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Causeway - PFC Conference Presentation

Presented by Tim Draimin

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Causeway - PFC Conference Presentation

  1. 1. Social Innovation and Social Finance Tim Draimin CEO, Tides Canada Foundation; Chair, Causeway Philanthropic Foundations of Canada (PFC), October 22-23, 2007 – Montreal
  2. 2. Social Innovation is great… But how is it funded? • For reaching scale, social innovation development goes 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?
  3. 3. Social finance is… finance with a social or environmental mission Or, Social finance is a sustainable approach to managing money that delivers social, environmental dividends and economic return through social enterprises operating in the non-profit or public benefit universe.
  4. 4. Social Finance Exists Across A Broad Continuum… HIGH INVOLVEMENT Venture Venture philanthropy capital COMMERCIAL CHARITABLE Traditional grant making Bank lending LOW INVOLVEMENT Adapted from Margaret Bolton, 2003
  5. 5. Social finance’s most visible example is MICROFINANCE…
  6. 6. What is The Profile of Canada’s Growing Nonprofit Sector? • $120 Billion annual expenditures • Economically larger than either the retail trade or mining, oil & gas industry (2003) • Nearly 8% of Canada’s GDP • 1.5 M workers + 0.5 M volunteers; 9.2 % of economically active population • NP Sector is 2nd largest in world per capita • NP sector growing faster than business Source: Imagine Canada
  7. 7. NONPROFITS DEPEND ON FEW SOURCES OF INCOME All Organizations Core Nonprofit Sector: 40% provincial, Excluding Hospitals, 7% federal Colleges & Universities 100% 24% provincial, 100% 9% federal 36% 75% 49% 75% 21% goods & services, 16% membership fees 50% 50% 43% 35% 11% individuals, 25% 25% 3% corporations 17% 13% 3% 0% 4% 0% Government Earned Income Donations and Grants Other Source: CRA and Imagine Canada
  8. 8. The Thin Base of Support
  9. 9. Growing Donations and Declining Donors: $1,400 1984 to 2005 30% 29% $1,200 28% 27% $1,000 Donors as a % of Taxfilers 26% $800 25% Average Donation ($) 24% $600 23% $400 22% 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 198 198 198 198 198 198 199 199 199 199 199 199 199 199 199 199 200 200 200 200 200 200 Donations % of Taxfilers Source: CRA compiled by Imagine Canada Courtesy Michael Hall @ Imagine Canada
  10. 10. “Population aging is a worldwide phenomenon that will affect all G-7 countries” Courtesy Arthur Wood + Ashoka SFS
  11. 11. “The projected decline in the employment-to-population ratio will gradually become a hindrance to growth in living standards beyond 2010” Courtesy Arthur Wood + Ashoka SFS
  12. 12. “Population aging will be a key challenge facing the Canadian economy over the coming decades” Courtesy Arthur Wood + Ashoka SFS
  13. 13. Do Funding Trends Mean The Current Model Is Hitting a Wall?
  14. 14. Social enterprise is… A business with primarily social (and/or environmental) objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners...
  15. 15. Social enterprise across Canada ECF: Aboriginal Social Financial The Enterprise Institutions challenge: Fund Build robust Innercity capital Renovations market Great Bear Chantier de Rainforest l’economie sociale FCES Ecotrust Canada CED Investment Funds Vancity Community Social Ownership Capital Solutions Partners
  16. 16. Social financial for public benefit • The flow of financial capital to human need uses: – Affordable Housing – Social Enterprise Sources – Support for working families – Health & Home Care Intermediaries – Community Development – Social Economy – Clean Technology Mechanisms – Microfinance – Fair Trade Recipients – Green Building – Education Uses – Bottom of the Pyramid (source: market sector listing adapted from
  17. 17. Social finance examples • Venture capital – Capital regional et coopérative Desjardins (CRCD) is a $500 million venture capital fund created in 2001 by the Desjardins Movement with the help of a provincial tax credit. 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 the expansion of eye care hospitals in developing countries. The Eye Fund I will provide loans and guarantees to support the development of affordable, sustainable and accessible 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 Savings Plan (RDSP), families are incentivized to save for disabled children who will survive them
  18. 18. Social Finance & Foundations • Mission Related Investing (MRI): Canadian foundations create finance facility for conservation in partnership with chartered bank • Program Related Investment (PRI): Canadian foundations make loans to charities to expand social enterprises • Fdn Grants can join with private sector loans to enable community initiatives • Fdn Grants matched by government grants complimented by private sector investment (Great Bear Rainforest)
  19. 19. Collaborative approaches and blended returns • Growing social and environmental pressures + government and market failure = the conditions for social innovation Projected Income Government Business New Social Finance Hybrid Expanding Space Earned Income Existing Charity & Earned Income Non-profit Gvrnt Gs & Cs Charitable Donations Courtesy CAUSEWAY
  20. 20. Expanding the Product Range Entry of banks Social Breaking with Capital Investing down legal Market Ventures structure CIC Instruments & L3C PRI / LLC Minus 100% IRR Plus 5% (and beyond) IRR “Not For profit” Foundation “For Profit” Grant model Iterations of Venture Capital models 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 more Private capital Governments to change legislation – Tax treatment and Legal structures Banks to bring their skills to bear Courtesy Arthur Wood + Ashoka SFS
  21. 21. How does capital flow? TAX Individuals INVEST Government Organizations  From the source  Financial Entities - managing other’s money DIRECT Community Interest Companies s Social te ri ty B . Bu us. e s es e ris i n si n En ha B rp s C es e Into an organization Ar ity R os ci of s. ar c. urp p us So m Bu C h al So P c. So Commercial Adapted from : John Kingston , Venturesome Operations  use in either For Programs Assets Courtesy: CAUSEWAY
  22. 22. 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 about the potential to scale up innovative social enterprise and social finance New capital market instruments involving the range of financial institutions: banks, credit unions, pension funds, mutual funds, etc. Public policy that a) creates incentives for capital to expand into social finance, b) borrows international best practices in charity regulations that enable nonprofits to operate successfully in the growing hybrid space Strengthening the capacity of nonprofits and their social enterprises
  23. 23. Causeway Is a new national collaboration accelerating development of a social finance market place for financing social innovation serving public benefit
  24. 24. Thank You For more information about CAUSEWAY and Social Finance visit: For more information on the charity sector visit: