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Social Finance Ontario: Seminar
The document summarizes a meeting agenda for Social Finance Ontario that will discuss the policy context of social finance, social enterprise frameworks, social finance tools and models, and whether social finance can meet emerging needs in the nonprofit sector. It then provides examples of social finance policies and models from jurisdictions like the UK, US, Canada, Quebec, and Nova Scotia that utilize tools like tax credits, community investment funds, and hybrid corporate structures to enable social finance.
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Editor's Notes
- #2 OpportunitiesCautionsChallengesStrategiesWhere are we today?Social Finance Tools: mechanism and is it adaptable for Ontario?
- #3 No consumer initiated activity for 15 yrs. Goes into a fund, Gov’t holds back $ incase people come forward. Focus funding on youth programs.
- #5 Federal seed money for nonprofits to leverage private sector funding to improve local innovation, test the impact of new ideas and expand successful programs to scale. Results-Focused> -Funds would provide financial capital to> nonprofit organizations based on rigorous criteria and analysis to> ensure the highest likelihood of results, particularly projects that would yield a return on investment, such as savings on future public services.Community-Directed> - Funded efforts would respond to specific community-identified priorities. For example, one community might focus on crime prevention while another might choose education. Cross-sector> -> Strategies that engage volunteers and businesses> would receive special emphasis; a private sector board of local> leaders, including business, government, community organizations, and the target beneficiaries would make funding decisions with assistance from analytical experts.> *> Long-term> -> Investments would occur over a period of years to> increase the likelihood of success and sustainability. Social Entrepreneurship Agency for NonprofitsDedicated to building the capacity and effectiveness of the nonprofit sector. Improving coordination of programs that support nonprofits across the federal government. Fostering nonprofit accountability. Streamlining processes for obtaining federal grants and contracts eliminating unnecessary requirements. Removing barriers for smaller nonprofits to participate in government programs. The agency will make grants to build the infrastructure of the nonprofit sector and capacity of nonprofit organizations, including their ability to ensure accountability, manage volunteers, and improve outcomes.
- #6 CRA lending has been profitable for financial institutions. The ten-year California commitments made by Bank of America, Wells Fargo Bank and First Interstate Bank in 1992 were completed within four to five years. In half the time expected, a total of $21 billion had been invested in low-income communities and communities of color. This was a lesson for all the major banks:
- #9 Who uses CEDIF’s? Municipalities that would have a vested interest in seeing such funds develop, Local entrepreneurs, Community or business leaders, Cultural groups, Unions. Government concerned with economic outcomes. ExamplesBBI, Halifax : Create a pool of capital which will invest in businesses owned by persons in the Black community.Just Us! Fair Trade Investment Co-op Ltd. : Invest the proceeds in their fair trade coffee business. La Residence Acadienne, To build and operate a seniors housing facility. Valley Funeral Home Co-op Invest the proceeds in the development of a co-operative funeral home
- #10 EligibilityInvolved in active business or investing in other eligible businesses, Less than $25 million in assets and/or revenues, At least 25% of salaries and wages paid in Nova Scotia, Corporations must have authorized capital consisting of common voting shares, Co-operatives must be marketing, producing or employee co-operatives, Corporations must have at least three eligible investors taking part in the specified issue. (Government of Nova Scotia) And must provide a Community Economic Develoment PlanOther Restrcitions Include:In the case of corporations, eligible investments must be newly issued common voting shares of the corporation that are non-redeemable, non-convertible and are not restricted in profit sharing or participation upon dissolution. The shares cannot be eligible for any other tax credit or deduction allowed under the Income Tax Act, except as a deduction for RRSP purposes. In the case of co-operatives, eligible investments must be a share that would, if it were the only share issued to the investor, allow the investor to be a member in the co-operative and allow the member to participate in the affairs of the co-operative. In addition, shares are not eligible if the investor disposed of any shares of the eligible business at any time after September 30, 1993 and before the specified issue of shares. The specified issue of shares means the shares that are specified in the application of the eligible business to which a Certificate of Registration applies. (Government of Nova Scotia) .Return on InvestmentThe provincial government also offers a partial guarantee on funds invested in CEDIFS. If a CEDIF becomes insolvent within four years of a purchase of eligible shares, the province will compensate the individual investor at 20% of their initial investment. In addition, if the CEDIF is valued by a certified professional at less than 20% of its initial capital investment pool within the four year period, the province will also compensate investors by paying the difference between the value of their investment and 20 percent of their original investment. With some geographic restrictions.Funds invested in CEDIFs have been recognized as pre-approved holdings for a self-directed RRSP by the federal government. (Government of Nova Scotia, 2007) .Not publically traded entitites. Some published offerings include: For example, New Dawn Holding Ltd. paid dividends of 2.14%, ththth
- #12 Criteria for becoming an eligible community enterprise: In addition, community enterprises must not be engaged in any of the following businesses which have been designated as ineligible by the CED Tax Credit Act: - Deriving income from property, other than commercial property owned by a community development corporation; - Management, administrative or financial services; - Farming, fishing, forestry, hunting, or resource exploration; - Performing arts, sports, amusement, gaming and recreational activities; - Seasonal enterprises such as recreational parks or camps, hunting or fishing lodges or gamps, or golf courses; - Others7. (Government of Manitoba, 2004, pp. 4-5)
- #14 USES of a CICTaking over state assetsJoint ventures, charity and commercial partnerNew community focused businessesAsset LockNo transfer or distribution of assets exceptat full value to specified asset locked bodyor with consent of Regulatorfor the benefit of the communitypayment of limited dividendsRestrictions on performance related interestCommunity Interest TestMight a reasonable person consider that its activities are being carried on for the benefit of the community?Community includes a section of community, but not just employeesCannot have political purposeCannot be a charityMust provide an annual report to the CIC RegulatorEquityDual cap on dividend flow:maximum annual dividend 5% above base rateTotal 35% net distributable profitsWinding up/sale of shares to company:shareholders get par valueCan sell to third party at market rate
- #16 Mannweiler CEO Robert Lang has spearheaded the creation of the low profit limited liability company (or L3C), signed into law by the Governor of Vermont in May 2008. Because limited liability companies (LLC’s) are legal across the United States, once one state includes L3C’s in their LLC laws (as Vermont has), L3C’s are considered to be legal across the country.
- #17 BOTH CIC’s and L3C can issue sharesLLC: LLC that banks and financiers already understand and use. (Limited Liability Company)Hybrid ownership:corporations are taxed at the corporate tax rate, individuals at the personal tax rate, charities at zero..)PRI: Counts towards the foundations mandated 5% disbursement. loans flowed through foundations with expectation of below market or zero returns. Layerd: some can have below market rates of return, others can receive market rates of return. The tranched structure attracts a greater mix of financial backers. A socially-based mission will seldom attract investment if it is offering below-market returns. Tranched investments allow the L3C to offer competitive returns on investment.
- #18 seeking to leverage an additional $92 millionThe Chantier negotiated with the former Liberal government to ensure that the funding allocated to Quebec in the Federal Government’s Social Economy Initiative was moved through the Federal Treasury Board prior the 2006 federal election. When the Federal Conservatives took government after the election they cancelled the Social Economy Initiative and as a result the Initiatives’ funding for provinces outside of Quebec was never realized. The Chantier’s steadfast efforts to ensure that the Initiative’s funding reached Quebec prior to the 2006 Election provided a tremendous payoff in the form of a 22.8 M non- repayable contribution towards the capitalization of the trust. In addition to these funds the trust has managed to raise an additional 30 M in capital which together provided the trust with 52.8 M in initial capital to start the trust. (Chantier de l'économie sociale Trust)
- #19 The following four partners contributed to the trust’s initial pool of capital: Canada Economic Development (previously discussed), Fonds de solidarité (a labour-sponsored venture capital corporation), Fondaction - Fonds de développement de la CSN pour la coopération et l’emploi (a labour-sponsored development fund), and the Government of Québec. The contribution from Canada Economic Development is non-repayable, whereas the other three investors received a debenture in exchange for their investment (the debenture product is explained in section 2.05). The trust received investments from the four partners at the following amounts: Canada Economic Development – CED $22.8 M Fonds de solidarité FTQ $12.0 M Fondaction CSN $8.0 M Government of Québec $10.0 M Total $52.8 M
- #21 . innovative enterprises which combine a strong social purpose with sound business principles, rather than being simply driven by the need to maximize profit. The Social Venture Fund’s primary focus is on for-profit social businesses; however in an effort to pilot social venture investing in Ontario, the investment strategy included the ability to fund strong non-profit social enterprises. The target sectors for investment include: Education, Environment, Health and Community and Human Capital Development (affordable housing, support and services for marginalized persons). The Social Innovation Generation at MaRS (“SiG@MaRS) team is actively developing programs to support the launch and growth of social ventures, enhancing the skills and networks of social entrepreneurs, exploring new instruments of social finance, fostering opportunities for technology platforms to help scale social ventures and building the social enterprise community. The Social Venture Fund is planned to provide a source of potential capital for these social entrepreneurs. In late October 2008, as part of its “Spending Restraint” initiatives, the Ontario government announced a delay in launch of the Social Venture Fund. On December 4th, the Ontario government announced its Poverty Reduction Strategy, recommitting to the $20 million Social Venture Fund, but not indicating a timeline for launch of the fund. The MaRS SVF team continues to work with Ontario and others on the development of a social venture fund vehicle.
- #22 Ontario: proposedSocial Venture Fund
- #23 Clarify the Income Tax Act regulations for foundations enabling them to participate in new forms of Program Related Investments (PRI's) that enable charities and nonprofits to establish and finance social enterprises.
- #24 How can we go to scale?What kind of people need to be involved?
- #25 MARKETPLACE PROFILEInvestorsRetail investorsWealth management firmsHigh net worth individuals (HNWIs)Mass marketInstitutional investorsPension fundsCredit unionsCharitable trustsVenture capitalistsPrivate social venture capital FirmsEnterprising non-profits (negative financial return)Social enterprise (zero financial profit)Social purpose business (social mission for profit) (Note: Each firm has different needs) ScaleSocial firm small cap: $1,000 to $100,000Social firm mid cap: $100,000 to $1 millionSocial firm large cap: $1 million to $50 million
- #27 Advocates enable service providers to connect to the supply and demand
- #30 Recent announcement of 42 million for support through the economic crisis, specific to volunteers, charities and social enterprise.A £15.5 million Community Resilience Fund for local organisations providing services in the most deprived communities in the country.A £0.5 million boost for the School of Social Entrepreneurs.A £10 million investment in a volunteer brokerage scheme for unemployed people to allow them to gain skills and experience through community-based work.