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Social Innovation andSocial Finance
Tim DraiminCEO, Tides Canada Foundation;
Chair, Causeway
Philanthropic Foundations of Canada (PFC), October 22-23, 2007 – Montreal
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?
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.
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
Social finance’s most visible example isMICROFINANCE…
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
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
The Thin Base of Support
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
Courtesy Arthur Wood + Ashoka SFS
“Population aging is a worldwide phenomenon that willaffect all G-7 countries”
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”
Courtesy Arthur Wood + Ashoka SFS
“Population aging will be a key challenge facing theCanadian economy over the coming decades”
Do Funding Trends MeanThe Current Model Is Hitting a Wall?
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...
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
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
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
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)
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
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
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
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
CausewayIs a new national collaboration
accelerating development of a socialfinance market place for financing
social innovation serving publicbenefit
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