A few weeks ago, I sat in a conversation about social finance amongst the community economic development (CED) crowd in Calgary. Together, we had a great conversation surrounding Canadian demand for slow money, patient capital, and discounted community mortgages.

The one common theme emerging from our different takes was demand. There is demand for investing in social good. There were a number of us who had explored and invested in ethical funds, hoping they would satisfy our demand. We felt a bit let down when we saw that the companies in ethical funds were the same ones in regular funds.  Others among us had experience investing in Kiva, but wanted an option to loan their money to local organizations.  There were still others who had put together their own community mortgages.

With demand clear, we started asking questions about how to satisfy it.  Would it be possible to do so through peer-to-peer lending?  Would CED organizations consider replacing philanthropic dollars with loans or patient equity investments?  Would donors be willing to shift their mindset to investors – with a lower financial return and high social return?

But a conversation around “how” made little sense without another conversation about “who”.  This piece, the supply, was a bit more unclear.  Could the organizations be Calgary-based or within Western Canada?  Would there be enough businesses or enterprises in which to invest?  Would we have to specify areas of focus (environmental, employment), or could investment be along a broad “social” range?

Our final conversation tried to blend the “how” and the “who”, and we landed on the possibility of creating a local CED loan fund.  Capital would come in from a variety of investors with the financial product being housed and administered by a local credit union. It would provide a small step forward to identify both our two audiences: the organizations needing accessible loans and the actual investor base for these opportunities.

My non-financial mind understands the complexities of finance through a simple framework: you can loan or you can own.  Loaning is the option that seems particularly prevalent in conversations today.  Community social bonds are great examples of the experimentation and innovation through loans. The lessons that we learned, and are continuing to learn through microfinance, have also increased our comfort level with loan products.   I’m confident that in Calgary, we will at some point find a way to create a loan mechanism in the social enterprise space – whether it happens through a credit union, a philanthropic organization that use its purposes to develop a loan fund, or in a virtual space that engages peer-to-peer lending.

The harder reality is then, how do we bring equity into the equation in a way that makes sense? My very practical financial partner told me to go ask the organizations who I would consider investing in, if they’d even be interested in participating. For socially-focused small businesses, there’s not likely much of an equity option. And if there is, we go back to ask the question, what type of return would we need?

I know there are organizations and funds who are working in this space across the globe. I like watching the crowd-funding space to see how they are pushing this conversation forward, such as 33needs, Crowdcube, and Kickstart. Renewal Partners is a regional example that I hold high in esteem, but I also know that they are sourcing from further and wider than Western Canada to find the blended value they seek.  The supply of organizations in which we invest may need to come from a larger geography or issue area than CED proponents would like.

If I had a chance to wave my magic wand, I’d like to see experimentation in two areas in Calgary.  The first would be to see an investor or group of investors develop a loan fund supporting social enterprise, either based in an institution or virtually.  This would expand the boundaries beyond philanthropic grantmaking  – it would require donors to become investors and would push the non-profit sector to consider a world beyond fundraising.  The second would be to find courageous and experimental investor(s) to see how we could create patient equity investments in our local and regional social purpose businesses.  Again, this could take place through financial organizations or through virtual peer-to-peer networks.

I don’t know if we can balance the supply and demand in a way that makes everyone happy.  As a believer in and student of this space, I’d like to start prototyping on the “how” and the “who” because I do know that if we don’t start, we’ll never know.  If there is interest in Calgary or Western Canada, I’d really like to brainstorm more about how to start moving forward.  If there are initiatives happening, I’d like to learn more.

(Orignally posted on SocialFinance.ca)

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