Alternative Finance in The Black Community

Impact Investing from Corporate and Philanthropic Foundations

“Philanthropy is commendable,” said Martin Luther King, “but it must not cause the philanthropist to overlook the circumstances of economic injustice, which make philanthropy necessary.” Philanthropists and philanthropic advisors who champion equality must work to shift from a framework that grounds giving in “charity” to one that grounds giving in “justice.”                  

Dr. Dorian Burton

As mentioned in the above section making local place based investments makes a lot of sense for investors because the benefits that locavesting bring to both the investor and the community where they live. So, let’s take the next logical step and examine why more philanthropic and corporate foundations don’t look to the local market to make impact investments along with the tiny percentage of their endowment that they use to make grants.

So many of the problems and issues that plague inner-city communities are poverty based and many of them stem from government policies such as redlining and urban renewal. If foundations change their relationships in these communities from charity and began the process of providing location based impact investment into these communities to fund local businesses, real estate development, and wealth building initiatives based on market principles many of the poverty based issues would be eliminated.  

Rewards Crowdfunding

Crowdfunding is a new and evolving fundraising alternative that connects social media with an accounting and finance mechanism to aggregate capital on a single platform. Crowdfunding provides a platform for entrepreneurs reach out to the “crowd”—which could include their friends, customers, neighbors, supporters and social network—for funding. The idea is that lots of smaller sums of money can take the place of one or two large investors or patrons, and that technology can help streamline the process.

Crowdinvesting

Crowdinvesting is the truly revolutionary centerpiece of the JOBS Act of 2012. It became legal on May 16th 2016. Crowdinvesting provides a platform for small real estate developers and small companies to raise money from the general public—wealthy, not wealthy, friend or stranger—as long as the investment takes place on a web site operated by a traditional broker-dealer or an S.E.C.-sanctioned crowdfunding portal, and certain other requirements are met.

Specifically, the law allows companies to raise up to $1 million in a 12-month period from the public. Investors are capped at the greater of $2,000 or 5% of their income, if their annual income or net worth is less than $100,000. The final rules also impose a limit on how much those with an income or net worth greater than $100,000 can make: they are limited to $10,000 per year or 10% of their income or net worth.

Alternative Finance

There are many new and emerging forms of alternative finance that provides the democratization of capital in underserved communities of color. Many of the communities find themselves to be isolated in urban centers and are areas of concentrated poverty. These area of concentrated poverty tend to be places that lack hope and many residents become trapped in the despair and hopelessness of the environment. But just like policy created these community’s policy and the commitment of investors that want to see their communities changed are able to use their dollars to vote!

Understanding Crowd Investing

Securing capital for businesses and real estate development for communities of color has always be a very daunting task and in some cases it has been flatly denied by government policy such as “Redlining”. Since the “Great Recession” it has been increasingly difficult for businesses and real estate developers to secure finance through traditional channels. As a result, more and more businesses are turning to crowdinvesting to raise the necessary funds.Online investors have been quick to respond to the growing number of investment opportunities and offers and, as a result, crowd investing is growing by leaps and bounds. The process has been slower in communities of color for a number of reasons, but Buy the Block has a mission to provide the needed education and platforms that will position our communities to take full advantage of this President Obama era law.  

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