For me, social finance means investment capital for a worthy cause- that will improve the lives of those who need help, and ultimately benefit the communities these folks live in. Unlike private capital, social finance is not an end in and of itself but a means to achieving a social goal.

Social finance is a concept that gets little attention from policy-makers in Canada and this has, in my opinion, stunted its growth and potential. More on this below. So what are the current and most common practices?

There are a number of different financial strategies (grants, debt, equity) one can pursue to capitalize an idea. In my experience the most common choice by community or third sector groups is grants – my focus in this blog. Grant financing means that, once an idea/project is developed, the sponsor of the idea/project solicits money from government, foundations and/or corporations to finance putting the project idea into play.

There are funds that are available for project ideas which meet predetermined criteria. This restricted money tends to be available on a one time, short term (maximum of three years) basis. Given these conditions and in the context of social finance I would argue that this type of funding is at best only seed capital and should be viewed by social entrepreneurs as such. It is money that is not intended to provide a financial return or to finance large scale social impacts.

SEDI’s experience with social finance has been mixed. Our business model is premised on the belief that it is not possible to achieve large-scale social impacts without having attendant social policy and adequate financial support. We have since our beginning worked with fairly big ideas/products which have required large (in third sector terms) amounts of capital to develop and get to market.

Like many others, we have relied on grants as seed capital to do the front end product/idea development and market testing and then on policy support to provide long term sustainable financing. Grants have worked relatively well for SEDI and our partners but are not ideal. I believe that, if we had access to innovation or social financing which understands the incremental nature of innovation and large scale social projects and measures returns in terms of agreed upon valued social investments, we and other like minded organizations would move farther, faster.

And it is not as if innovation financing does not exist. We spend billions every year on health and technology innovation. And to put it in investment terms, I believe that if we spent half as much time and money on financing social innovation as we do on health and technological innovation we would spend considerably less money on health treatment which is absorbing an ever growing share of all government’s budgets. In my eyes this would mean it was a good investment.

So what does this mean for those who believe that social finance has a meaningful role to play in improving the lives of Canadians? In my mind it means that we need to sell investors (including policy makers) on the real returns they can expect from supporting social finance.

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