Skeptic's guide to social finance


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Presentation given at CCVO Connections Conference, April 25, 2012 - by Owen Charters

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  • Raising money for charities is changing.You’re in charge now. If you watched Obama’s campaign, the big change from other campaigns is that individuals took charge, and started their own fundraising for the cause. He inspired them, and then they took action.The online world offers you the tools to do this. It’s not just your money that’s needed – it’s your ability to engage others and get them involved that’s important. In fact, your ability to motivate, encourage, and help others get involved is critical – it’s what drives the success of a cause.So let’s talk about raising money.
  • Who am I?Aside from an MBA, etc., a dreamer. Hence my interest in social finance…Caveats – what I am not: a lawyer, a soc. Finance expert…
  • Ask audience their ideas of social finance?
  • Skeptic's guide to social finance

    1. 1. The Skeptic’s Guide toSocial Finance
    2. 2. • Why social finance?• What is it and what is it good for?• Will it work for you?• What’s in the way…
    3. 3. Finding a definition… …what do we mean by ‘social finance’?
    4. 4. What are wehoping socialfinance willdo?
    5. 5. The challenge of access to 1) Debt liability or obligation 2) Equity ownership 3) Capitalcash and resources used to generate an income 7
    6. 6. My original hopeThe powers of the capital markets to:• Self-regulate industries (M&A, bankruptcies)• Foster and spur innovation
    7. 7. SocialFinance ≠ Revenue
    8. 8. Social SocialFinance ≠ Enterprise
    9. 9. Providing somecontext…
    10. 10. Social The Enterprise OrganizationThe Role inSociety Social Social Economy Entrepreneur The Individual The Ideas & Social Social The Resources Concepts Innovation Finance 12
    11. 11. 13
    12. 12. 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
    13. 13.
    14. 14. Community Interest Social impact Corporations, L3Cs bonds Impact CommunityMicro- Investing bondslending, Venturemicrocredit Crowdfunding Philanthropy Blended- value Mission-related investing investing
    15. 15. Venture Philanthropy• Not truly social finance• Longer-term grants, business planning• Akin to ‘patient capital’
    16. 16. Impact Investing/ Blended Value InvestingPerspective of the supply side – the investor…• Investing for a mixed return, including financial, social, environmental, etc.• Many vehicles of investing available• Includes bonds, equity
    17. 17. Debt: Loans & Financing• Alternatives to major banks• Credit unions, investment and community development funds• Working capital, lines of credit, mortgages, loans
    18. 18. MRI/PRIMission-related investing / Program-related investing “What if we put all charitable assets to work creating a social return?”Foundations invest for a return, beyond theirgrant stream/disbursement quota:- Loans (mortgages, lines of credit)- Equity in social enterprises
    19. 19.
    20. 20.
    21. 21. Crowdfunding, MicrocreditMicroloans, 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 organizationKiva marries the two concepts in an innovativeoption.
    22. 22.
    23. 23. 25
    24. 24.
    25. 25.
    26. 26. Community BondsCentre 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
    27. 27. Social Impact Bonds
    28. 28. Social Impact Bonds
    29. 29. (United Kingdom) CICs are a new type of limited company designed specifically for those wishing tooperate for the benefit of the community rather than for the benefit of the owners of the company 31
    30. 30. (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
    31. 31. 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
    32. 32. Supply vs. Demand Demand(Projects/Orgs) Intermediaries Investors (Supply)Under-developed, uncoordinatedmarketplace:- Limited knowledgeable investors- Few efficient brokers- Limited opportunities, high transaction costs
    33. 33. 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
    34. 34. 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.)
    35. 35. Restrictions• Nonprofits cannot make, distribute a profit• Foundations must make a market return on investments, fiduciary duty• Securities regulation• Often limited to accredited investors
    36. 36. 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.
    37. 37. 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
    38. 38. The future ofsocial finance
    39. 39. • #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
    40. 40. • #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
    41. 41. • 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.”