June 4, 2016

The Potential of Social Finance

The research finds that the value of a social finance approach in the S&I context applies to three related areas:


The first benefit of a social finance approach is that it can leverage new sources of capital from private investors that is necessary to match the growing demands for S&I services.[1] In Canada, HNWIs, family offices and institutional investors are becoming increasingly interested in investments that deliver both social and financial return.[2] S&I services fall into several areas of interest among impact investors, such as employment and access to finance for vulnerable populations. Moreover, several credit unions already offer specialized financial services to immigrants and refugees.[3]

However, it is important to recognize that social finance will not replace public funding, since attracting large sums of private capital requires governments to leverage their own funds.[4] Indeed, experts agree that social finance is best understood as a complement to, rather than a substitute for, public funding.[5]


A second benefit of a social finance approach is that it can transcend structural barriers inherent in a traditional government funding approach. In particular, social finance can contribute to achieving desired impacts and ensuring financial sustainability of service providers. In the first instance, traditional government funding mechanisms do not always reward organizations for performance, as contracts and grants are often linked directly to specific activities and outputs. This can lead to a situation where SPOs become more accountable to their funders than to those they are intended to serve.[6] A performance-based structure that aligns financial payments with demonstrated outcomes (rather than activities or outputs) can strengthen the impact of SPOs.

In regards to the financial sustainability of SPOs, traditional government funding mechanisms are often provided on a short-term and cyclical basis, meaning that SPOs cannot plan for longer time horizons. Social finance can encourage SPOs to develop new streams of revenue, which contribute to ensuring their sustainability.

This is particularly relevant to the S&I context, given that SPOs have specialized expertise and privileged access to newcomers that could be leveraged to generate business income. [7] Indeed, the demand for culturally relevant services is growing across the public and private sector.[8] Immigrant and refugee populations are disproportionately dependent on social services.[9] As such, all social services must transform to better serve this shifting client base.[10] Private employers and universities are also potential clients of S&I organizations, given that they are increasingly expected to provide S&I support.[11] However, the S&I sector has struggled with the professionalization of these services, due in part to the lack of long-term funding.[12] Social finance vehicles have the potential to provide an important and complementary (to traditional government funding) source of long-term funding that could enable SPOs to take advantage of these revenue- generating opportunities.


A third benefit of a social finance approach is that it can encourage partnerships (including with the private sector) to respond to the changing needs and demands from newcomers. Traditional government funding in Canada has relied on competition between SPOs to ensure accountability, but an unintended consequence of this competition has been to undermine the development of genuine partnerships within the sector.[13] A social finance approach can encourage meaningful partnerships between SPOs and with other actors, such as private employers, by aligning their incentives. Moreover, social finance often involves the transfer of some degree of risk to the private sector, which has a broader set of mechanisms to manage risk.]14] This risk transfer can induce innovative approaches to service delivery, since investors often provide SPOs with the autonomy they need to establish complex and more integrated programs that can meet diverse and changing S&I needs. [15]

Notes 1.OECD (Organisation for Economic Cooperation and Development). 2015. Social Impact Investment: Building the Evidence Base. Accessed: Sept 20 2015. http://www. oecd.org/social/social-impact-investment.htm. 2. Harji, K. and Hebb, T. 2014. Impact Investing in Canada: Iterative Experimentation with Policy and Practice. Impact Investing Policy Collaborative. 3.CED (Canadian CED Network). 2010. Experiences of Immigrant and Refugee Social Enterprise in Canada. Report on the first phase research findings of the Immigrant Settlement and Integration through Social Enterprise Initiative (ISISE). Accessed: Sept 22 2015. https://ccednet-rcdec.ca/. 4. (OECD 2015a) 5. ASCI (Alternative Commission on Social Investment). 2015. After the Gold Rush. Accessed: Oct 02 2015. http://socinvalternativecommission.org.uk/wp-content/ uploads/2015/03/SS_SocialInvest_WebVersion_3.pdf. 6. Shields, J., Türegün, A. and Lowe, S. 2014. Final Report: Settlement and Integration Research Synthesis 2009 – 2013, CERIS, Accessed: Oct 02 2015. http://ceris.ca/ wp-content/uploads/2015/01/CERIS-Research-Synthesison-Settlement-and-Integration.pdf 7.CISSA (Canadian Immigrant Settlement Sector Alliance). 2012. Study of Promising and Innovative Practices within the Immigrant Settlement Sector. Accessed: Sept 24 2015. http://p2pcanada.ca/files/2013/08/CISSAASCEI-Promising-and-Innovative-Practices-Report.pdf. 8. ibid 2012 9. Shields et al. 2014 10. CISSA 2012 11.Galley, A. and Shirey, G. 2014. Brokering Success: Improving Skilled Immigrant Employment Outcomes through Strengthened Government-Employer Engagement. Mowat Centre. December. Accessed: Sept 22 2015. http://mowatcentre.ca/brokering-success. 12. Türegün, A. 2013. Immigrant Settlement Work in Canada: Limits and Possibilities for Professionalization. 13.Mukhtar, M., Dean, J., Wilson, K., Ghassemi, E. and Wilson, D. 2015. The Challenges Immigrant Settlement Agencies Encounter. Journal of International Migration and Integration. Online version, pp. 1-20. 14. OECD 2015a 15. see CISSA 2012 for similar discussion on the importance of diverse funders

*The content on this page summarizes information presented in the Social Finance for the Settlement and Integration Sector in Canada Market Assessment Report (April 2016), produced by Purpose Capital and the Carleton Centre for Community Innovation. Please consult the full report before making any attributions or references to this work.