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Causeway - PFC Conference Presentation

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Social Innovation and Social Finance Tim Draimin CEO, Tides Canada Foundation; Chair, Causeway Philanthropic Foundations of Canada (PFC), October 22-23, 2007 – Montreal
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Page 1: Causeway - PFC Conference Presentation

Social Innovation andSocial Finance

Tim DraiminCEO, Tides Canada Foundation;

Chair, Causeway

Philanthropic Foundations of Canada (PFC), October 22-23, 2007 – Montreal

Page 2: Causeway - PFC Conference Presentation

Social Innovation is great…But how is it funded?

• For reaching scale, social innovation developmentgoes through various phases…

• For durability, funding needs to be resilient,sustainable…

• For achieving impact…• Current nonprofit external funding sources (charitable

donations and Gs+Cs) face challenges• Less visible option is business model based: a social

enterprise or hybrid (part nonprofit, part enterprise)• Challenge becomes: How to finance enterprising

nonprofits?→How can Social Finance provide a solution?

Page 3: Causeway - PFC Conference Presentation

Social finance is…finance with a social orenvironmental mission

Or,Social finance is a sustainable

approach to managing money thatdelivers social, environmental

dividends and economic returnthrough social enterprises operating

in the non-profit or public benefituniverse.

Page 4: Causeway - PFC Conference Presentation

Social Finance Exists Across ABroad Continuum…

HIGH INVOLVEMENT

LOW INVOLVEMENT

CHAR

ITAB

LECO

MM

ERCIAL

Venturephilanthropy

Traditional grantmaking

Venturecapital

Bank lending

Adapted from Margaret Bolton, 2003

Page 5: Causeway - PFC Conference Presentation

Social finance’s most visible example isMICROFINANCE…

Page 6: Causeway - PFC Conference Presentation

What is The Profile of Canada’sGrowing Nonprofit Sector?

• $120 Billion annual expenditures• Economically larger than either the retail tradeor mining, oil & gas industry (2003)• Nearly 8% of Canada’s GDP• 1.5 M workers + 0.5 M volunteers; 9.2 % ofeconomically active population• NP Sector is 2nd largest in world per capita

• NP sector growing faster than businessSource: Imagine Canada

Page 7: Causeway - PFC Conference Presentation

Source: CRA and Imagine Canada

Core Nonprofit Sector:

Excluding Hospitals,

Colleges & Universities

4%

17%

43%

36%

0%

25%

50%

75%

100%

NONPROFITS DEPEND ONFEW SOURCES OF INCOMEAll Organizations

3%13%

35%

49%

0%

25%

50%

75%

100% 24% provincial,9% federal

21% goods & services,16% membership fees

11% individuals,3% corporations

40% provincial, 7% federal

Government Earned Income Donations and Grants Other

Page 8: Causeway - PFC Conference Presentation

The Thin Base of Support

Page 9: Causeway - PFC Conference Presentation

Courtesy Michael Hall @ Imagine Canada

Growing Donations andDeclining Donors:

1984 to 2005

$400

$600

$800

$1,000

$1,200

$1,400

19841985

19861987

19881989

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

22%

23%

24%

25%

26%

27%

28%

29%

30%

Donations % of Taxfilers

Donors as a %of Taxfilers

Average Donation ($)

Source: CRA compiled by Imagine Canada

Page 10: Causeway - PFC Conference Presentation

Courtesy Arthur Wood + Ashoka SFS

“Population aging is a worldwide phenomenon that willaffect all G-7 countries”

Page 11: Causeway - PFC Conference Presentation

Courtesy Arthur Wood + Ashoka SFS

“The projected decline in the employment-to-population ratio willgradually become a hindrance to growth in living standards beyond

2010”

Page 12: Causeway - PFC Conference Presentation

Courtesy Arthur Wood + Ashoka SFS

“Population aging will be a key challenge facing theCanadian economy over the coming decades”

Page 13: Causeway - PFC Conference Presentation

Do Funding Trends MeanThe Current Model Is Hitting a Wall?

Page 14: Causeway - PFC Conference Presentation

Social enterprise is…A business with primarily social(and/or environmental) objectiveswhose surpluses are principallyreinvested for that purpose in thebusiness or in the community, ratherthan being driven by the need tomaximise profit for shareholders andowners...

Page 15: Causeway - PFC Conference Presentation

Social enterprise across CanadaThe

challenge:Build robust

capitalmarket

AboriginalFinancial

Institutions

Chantier del’economie

sociale

FCES

SocialCapital

Partners

EcotrustCanada

Vancity

ECF:Social

EnterpriseFund

Great BearRainforest

CommunityOwnershipSolutions

InnercityRenovations

CEDInvestment

Funds

Page 16: Causeway - PFC Conference Presentation

Social financial for public benefit• The flow of financial capital

to human need uses:– Affordable Housing– Social Enterprise– Support for working families– Health & Home Care– Community Development– Social Economy– Clean Technology– Microfinance– Fair Trade– Green Building– Education– Bottom of the Pyramid(source: market sector listing adapted

from www.xigi.net)

Sources

Intermediaries

Mechanisms

Recipients

Uses

Page 17: Causeway - PFC Conference Presentation

Social finance examples• Venture capital

– Capital regional et coopérative Desjardins (CRCD) is a $500 million venture capitalfund created in 2001 by the Desjardins Movement with the help of a provincial taxcredit. Individual investors can invest up to $3500 a year in shares with a 50% tax credit.Shares must be kept for a minimum of seven years. Mission: to provide capital,expertise and access to networks for businesses and cooperatives in Québec

• Local community development– The Columbus Foundation used $2 million to seed an $18 million low-cost housing fund

to build 1,600 new units of affordable housing.• Startup or expansion capital in underserved communities

– Deutsche Bank created an innovative $20 million investment fund to finance theexpansion of eye care hospitals in developing countries. The Eye Fund I will provideloans and guarantees to support the development of affordable, sustainable andaccessible eye care for the world's poor while providing a near-market return

• Debt mechanisms– Millions in loans to community finance institutions and social enterprises by

Vancity, Citizens Bank and Calvert Foundation’s Community Investment Note,• Using public policy & tax system

– PLAN (Planned Lifetime Advocacy Network) promoted Registered Disability SavingsPlan (RDSP), families are incentivized to save for disabled children who will survive them

Page 18: Causeway - PFC Conference Presentation

Social Finance & Foundations• Mission Related Investing (MRI): Canadian

foundations create finance facility forconservation in partnership with chartered bank

• Program Related Investment (PRI): Canadianfoundations make loans to charities to expandsocial enterprises

• Fdn Grants can join with private sector loans toenable community initiatives

• Fdn Grants matched by government grantscomplimented by private sector investment(Great Bear Rainforest)

Page 19: Causeway - PFC Conference Presentation

Courtesy CAUSEWAY

Collaborative approaches and blended returns

• Growing social and environmentalpressures +government and market failure =the conditions for social innovation

Government Business

Charity &

Non-profit

Hybrid

SpaceExpandingEarned Income

Social FinanceNew

CharitableDonations

Gvrnt Gs & CsEarned IncomeExisting

ProjectedIncome

Page 20: Causeway - PFC Conference Presentation

Courtesy Arthur Wood + Ashoka SFS

Minus 100% IRRMinus 100% IRR Plus 5% (andPlus 5% (andbeyond) IRRbeyond) IRR

“Not For profit”FoundationGrant model

“For Profit”Iterations of

Venture Capitalmodels

SocialInvestingVentures

Breakingdown legal

structure CIC& L3C

Entry of bankswith Capital

MarketInstruments

THE IMPORTANCE OF COLLABORATION AND CHANGE

To solve the problems on a systemic basis requires:

Collaboration from the social sector

Creation / Evolving of Intermediaries to create Collaborative behaviour

Foundations – Leverage Capital, Increase Innovation but HOW to draw in morePrivate capital

Governments to change legislation – Tax treatment and Legal structures

Banks to bring their skills to bear

PRI / LLC

Expanding the Product Range

Page 21: Causeway - PFC Conference Presentation

Courtesy: CAUSEWAY

Financial Entities- managing other’s money

How does capital flow?

From the source

Into an organization

For use in either

Soc

. Pur

pose

Bus.

Soc

ial E

nter

prise

Bus.

Arm

of C

harit

y

Cha

rity

Soc.

Res

p. B

usine

ss

Bus

iness

Social

Commercial

Adapted from : John Kingston , Venturesome

Community Interest

Companies

Government OrganizationsIndividuals

OperationsPrograms

Assets

INVESTTAX

DIRECT

Page 22: Causeway - PFC Conference Presentation

The good news is that… Many Canadian foundations and financial institutions are

already involved with social finance type initiatives Canada can accelerate the adoption of social finance by

learning from and borrowing proven models from US and UK We know what we require to make the transition to a robust

social finance marketplace:New conversation among finance, government and nonprofits aboutthe potential to scale up innovative social enterprise and social financeNew capital market instruments involving the range of financialinstitutions: banks, credit unions, pension funds, mutual funds, etc.Public policy that a) creates incentives for capital to expand intosocial finance, b) borrows international best practices in charityregulations that enable nonprofits to operate successfully in thegrowing hybrid spaceStrengthening the capacity of nonprofits and their social enterprises

Page 23: Causeway - PFC Conference Presentation

CausewayIs a new national collaboration

accelerating development of a socialfinance market place for financing

social innovation serving publicbenefit

Page 24: Causeway - PFC Conference Presentation

Thank YouFor more information about CAUSEWAY

http://causeway-sff.wikispaces.com/

and Social Finance visit:www.tidescanada.org

For more information on the charity sector visit:www.imaginecanada.ca


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