A Win-Win

In addition to their social return, compared to traditional fixed-income investments, community loan funds offer competitive returns, says Chat Reynders of Boston-based Reynders McVeigh Capital Management, adding that he doesn't know of a single instance where a community loan fund has lost its investors' money.

"Clients who are investing in this sector typically are getting 2.5% to 4.25% on some of the most recent loans that we've made, which would compare quite favorably to what you're getting in the bond market," Reynders says. "And compared to what you're getting on your money market funds now, which essentially is zero, those rates are quite competitive at the moment."

While admitting that another difference is that "there are no federal guarantees on these," Reynders is quick to point out that "no investor has ever lost money in one of these community-based loan funds. We'll do our due diligence and make sure they're adequately capitalized and there are layers of security there for investors. There's no state guarantee, but in terms of return we look at clients taking a small percentage of their accounts and directing them into these areas. They're getting a return that we believe is competitive with what they'd be getting with their cash and bond holdings."