This document provides an overview of social finance, including definitions, examples of social finance instruments, and challenges. Social finance aims to use capital markets to generate both financial returns and positive social/environmental impacts. It includes debt, equity, and grants/donations used by non-profits, impact investors, foundations, and others. However, social finance faces challenges in areas like market development, confusing return expectations, and restrictive regulations/legislation. The document argues that continued development of this space will require strengthening both supply and demand, as well as modernizing rules and building capacity of organizations involved.

2. The Skeptic’s
Guide to
Social Finance

3. • Why social finance?
• What is it and what is it good for?
• Will it work for you?
• What’s in the way…

5. Finding a definition…
…what do we
mean by ‘social
finance’?

6. What are we
hoping social
finance will
do?

7. The challenge of access to
1) Debt
liability or obligation
2) Equity
ownership
3) Capital
cash and resources used
to generate an income
7

8. My original hope
The powers of the capital markets to:
• Self-regulate industries (M&A, bankruptcies)
• Foster and spur innovation

9. Social
Finance
≠ Revenue

10. Social Social
Finance
≠ Enterprise

11. Providing
some
context…

12. Social
The
Enterprise Organization
The Role in
Society
Social Social
Economy Entrepreneur
The Individual
The Ideas & Social Social The Resources
Concepts Innovation Finance
12

13. 13

14. Social finance is…
…the application of tools,
instruments, and strategies where
capital intentionally seeks a
blended value (economic, social,
and/or environmental) return.
“The Quest for Blended Value Returns”, Karim Harji and Tessa
Hebb, Carleton Centre for Community Innovation

15. http://socialfinance.ca

16. Community Interest
Social impact
Corporations, L3Cs
bonds
Impact Community
Micro- Investing bonds
lending, Venture
microcredit
Crowdfunding Philanthropy
Blended-
value Mission-related
investing investing

17. Venture Philanthropy
• Not truly social finance
• Longer-term grants, business planning
• Akin to ‘patient capital’

18. Impact Investing/
Blended Value Investing
Perspective of the supply side – the investor…
• Investing for a mixed return, including
financial, social, environmental, etc.
• Many vehicles of investing available
• Includes bonds, equity

19. Debt: Loans & Financing
• Alternatives to major banks
• Credit unions, investment and community
development funds
• Working capital, lines of credit, mortgages,
loans

20. MRI/PRI
Mission-related investing / Program-related investing
“What if we put all charitable assets
to work creating a social return?”
Foundations invest for a return, beyond their
grant stream/disbursement quota:
- Loans (mortgages, lines of credit)
- Equity in social enterprises

21. http://www.socialfinance.org.uk/

22. http://www.bridgesventures.com/

23. Crowdfunding, Microcredit
Microloans, microcredit
• Popularized by Grameen Bank – now available
through many institutions at all scales (typically
below $25k).
Crowdfunding
• Corollary to microcredit – multiple small grantors
or investors for project or organization
Kiva marries the two concepts in an innovative
option.

24. http://www.charitybank.org/

25. http://www.grameen-info.org/
25

26. http://www.kiva.org/

27. http://socialinnovation.ca/communitybonds

28. Community Bonds
Centre for Social Innovation (Toronto)
• Raised capital through the issue of bonds to
purchase a building
• Minimum $25k investment, 4% return/5 year
period.
• Bonds are RRSP eligible
• Currently issuing a new round for the
purchase of another building, with minimum
investment at $10k

29. Social Impact Bonds

30. Social Impact Bonds

31. (United Kingdom)
CICs are a new type of limited company
designed specifically for those wishing to
operate for the benefit of the community rather
than for the benefit of the owners of the
company
31

32. (United Kingdom)
• A CIC cannot be formed or used solely for the personal gain of
a particular person, or group of people. Must meet a
community benefit test.
• CICs can be limited by shares, or by guarantee, and have a
statutory ‘Asset Lock’ to prevent the assets and profits being
distributed. There is also a ‘dividend cap’ on payouts.
• A CIC cannot be formed to support political activities and a
company that is a charity cannot be a CIC, unless it gives up
its charitable status. However, a charity may apply to
register a CIC as a subsidiary company.
32

33. L3C Companies (US)
• The low-profit, limited liability company, or L3C: a hybrid of a
nonprofit and for-profit organization - a new type of limited liability
company (LLC) designed to attract private investments and
philanthropic capital in ventures designed to provide a social
benefit.
• L3Cs have an explicit primary charitable mission and only a
secondary profit concern. But unlike a charity, the L3C is free to
distribute the profits, after taxes, to owners or Investors
• On April 30, 2008, Vermont became the first State to recognize the
L3C as an official legal structure. Similar legislation has since been
pushed in other States such as Georgia, Michigan, Montana and
North Carolina.
33

36. Supply vs. Demand
Demand
(Projects/Orgs) Intermediaries Investors (Supply)
Under-developed, uncoordinated
marketplace:
- Limited knowledgeable investors
- Few efficient brokers
- Limited opportunities, high
transaction costs

37. For What Purposes?
• Who really benefits?
• Does this work for you? Can you provide a
return on investment or quantifiable
outcomes?
– Much of the work of the charitable sector cannot
provide ROI, or has difficulty in providing clear,
quantifiable outcomes

38. Confusing, For what return?
• Most investments seem complex
• Are social finance investments to help
produce a market-like rate of return?
OR
• Are social finance investments to produce a
social return, and possibly a below-return or
even a loss? (Donations and grants are,
strictly speaking, a loss.)

39. Restrictions
• Nonprofits cannot make, distribute a profit
• Foundations must make a market return on
investments, fiduciary duty
• Securities regulation
• Often limited to accredited investors

40. Legislation and Regulation
• Government interest in changing regulations is
ponderous, and usually grasps at low-hanging
fruit with clear and successful pilots in other
jurisdictions
• Multiple jurisdictions in Canada, securities
regulators
• Various departmental authorities, from
Finance, CRA, Industry, etc.

41. No Evident Intermediary
• Traditional financial investments have many
established intermediaries: brokers, banks,
stock markets
• Require rankings, assessments, analysts,
knowledgeable and efficient brokers, vendors,
etc.
• Simplify complex metrics (e.g. LEED), create
economies of scale

42. The future of
social finance

44. • #1 – Foundations should invest 10%
of assets in MRI
• #2 - Canada Impact Investment Fund
• #3 – Multiple players need to
develop bond and bond-like
instruments for social impact
• #4 – Mobilize pension fund assets for
impact investing

45. • #5 – Modernize regulatory frameworks
for charities, nonprofits, consider hybrid
models
• #6 – Modify tax provisions for private
investors
• #7 – Strengthen business capacity of
charities, nonprofits, social enterprises

46. • Building markets – supply and demand
• Government incentives, regulation, legislation
• Lessons from pilots, other initiatives
“There is a lot we can do now under
the current framework.”