Social Finance

Interesting Globe and Mail article by Tara Perkins about a progressive idea for non-profits to issue bonds and start businesses. This so-called social impact bond resembles an equity investment and could provide investors with returns based on the successful work of the non-profit.

For instance, in the UK, money raised by a bond goes to a prison program to rehabilitate short-term prisoners. “If, as a result, re-offending drops by more than 7.5 per cent within six years, investors will receive a proportion of the money saved by keeping people out of jail, to a maximum return of 13 per cent,” writes Ms Perkins.

In Canada a task force that includes former prime minister Paul Martin is lobbying for changes that would allow this type of social investing.

While this is a good idea, socially inclined investment that helps people while creating profit isn’t new in Canada. Social Capital Partners, a past client, has successfully provided social finance for 10 years.

Ideally, Paul Martin’s group is consulting with SCP and other social investment leaders. A united front would likely produce better results, especially when it comes to getting the Canada Revenue Agency to change. The CRA, some will say, is exceptionally out-of-date in terms of the rules it applies to non-profits.

One other piece of advice: build in regulations and controls to prevent social impact bonds from becoming financial tools overwhelmed by the self-interest of investment managers. JP Morgan reported last year that social investing is, “emerging as an alternative asset class in the same way that hedge funds and emerging markets did.” Depending on priorities, I’m not sure it’s good to mention social investing and hedge funds in the same sentence.

It’s great to see that social finance continues to grow. The social and financial returns of the double bottom line benefit a lot of people.

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