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A new blueprint for financing community development – Part III

Frankfort, Kentucky, skyline on the Kentucky River at dusk.

Invest Appalachia supports community economic development projects and businesses across the Appalachian counties of six states.

Sean Pavone/Getty Images

In Part 2 of this three-part series focused on why and how the community development finance field needs to reframe the role of capital technicians and the market, rebalance power relationships, and prioritize community voice. Today we continue that discussion.

Invest Appalachia

Invest Appalachia (IA) is another strong example of how to rebalance power between financial expertise and community voice. On the surface, IA can be described in traditional finance terms—a community investment fund similar to a CDFI that has raised $35.5 million in impact investments and nearly $3 million in grants for flexible and risk-absorbing capital. IA officially opened its doors at the end of 2022. In its first year of operation, it deployed $6.3 million in blended capital (flexible loans alongside recoverable grants) to support community economic development projects and businesses across the Appalachian counties of six states: Kentucky, North Carolina, Tennessee, Virginia, West Virginia, and Ohio. Another $6.5 million was deployed in the first eight months of 2024.


However, IA has chosen to operate in a new and interesting way. As a nonprofit, it serves as the manager and general partner for the IA fund. Rather than becoming a CDFI itself, IA, like LTR, contracted with a CDFI, Locus, as the IA fund’s investment manager. Locus supports back-office functions of the IA fund, including portfolio management, underwriting, and coordinating third-party service provision (e.g., servicing, accounting, and administration).

IA also holds itself to a high standard regarding both collaboration and community governance. IA’s partnership-first approach and robust network of relationships taps into the existing community investment ecosystem of philanthropy, CDFIs, and community development nonprofits. A self-described regionally representative organization, IA relies on an interlocking set of stakeholder governance structures to set strategic direction, make funding decisions, approve investments from the IA fund, and provide direct community accountability for adhering to IA’s mission and values. Its board of directors includes regional stakeholders with a diversity of identities and perspectives representing CDFIs, foundations, and community organizations. A grassroots CAC includes community leaders and grassroots community organizations that represent diverse populations. The investment committee is a group of values-oriented investment professionals that includes board members, CDFI partners, and national perspectives. Board members and members of the investment committee are approved by the board, with input from staff, while current members of the CAC nominate and approve new members.

IA’s website states, “Our investment strategy, pipeline, impact goals, and governance are guided and grounded by place-based community stakeholders.” This power shift in who directs capital strategies—from technically expert lenders to those who focus on community priorities—is crucial for moving away from the traditional paradigm of market, scale, and sustainability. Innovative financial structures can meet community needs that traditional capital investors cannot, while the sort of formalized community governance that IA has offers an added layer of assurance that community voice has an equal and enduring place at the table.

In less than two years, IA’s funding has served 115 counties, aided more than 50,000 people (most of them in rural, coal-impacted, or low-income areas), and helped secure an additional $33 million in grants and loans from other funders and lenders. Almost 80 percent of its loans were possible only because of IA’s flexible terms and funding structures—without IA, those projects would have struggled or failed to move forward. Looking ahead, IA has plans to pilot new innovative investment approaches (including collaborating with the federal government and nonprofit intermediaries to use money from the US Environmental Protection Agency’s Greenhouse Gas Reduction Fund), launch a regional initiative to support community-driven downtown development, collaborate with regional partners to increase climate resilience, and continue to create new investment vehicles and raise capital for local needs that are not being addressed by the current investment ecosystem. Under this new model, investment in Appalachia will be grounded in Appalachia.

Ushering in the New

Patient, flexible leadership and funding will be needed for the field of community development finance to evolve from the principles of market, scale, and self-sufficiency and fulfill its promise of increasing equity and opportunity in historically disadvantaged communities. Philanthropy will be essential for this move, but so will public and private developers, other public- and private-sector partners, and, most important, the empowered community residents and organizations who will be in the driver’s seat.

As this transformative arc unfolds, community quarterbacks like LTR and IA will translate the wishes of community residents into creative, flexible local and regional plans to attract financial resources and enable residents to play a meaningful role in how capital is deployed. Leadership development and training organizations, like the Center for Community Investment (whose programs have provided critical support for the leaders and work of CORE, LTR, and IA), will build local capacity and share innovative models with the field to advance the paradigm shift.

Leaders in community development across sectors will need to help the field change deep-seated ways of acting and attitudes, test new approaches, make appropriate incentive and policy changes, and move from a narrow problem-oriented point of view to a systems-change perspective. The technical and political barriers to this shift are indeed substantial, but they can be overcome, as the innovative projects discussed here, from Appalachia to Southern California, demonstrate. By following these new models, the field has an opportunity to build a consensus around a new approach to financing community development, so that it can finally tackle the problems it was created to solve.

This article was first published in the Stanford Social Innovation Review.  Read the original article

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