Guest Articles

June 24

Catherine Berman

Cash Is King: An Overlooked Way for Foundations to Multiply the Impact of their Investments

Many impact investors don’t think much about where they deposit their cash, as they’re focused more on maximizing the positive effects of their other investments. But what if doing something as simple as changing where you hold your deposits could radically increase the amount of impact investing dollars available for underserved communities?

According to public filings, the top 1,000 U.S. foundations alone have over $31 billion in cash. Moving a fraction of these funds out of traditional money market accounts and into impact deposits has the potential to drive massive change. Thanks to these currently untapped resources – and the social goals embedded in their missions – foundations are primed to lead the charge into more impact-focused cash management among the broader investor market. At their core, foundations are mission-driven and outcome-focused. Positive social change is in their DNA. And there’s a simple, effective way they can better leverage these funds to ensure that their money backs their mission.

Like other investors, foundations typically allocate their cash holdings across different financial products, from fully liquid savings accounts, to 30 or 90-day CDs. In order to unlock their asset base to further the social causes and communities they already support, foundations can move their cash and deposits into community development financial institutions (CDFIs) and low-income designated credit unions. Established in 1994, CDFIs are federally certified private financial entities that are dedicated to providing responsible, affordable lending to historically underserved borrowers, including low-income households and minority and women business owners.

Major U.S. banks trust CDFIs because, first and foremost, they have a long history of delivering consistent financial returns and deep social impact regardless of economic conditions. That’s why the Federal Reserve Bank of San Francisco referred to CDFIs as “economic shock absorbers”: They’re counter-cyclical lenders intended to step in at times of financial distress, economic downturns and natural disasters. The economic situation we find our country in at the moment, with shutdowns from COVID-19 still impacting businesses and households everywhere, is one CDFIs are uniquely qualified to address. And there truly is no time like the present. These institutions are on the front lines of the COVID-19 economic response, and foundation investments and a growing deposit base could enable them to do more, faster for underserved entrepreneurs.


The Case for Investing in CDFIs and Credit Unions

Despite their many virtues, CDFIs and credit unions remain a well-kept secret because they have been difficult for some investors to access – and they don’t have the time or budget to self-promote because they’re busy doing so much important work for their communities. Connecting the untapped power of foundation- and impact-investor cash with credit unions’ and CDFIs’ decades of experience delivering financial resources and opportunities to overlooked communities is a recipe for meaningful economic development and social change.

Here are three reasons why foundations and others should invest in CDFIs and credit unions:

To inject some resiliency into their portfolio. During the Great Recession, CDFIs and credit unions counterintuitively agreed to loan extensions and softened terms, allowing borrowers to ride out the recession rather than becoming yet another economic casualty. Moreover, unlike other lenders, they directed more loans into low-income and marginalized communities than they did before the recession, which ultimately allowed these institutions (and the impact investors who supported them) to come out ahead of big banks during those years.

To help narrow the wealth gap in the U.S. By partnering with CDFIs and credit unions, foundations can not only expect strong returns and a more diverse investment portfolio, they’ll also support traditionally underrepresented borrowers, giving them access to the capital they need to join the economic mainstream and to build successful businesses. CDFIs and credit unions trace their lineage to organizations founded to address redlining, and most have been investing in racial equity for decades.

To align investment dollars with the foundation’s mission and values. There are networks of CDFIs and credit unions across the United States, allowing foundations to make geographically and thematically targeted investments in the communities or causes they’re already supporting. With more than 1,000 CDFIs and over 2,500 low-income designated credit unions and growing, there’s broad diversity in the demographics and the causes to which these institutions lend. Investing in them amplifies the good work foundations are already doing.


Making the Transition to Banking at CDFIs and Credit Unions

The combination of those three factors has won over board members at pioneering foundations that have chosen to partner with CDFIs. Indeed, some foundations are already banking at their local credit union or CDFI. However, for newcomers, the first question is typically, “How do we make the investment?”

The challenge here is administration. With thousands of low-income designated (LID) credit unions and CDFIs to choose from, how does a foundation get started?

For those with a large cash balance, it’s necessary to spread their money across multiple institutions, to keep their balance under the $250,000 federal insurance cap. This is easily done if a foundation’s cash balance isn’t too high, but it can be a real challenge if they’ve got millions of dollars to manage with varying liquidity needs. For some, it’s a challenge worth taking on manually. For those looking for an easier approach, CNote, the fintech company I co-founded, has The Promise Account, a cash-for-impact solution for accredited investors that deploys up to $10 million across a group of eligible CDFI banks and LID credit unions – while maintaining insurance and impact, and providing investors one dashboard to seamlessly manage it all. Since its founding in 2016, CNote investors have helped create over 3,000 jobs across the U.S. while committing over $50 million to underserved communities. We use technology to make it easy to invest in underserved communities, which supports our ultimate mission of building a more inclusive economy for everyone.

With their specific focus on low-income, marginalized and underserved communities across the country, CDFIs and low-income designated credit unions provide the opportunity for foundations to deepen their level of impact, mobilizing short- and long-term assets for impact across their portfolios and furthering their mission. As we push forward into 2020 and the decade ahead, foundations will lead the charge in helping the economy recover from the COVID-19 pandemic and other challenges – and in addressing the persistent inequalities faced by low-income communities across the country. They can multiply their efforts by leveraging their cash to its full potential for impact, and CDFIs and credit unions could be key to those efforts. If foundations take advantage of the opportunity, we’ll see more resilient communities and a narrowing wealth gap. And we’ll also see just how impactful often-overlooked cash allocation decisions can be.


Catherine Berman is CEO and co-founder of CNote, a fintech platform that unlocks new investment opportunities for retail and institutional investors. 


Photo courtesy of Christina @




Finance, Investing
fintech, impact investing