housing loans leveraged another $2.5 million in conventional financing and provided 250 housing units. Sixty percent of these households were Black or Hispanic; 41% were single-parent families headed by women; and 86% were very low-income.
Another fund reported that two hundred jobs were created or preserved as a result of $600,000 in loans to worker-owned businesses with further growth potential. Although these funds occasionally encounter problem loans, the loss rate is small (less than 1%), and loss reserves have provided full coverage.


See the Resource Page for addresses of some of the organizations mentioned on this page.

Socially Responsible Money-Market and Mutual Funds

Among the many Money-Market and Mutual funds now available to investors, a few have specific social as well as financial criteria on which their investments are based. There are two forms of social criteria (1) investment categories that are specifically excluded, and (2) investment categories that are intended to be included.
Mutual funds typically use criteria such as company employment practices, environmental responsibility, and community service in picking investments. They may seek to avoid investing in industries such as weapons development or manufacture, tobacco, beverage alcohol, gambling, or environmentally destructive activities. Usually investments in companies doing business in countries with repressive governments are excluded.
Money-market funds may seek to invest in obligations of U.S. government agencies such as the Student Loan Marketing Association, the Federal Farm Credit Banks, and Federal Home Loan Banks; and in commercial paper issued by companies which meet the same type of criteria used for screening by mutual funds. Some money-market funds also invest in community development loans and micro-enterprise loans. The funds are likely to exclude (or limit to a small fraction of the portfolio) general obligations of the U.S. government such as Treasury securities.

Pax World Fund, for example, is a "no load" balanced mutual fund (there is no sales charge when shares are purchased or redeemed, and the fund seeks to earn income from a combination of dividends and capital gains); Pax requires a minimum initial investment of $250, with subsequent investments of at least $50. Shares may be redeemed by written notice, and will be paid within a few days after the request is received. Calvert Social Investment Fund consists of four separate funds: (1) the Money Market Portfolio, (2) the Bond Portfolio, (3) the Equity Portfolio, which invests in stocks, and (4) the Managed Growth Portfolio, which is a diversified fund of stocks, bonds, and money market instruments. The minimum initial investment for each portfolio is $1000, and subsequent investments must be at least $250. Money Market shares are sold without a sales charge, but the other funds have a sales charge of up to 4.5% (depending on the amount of the transaction) for purchase of shares. Shares of any portfolio may be re deemed at any time by written or telephone request. In addition, investors with a Money Market account may write checks ($250 minimum) to redeem shares, for which there is no service charge.

The rate of return on these investments is similar to money-market and mutual funds which do not use social screening criteria. For example, the average annual return from Calvert's Managed Growth Portfolio for the year ending September 1988 was 11.70%, with a minimum annual return of 0.26% (1987) and a maximum of 26.9% (1985). The current selling price for mutual funds and the current interest rate for money-market funds is often listed in the financial section of major newspapers.

For large accounts, investment advisors will tailor investment portfolios to meet specific social criteria. There are firms (such as Alternative Investments and Clean Yield Asset Management) which specialize in socially responsible investments as well as individual specialists at many U.S. brokerage firms.


See the Resource Page for addresses of some of the organizations mentioned in this section.

International Micro-Enterprise Loan Funds

For three years, don Luis Garcia had tried to make a go of his trouser-tailoring business in Guayaquil, Ecuador, but he could not get ahead. Since he did not have much working capital, don Luis worked hard for as long as his supply of cloth lasted and then peddled what he produced. Sometimes he sold to a store in the city, but they gave him checks he could not cash for two months. He prayed that his battered treadle sewing machine would hold up, and he longed for the day when he could buy the more sophisticated electric machine his cousin was not using. Encouraged by friends, he joined the micro-business program of an Ecuador affili ate of Accion International.

With the money he borrowed, don Luis increased his inventory from just a few yards to five bolts of cloth. Moreover, during the course of the year he bought his cousin's newer machine, gave his old treadle sewing machine to his younger son, and hired two new employees. Now merchants come every few days to buy what his "little factory" produces, and they pay him in cash.

Accion International, which is based in Cambridge, Massachuestts, supports micro-enterprise loans averaging about $200 through its affiliates in the United States and throughout Latin America. These loans have resulted in an average income increase of 30% for the recipients, and at least one new job has been created for every $1000 loaned. The loan loss rate is less than 2%.

In Bangladesh, the Grameen Bank was founded in 1976 by an economics professor Muhammed Yunus who was concerned about the exploitation of poor women in a male-dominated Muslim culture. Women who work in factories or on plantations receive significantly less than men for equivalent work, but the capital required to buy raw materials and basic tools to establish their own enterprises is expensive--moneylenders often charge up to 10% per day, and local enterprises are not big enough to qualify for bank loans.

The Grameen Bank has now made hundreds of thousands of loans, averaging less than $100 each, to landless poor men and women for a variety of crafts and trades: book-binding, rope braiding, sewing, fishing, peanut frying, rice milling and selling flowers, bananas, mirrors, and pottery. The Grameen Bank's smallest loan to date was for about one dollar--to a woman who wanted to sell plastic bandages door-to-door. Borrowers pay interest rates comparable to local commercial bank rates.

Micro-enterprise loans also provide a "trickle-up" effect on the local economy. When new entrepeneurs are able to increase their income, they buy more raw materials for their trades or food and clothing for their families from other vendors and thus help to create new jobs.

The Grameen Bank has made its lending profitable by keeping transaction costs low. Loan and payment transactions are conducted through weekly group meetings of the borrowers in which bank procedures are explained and payments are made publicly. Each group (made up of only men or only women) elects its own leaders, and leadership is rotated.

Accion International maintains "The Bridge Fund" through which investors may make deposits of $2,000 or more for a period of at least 18 months. These investments are used to purchase certificates of deposit from the South Shore Bank of Chicago or the Chemical Bank of New York as collateral for loans to foreign banks which handle the micro-enterprise loans. Investors receive standard CD rates, less 1% for administrative expenses. There is a loan loss reserve fund which provides investors substantial protection against losses.



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Last Updated: 10/15/96