Looking around the Broad Street neighborhood of Central Falls, Jessica David sees more than just a diverse mix of small businesses. There is public art and programming, and cleanup efforts on the nearby Blackstone River. It’s all helping to revitalize a city long saddled with economic turbulence.
There’s “a feeling that something is happening,” David said.
It’s also the type of community that she sees as potentially a prime beneficiary of Local Return, an investment vehicle that was the brainchild of David called a Diversified Community Investment Fund. She co-launched it in 2021, and organizers have been laying the groundwork ever since.
The fund will allow people to pool money and put it to work providing capital to locals in need for projects such as real estate purchases and small-business creation, particularly in neighborhoods that have higher poverty and diversity rates.
The first-of-its-kind investment fund is designed so that anyone can invest and get a return in the form of dividends.
For much of the past century, Great Depression-era laws placed restrictions on who could invest in certain types of funds, limiting opportunities for low- and moderate-income investors.
But after some of those laws were loosened, Local Return – managed by public benefit corporation Rhode Island Community Investment Cooperative – has emerged as a model for community investment opportunities and a first in Rhode Island.
It’s open to nonaccredited investors, people who don’t meet certain financial criteria, making them ineligible to participate in some high-risk or complex investments.
The organizers are looking to raise $3.5 million and will start releasing funding once Local Return has raised its first $1 million, which David anticipates will take place within a year.
The fund started with the idea that community members, regardless of their income level, should have a financial and governance stake in crowdfunding, David said, and the idea that the fund should “build community wealth in Rhode Island.”
David, a former executive at the Rhode Island Foundation, says she and her co-founders had a particular interest in extending these opportunities “in neighborhoods that have experienced historic, generational disinvestment, and [where] we see very consistently unequal outcomes across different sectors; so really getting that place-based resilience and wellness.”
David, who is also principal of Good Worth Working For LCC, a consulting firm for philanthropic organizations, launched Local Return with Josh Daly, associate director of the Rhode Island Food Policy Council; Raul Figueroa, president of Blackstone Valley Community Health Care; and Lisa Raiola, founder of the Hope & Main food incubator.
Local Return has set up levels of preferred stock. One level for low-income investors allows for a minimum stake of $500. Those people will get 100% of every dividend declared by the fund. The next level calls for a $2,500 minimum investment, and those investors will get 85% of dividends. For those who invest a minimum of $5,000, they will get 70% of every dividend declared.
Institutions can receive 70% of dividends declared for a minimum investment of $25,000.
The team devised this system with the idea that “the people who we feel are taking the biggest risks proportionately are getting the highest return,” David said.
To comply with the legal framework, 60% of the fund’s investment structure must lie in real estate, and David foresees investments being steered into projects that either help small businesses own their real estate, assist shared ownership models and small-scale developers who want to buy the apartment house they live in, or provide loans for nonprofit community development projects.
The term diversified community investment fund, or DCIF, was coined by the National Coalition for Community Capital – or NC3 – a North Carolina-based nonprofit that was formed in 2016.
But Local Return kicked the organization into action faster than it would have otherwise progressed, says NC3 board Chair Chris Miller.
Local Return presents “the first time we’ve seen a real estate fund done in that fashion” with wealth-building and local control opportunities for nonaccredited investors, Miller said.
“It was really Rhode Island that was driving us to figure out a structure that could make this kind of thing work,” Miller said.
NC3 is now working with organizations in Michigan and Ohio to establish similar funds.
While Local Return’s co-founders weren’t involved in the creation of NC3, the two nonprofits started from a similar set of values, Miller says.
“We’re focused on equitable opportunities and the way that the capital access system has evolved in the U.S.,” he said.
That process “was significantly informed by the stock market crash and Great Depression,” Miller said. “For the next 50 years, there were a series of structures and laws put in place that, by the time we got to 1970, had ... disconnected most of the population away from investments in their own communities.”
It wasn’t until 2012 that investment crowdfunding, a broader concept than DCIF, became legal under the Obama administration’s JOBS (Jumpstart Our Business Startups) Act.
Still, barriers remained for nonaccredited investors.
Another type of available funding method, the charitable loan fund, allowed fundraising from within the community without barring nonaccredited investors, but it did not present opportunities for a market-rate return.
Instead of waiting for further change, NC3 members looked to the past, Miller says. They focused on the Investment Company Act of 1940.
The team identified workarounds that could allow more community investors without violating the legislation – a possibility that Miller credits to the vast scope of the act, which he said “often contradicts itself.”
David says the Local Return model, which allows investors to vote and run for board positions regardless of investment amounts or income, helps community members have a say in neighborhoods.
“Residents of that neighborhood know what’s best, [and what] belongs there,” David said.
