More Education, Support Needed for Social Finance Ventures in Canada
(April 28, 2008) A new report has found that while nonprofits are increasingly aware of the potential and growing popularity of social finance, there is little formal knowledge of the subject and few government mechanisms in place to support this growing trend.
According to the report, Strengthening Organizational Capacity, social finance is defined as “a sustainable approach to managing money that delivers social, environmental and economic benefits,” and includes such financial products as insured and uninsured deposits, senior and subordinated loans, debt-with-equity features, loan guarantees, fixed income securities, real estate mortgages, stock purchases and private equity.
While social finance has been popular in Europe for some time and is beginning to emerge strongly in the Unites States, there is some concern that Canada is falling behind, according to the report’s author, Natasha van Bentum, CFRE.
Nearly every respondent in the survey (96 percent) felt that charities need new ways to access capital, and 82 percent said that funding is chronically insecure and often focused on current projects as opposed to long-term investments. Canadian respondents were far more likely than respondents from other countries to strongly agree with both statements above.
In addition, 69 percent of all respondents see growing numbers of philanthropists using methods borrowed from for-profit investors, and 77 percent agree or strongly agree that the recent interest in social enterprise, social entrepreneurship and the social economy movement will produce demands for social finance. While Canadians were less likely than respondents from other countries to perceive increased entrepreneurial approaches by donors or increasing use of social finance instruments, they were slightly more likely to have noticed the blurring of business and philanthropy extend also to foundations.
Despite Need, Little Knowledge or Infrastructure
However, despite the need for additional capital and the growth of these entrepreneurial approaches to funding, most charities have yet to come to grips with the concept and potential impact of social finance. Almost nine in ten respondents (87 percent) said that charities are not sufficiently aware of alternate forms of funding such as social finance, and 85 percent agreed that many charities do not seek alternative forms of capital because they are wary of the associated risks of borrowing, or do not have a business model to support debt financing.
If social finance is to succeed in Canada, most respondents believe the government will have to play a major role. Almost eight in ten respondents (78 percent) agreed or strongly agreed that the role of government will be the key factor in determining whether social finance grows or remains marginal. Likewise, 75 percent agreed with the idea that the most effective way of providing significant capital to the nonprofit sector is by facilitating access to private finance as well as to the broader capital markets.
About the Report
Strengthening Organizational Capacity was based on the results of an online survey from a self-selected sample of 235 respondents in Canada, the United States and the United Kingdom. AFP provided a link to the survey in a previous issue of eWire.
The report also asks for examples of social finance at work in Canada, and details can be sent to firstname.lastname@example.org. Examples will be used to develop a new series of social finance resources for charities in Canada.
The report can be found in the Attachments section below.