One of the big questions in Ottawa’s recent decision to merge the Canadian International Development Agency (CIDA) with the Department of Foreign Affairs and Trade surrounds the future of CIDA’s microfinance programs. Will the mandate of Canadian commercial interests spell the end of Canada’s publicly-funded microfinance initiatives?
One of the lessons that we learned from the global financial crisis is that when you expose vulnerable borrowers to unprincipled lenders, the results can be disastrous. In response to incidences of exploitation by microfinance institutions, the Centre for Financial Inclusion launched the Client Protection Certification Program in January 2013 to recognize financial institutions that meet adequate standards of care in how they treat their clients.
At about $4.5 billion, impact investing is growing in Canada – it’s just not growing fast enough.
The Social Investment Organization (SIO) recently released Impact Investing in Canada: A survey of assets. The study found $4.45 billion in impact investing assets in Canada, a dramatic increase from $1.4 billion only two years earlier. This includes community loan funds, credit union community investments, international impact investments, aboriginal financial institutions, Community Futures Development Corporations (CFDC) and investments through development capital and solidarity finance institutions in Quebec.
The increase is massive, but the report cautions against concluding that this represents a major boost in impact investing activity. A large part of the increase was an expansion in the range of investment institutions surveyed. Newly-identified assets included development institutions in Quebec and many credit union community investments. Growth was found primarily among the community loan funds, aboriginal financial institutions and CFDCs.
With an annual budget of less than half a million dollars and a staff of three, the resources of the Social Investment Organization are limited. Yet the needs of the SRI industry are considerable. There is significant retail demand and growing institutional interest in SRI, but there is also a stubborn lack of awareness by key gatekeepers. This problem is proving to be a major barrier to industry growth. As the industry’s trade association, the SIO has a mandate to identify these barriers, and to advance solutions to overcome them.
In its most recent annual strategic plan, the SIO Board identifies these barriers in terms of three key stakeholder groups; the public and financial industry stakeholders, the institutional sector and the retail sector.
The financing problems of social enterprise in Canada are well-known. Banks have difficulty extending commercial loans to social enterprises because they lack the security of hard assets, and private investors can't take ownership positions in businesses that -- as non-profits -- have no owners.
Yet there are fledgling models in Canada that have overcome these barriers. The Candian Alternative Investment Cooperative (CAIC), Access Toronto, Jubilee Fund in Winnipeg, and community loan funds in Montreal and Ottawa are some of the innovations that have successfully brought together socially responsible investors with local volunteers and publicly-funded agencies. The result is jobs and economic opportunity for low-income people in these communities.
The challenge now is to scale up. Is there a way to create an investment product that would attract not just thousands of dollars, but tens of millions of dollars to the social enterprise sector? As communities across Canada struggle with the effects of the current recession compounded by years of economic and social neglect, the need for such an investment vehicle has never been greater.