The Canadian Alternative Investment Cooperative (CAIC) has a 20-year history of supporting community loan funds.  We made our first investment in the Fonds communautaire d'emprunt de Montréal (ACEM) in 1991. That was early on in CAIC’s and ACEM’s history. Since then, CAIC has invested in seven other loan funds (of which six are current), primarily in Quebec, but also in Ontario and New Brunswick. By partnering with community loan funds, CAIC has been able support micro-credit programs which deal directly with poverty-struck individuals.  Our extensive history with these funds has allowed us to build investment expertise.

The operational model for most successful community loan funds is similar, and has the following three essential elements:

1) The intangible: CAIC has had the pleasure of dealing with very skilled and committed Executive Directors and boards of community loan funds.  It is the first thing we look at and the essential key ingredient.

2) Operational financing: Without adequate financing, community loan funds cannot provide the support required to their clients in order for them to be successful.  Assistance with business plans, mentoring, providing networking opportunities and sometimes just helping transfer basic life skills requires a dedicated, experienced staff.  Without this, community loan funds are not able to assist new businesses and the loans themselves would not be paid back. Operating funds usually come from provincial or municipal governments, and are often supplemented with private donations from supportive individuals and organizations.  Some community loan funds realize that the expertise that they have developed “in-house” is valuable and have leveraged it to create social enterprises.

3) Capital: The third requirement, where CAIC comes in - providing capital for the micro loans. When investing in community loan funds, CAIC looks for two things:

• A broad based capital pool.  CAIC has a shared risk model for operations.  CAIC wants to be part of a capital pool.  This ensures two things: firstly, in the event of loan losses, these will be shared. Secondly, it is an indication of the level of support for the fund in the broader community.  CAIC likes to keep its participation to 10%-20% of total capital
• Internally generated capital through donated capital and operating surpluses.  This is a further means to reduce risk as the organization’s capital will be depleted before any of the borrowed capital is impacted.

CAIC can proudly report that it has not experienced any losses in its community loan fund investments over the last two decades, and thus we are looking to make more. CAIC has been very impressed with the accomplishments of this sector, and we believe it is a very cost-effective and empowering form of poverty reduction – one that should be considered by more governments across Canada.

Ed: This post will be followed by a series of case studies of community loan funds supported by the Canadian Alternative Investment Corporation. Stay tuned for stories of hope and to learn about best practices used by CAIC! To learn more about CAIC’s investment methodology for social enterprises, please see their previous blog post on SocialFinance.ca: Social Enterprise Financing is a Piece of CAIC.

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