At the height of the COVID-19 pandemic, small business owners and nonprofits faced a financial free fall. Struggling to survive, solo practitioners and mom-and-pop shops needed an influx of funds to ride out months or even years of shutdowns. Many of the hardest hit were based in underserved communities typically neglected by mainstream banks—and a federal financial pipeline was limited or out of reach. A cash lifeline was critically needed.

Struck by the looming hardships communities faced, the Jewish Community Federation and Endowment Fund leapt into action. Compelled by our Jewish values to help others, we wanted to go beyond the conventional grantmaking model and take a novel approach to positively influence people’s lives. With over $2 billion in assets, we quickly launched a new way to deploy philanthropic funds: impact lending. These low-interest loans are made to mission-driven financial institutions that close persistent funding gaps in marginalized communities across the United States and Israel.

Impact loans provide an infusion of money to people on the ground who need it most.

How does impact lending work? In brief, the Federation pools money from donor-advised funds (DAFs) and supporting foundations and moves it into impact-first loans to intermediary financial institutions that provide fair and affordable credit to underserved populations. While loans are considered investments, the goal is not to maximize financial return but to enable significant philanthropic capital to do good—even while it’s waiting to be granted out. Whereas a grant is a one-time donation, an impact loan generates a nominal return. That return, along with the original loan capital, is expected to be repaid by the recipient organization. The donor can then redeploy that money for other charitable purposes.

Impact loans move money off the sidelines and get it into the community where it is needed.

In the past three years, the Federation has invested more than $35 million with 16 different mission-oriented financial institutions. Issues we support range from education to the environment, affordable housing, and job skills training, to economic equity, to nonprofit financing. Here are two examples that illustrate the program’s success.

Clean water for low-income rural communities: Jerry Tinoco could never drink the tap water in his home town of Arvin, California, because arsenic levels often exceeded safety standards. After studying environmental science at the University of California, Berkeley, Jerry returned home, determined to seek justice for his community, and started advocating for safe drinking water in collaboration with one of the lenders supported by the Federation: Rural Community Assistance Corporation (RCAC). After years of interim solutions, Arvin received financing from RCAC to drill six new production wells, build a new million-gallon water tank, and bring thousands of feet of new pipelines online to provide safe drinking water to town residents. In October 2021, the tap water in Arvin was finally deemed safe to drink.

Small business relief and expansion: Trevor Parham is the owner of Oakstop, an Oakland-based social enterprise that provides co-working, meeting, and event spaces to entrepreneurs, artists, and businesses. Just as the pandemic had forced him to cut staff due to declining revenues, Oakstop was presented with a unique opportunity to expand. Trevor was able to secure capital to do so with the help of an impact loan from Pacific Community Ventures (PCV), which aligns capital allocation with justice initiatives to improve financial sustainability, small business performance, and the creation of good jobs in economically distressed communities. Trevor has since expanded his team across six locations and is providing a model for an inclusive shared workspace that builds Black wealth in Oakland.

The Federation’s impact loan program provides financial lifelines where traditional financial services fall short.

As Federation donors Rachel and Aaron Zubaty have said: “This pioneering program is an incredible way to put dollars to work in our local community and have an immediate impact. Well-researched and incredibly relevant to address current socio-economic issues, these loans provide a pathway to make a real difference.”

We see a healthy appetite for impact lending and hope many others join our efforts and leverage this as a way to demonstrate compassion, relevance, and vision for the future. Looking ahead, we envision our impact lending activity being on par with our grantmaking—where we scale to hundreds of participating DAFs and supporting foundations, and where this complementing philanthropy attracts people of all ages and backgrounds from across the community as partners.

Joy Sisisky is CEO of the San Francisco Bay Area-based Jewish Community Federation and Endowment Fund.