Why Canada’s Government Should Invest in Social Finance

On October 23, Lina Bowden of VERGE Capital provided her remarks to the Senate of Canada and a packed room of MP’s and supporters of the Social Innovation and Social Finance Strategy for Canada 4. Below are her remarks.

PANEL REMARKS AT THE SENATE OF CANADA

Why Canada’s government should invest in social finance.

October 23, 2018

I had the opportunity to share how our region would benefit from Canada’s Social Innovation and Social Finance Strategy recommendation to create a social finance fund of funds at a meeting held at the Senate of Canada. Parliamentary Secretary Adam Vaughn introduced the meeting by sharing “Canada needs to decentralize power into the hands of communities.” I couldn’t agree more!

VERGE Capital is a social finance intermediary for the Southwestern Ontario region. We are a program of Pillar Nonprofit Network, working in collaboration with Libro Credit Union, London Community Foundation, Sisters of St. Joseph, SVX and the Ontario Government.

Localized, place-based social finance intermediaries are vital for engaging community stakeholders. They know the local context, investors, regional collaborators across sectors and the local change makers.

We know that the investors in our region hold more than $40 billion in traditional investment portfolios. Investment by the federal government could help us redirect a small portion of this wealth towards enterprises and organizations that will create tremendous community impact.

The recent Vital Signs report published by London Community Foundation shows that more than ever, we need innovative, scalable solutions to our community’s challenges. Almost half of London renters spend more than 30% of their income on rent and one in four London children live in poverty. In London and across Southwestern Ontario social entrepreneurs are innovating to address these challenges.

For more than eight years, Pillar and its collaborators across government, business and nonprofit - have been providing valuable regional supports for social innovation and social enterprise, helping hundreds of social enterprises scale and grow.

Social finance has been a key ingredient in this work to support social entrepreneurs.

Innovation Works, an affiliate of the Centre for Social Innovation, has 180 co-tenants across sectors with a focus on creating change in our community. Pillar leveraged $2.2 million in social finance loans including a $1 million community bond with 48 community investors.

We have created financial vehicles such as the VERGE Start-up Fund and VERGE Breakthrough Fund that shift capital from traditional markets to investments that can create impact through loans to social enterprises, affordable housing projects and community real estate. To date, we have made 15 loans from the two funds.

Through loans, we help social enterprises like the Old East Village Grocer. Already this year, this nonprofit grocery store has provided jobs to 24 people with disabilities and workplace barriers and they have contributed to an additional 154 direct hires to the London labour market.

Investors are keen to see their investments at work at the community level. We saw evidence of this when we raised over $2.2 million from 20 investors for the Verge Breakthrough Fund and in the words of one of the investors in the Innovation Works community bond, who shared that, “This is the only investment in my portfolio that I can drive by and see its community impact.”

While we work locally, we partner with national organizations such as SVX. We have tapped into their expertise and experience as a registered financial services firm. We are also part of a national collaborative called “Scaling Impact” that sees an opportunity to connect place-based intermediaries to grow and scale our impact by working together to support entrepreneurs, manage funds, support capital raising, and track impact.

How can the Canadian government help us:

Our region and other communities can benefit if the federal government supports social finance:

  • Federal government support would help us mobilize more capital and more investors, leveraging government funds beyond the proposed 3 to 1 ratio. Already, the first loss capital provided by our province has helped us garner a 5 to 1 ratio from local caring investors. Investors are curious but cautious. A subordinated investment by Canada in a any new funds or raises would help us to continue to show investors that impact investing delivers returns and impacts.

  • Social finance structures such as Social Impact Bonds and other models are still in their infancy stages. Federal government support would help us continue to work with local groups such as Carolinian Canada, who see social finance as a potential tool for municipalities to mobilize private capital for impact.

  • Finally, if Canada’s government creates a social finance fund of funds, it would allow for increased collaboration with existing and new place-based intermediaries across Canada, Working together we can enhance the quality of our work at a local level. It will reduce the cost of starting and scaling individual funds, increase the speed to get to market and enhance the quality and ability to achieve impact.

Lina Bowden, VERGE Capital.

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