Nova Scotia faces a difficult situation in which less than 2% of investment capital placed in mainstream RSPs, mutual funds, and stocks remain in the province. The rest of the investment capital ends up supporting companies operating in the rest of Canada and internationally. Faced with the challenge of match-making local investors with local companies, the CEDIFs were born.

Below is the second of a two part blog entry featuring highlights from a recent SocialFinance.ca interview with Chris Payne, Investment Manager for Nova Scotia CEDIF.

What has your role been in establishing CEDIFs?

Payne: More often than not, it's not possible to attribute any idea to an individual. In this case, we had received a recommendation from a community association that called for mechanisms to facilitate investments in local businesses. That's when I got tapped to basically make this thing work.

Once the mechanism was in place, we asked ourselves, Is anyone going to use this? I felt like an evangelist, going from one rural community to another, telling people about the importance of keeping capital local and how CEDIFs could help. The message is one that resonated. This is the kind of investing that people did 100 years ago, before RSPs, mutual funds, and the like.

Is there anyway to get banks to offer CEDIFs?

Payne: This has been discussed at length, and at this time, it’s a non-starter due to the propensity of financial institutions to create and market their own products. In all the years I have been working on this, it never occurred to me that a financial institution could initiate and market a CEDIF of their own. CEDIFs do not offer commissions or anything like that to intermediaries. They are generally managed by volunteers and governed by volunteer boards. There would be nothing beyond altruism or social good motivating them to set one up.

Can social enterprises setup a CEDIF?

Payne: These funds serve a broad spectrum of local enterprises. As long as your definition of social enterprise includes for profit companies and cooperatives with a social purpose, you’re good to go. Some co-ops have loaned money to nonprofits through a CEDIF. But generally, for a nonprofit to setup a CEDIF, they would probably want to incorporate a for-profit entity owned and operated by the nonprofit with bylaws that guarantee a social mission.

Is there any data on the financial returns and social impact of CEDIFs?

Payne: If you can tell me how to calculate the financial returns and social impact of CEDIFs, I'll certainly do it. With 45 funds, the only way to get to an accurate figure would be to stop the program, wind down all of the funds, identify the valuation of each company, pay back investors, and then assess the combined impact on the local communities and economy. What we do know is that there are 9 funds offering an annual dividend of between 2% and 4.3%. In one case, a fund is producing a 7% annual dividend. In calculating the financial return, do you include the tax credit?

How can SocialFinance.ca help in this area?

Payne: We should be having a conversation about how to more accurately represent financial returns and social impact of initiatives like the CEDIFs. If anyone out there has thoughts on how we could go about this, I would be incredibly happy to hear from them. You never know where the magic connection will come from. Maybe this interview will lead to one.

Note: For additional coverage of CEDIFs on SocialFinance.ca, see No Payne, No Gain: Chris Payne on Hyperlocal Investing (Part 1) and Nova Scotia’s CEDIF Program: A Model for the Rest of Canada?.

Photo: Chris Payne, Investment Manager for Nova Scotia CEDIF

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