Community-based Investing

If you’re fortunate enough to have some savings, what’s a sustainable way to invest that nest egg? The ready answer is often socially responsible investment (SRI) funds – which typically screen their holdings (ruling out, for example, weapons manufacturers or tobacco companies). Yet “responsible” is a relative term. I find it increasingly hard to feel good about a portfolio that includes fossil fuel companies, pharmaceutical corporations and giant food conglomerates.

So I was interested to learn about a fledgling effort in Maine that seeks to revitalize our local food economy through peer-to-peer lending and investment clubs offering loans to farms and food producers.

An informal network known as Slow Money Maine – part of a larger national organization – helps link potential lenders with those who need capital to launch or expand their enterprises. Traditional banks often turn down loan requests in the agricultural sector, leaving small food-producers few financing options to scale up their operations.

Slow Money Maine portrays these investment opportunities as short-term (typically one to three years), illiquid and unsecured (technically high risk) loans with low to moderate returns (3 to 5 percent). By traditional capitalistic measures, that hardly sounds like a winning formula. But “risk” is also a relative term.

For individuals who measure wealth and risk in more than monetary terms, community-based investing holds great appeal. I spoke with a handful of Slow Money Maine lenders to learn more about the perceived risks and the tangible rewards.

For Lisa Miller, a retiree in central Maine who has lent money to a local poultry-processing facility, the risk seemed quite moderate because she has ties going back 35 years with her community and those who work in the agricultural sector. “We all lose chunks of money here and there to things we have no control over – like how one’s pension is invested,” she said. “I’d just as soon put money into people trying to make change in the community.… We want to be part of making that thrive.”

She and her husband had watched other processing facilities close and knew “what a bind that put farmers in.” So they joined others in making a modest loan to the business. Their first experience with peer-to-peer lending has been positive, she noted, with loan repayments made routinely and plans now underway for the business to expand further. It’s “very exciting” to see that growth, Miller said, and to feel they’ve been able to help.

The lenders typically follow universal advice not to invest more than you can afford to lose, and they work to make sure the borrower’s business planning is sound. “It’s about trust and relationships and history,” Miller noted. “You need to choose carefully who you invest in.”

No clear road maps exist for this kind of local lending, so those engaged in Slow Money Maine are “creating it as we go,” said Samuel Kaymen, a member of the Maine Organic Lenders investment club. That group formed in 2012, loosely modeled after another local investment club in Portland – No Small Potatoes – but structured as a partnership rather than a Limited Liability Company (LLC).

These investment clubs – which offer farmers and food producers small loans (typically in the $5,000 to $25,000 range) – draw members who want at least some of their assets going toward ethical and life-enhancing efforts. “The world economy we’ve constructed is destroying the earth,” retired postal worker Read Brugger said. “This was a way, with our own money, to say, ‘We’re not part of that.’ ”

As a group “we’re trying to address some very big things,” said Slow Money Maine Steering Committee member Sam May, “ones not likely to get turned around in our lifetimes.” Revitalizing local food and finance systems will take far more than the loans and technical assistance that Slow Money Maine offers. But May is heartened by the progress he’s seen since the effort began five years ago: farmers and food producers are getting “better prepared, thinking through their plans, and understanding the pressure points. They’re becoming more savvy, sophisticated and diligent.”

A community-based approach to lending takes courage on all sides. Farmers are typically averse to taking on debt, having a “bootstraps mindset,” noted Emily Kohl, a member of Maine Organic Lenders. And for lenders, it can be nerve-wracking to withdraw money from conventional settings like the stock market or banks. Pooling resources with others in an investment club helps share the risk, and fosters learning from others, said Deb Chapman, a Maine Organic Lenders member, while building the capacity to meet larger grant requests. “Having it a communal effort,” she added, “also makes it more fun!”

With 166 loans made to date, involving more than $3.6 million, Slow Money Maine reports that just under 3 percent of the loans have not been repaid. Other loans and equity investments made to two larger infrastructure businesses (Moo Milk and Coastal Farms and Food Processing) were lost when those companies failed.

Farmers and food producers generally have every incentive to repay loans, Kohl said: “People are grateful because there isn’t easy access to capital.”

The lenders I spoke with are gaining confidence in this new relationship-based approach to investing, and finding it – in Kohl’s words – “an exciting thing to be part of.” For people already committed to “buying local,” investing in local food producers is a natural next step in an ongoing quest to “put your money where your mouth is.”