June 4, 2016

Social Finance

Social finance is an approach to generating financial returns alongside social impact. It seeks to bring impact as a third dimension to the traditional investment concern for risk and return.1 This paradigm shift reflects the emerging beliefs and evidence that run counter to the perceived trade-off between social impact and financial return, and a range of models that are showing how various forms of social investment are important to achieve impact on a scale commensurate with the pressing social and environmental issues being addressed.2

In the context of settlement and integration (S&I), individual newcomers can be the target of social finance, in the form of character-based micro-loans. Similarly, newcomer entrepreneurs can be the target of social finance, in the form of SME loan programs. Not-for-profit service provider organizations (SPOs) and newcomer-owned cooperatives are also potential recipients of social finance in the form of loans and quasi-equity. Finally, private employers that hire newcomers could benefit from social finance in the form of incentives, such as reimbursement for education or training investments linked to employment outcomes.

Social finance could also extend to networks that support and represent service provider organizations (SPOs). While these networks have expressed concerns with applying social finance approaches to the sector, reflecting the sentiment that “social financing can never fully or partially replace the federal government’s responsibility and obligation to finance settlement services”, we find some early evidence that they are beginning to explore social finance approaches.3

However, there is a need for more active engagement with the range of networks that permeate the S&I sector, including those that work with SPOs, as well as others that engage with the broader range of issues that relate to S&I.


The number of investors and intermediaries engaged in social finance around the world is growing rapidly,4 reflecting a shift to a sustained market-building phase.[5] The Canadian market for social finance has evolved more slowly through a process of iterative experimentation at regional levels.[6] That said, recent years have witnessed a steady growth in the amount of impact capital deployed in Canada, the majority of which is provided by credit unions, foundations, high net worth individuals (HNWIs) and provincial governments.[7] There are at least 45 social investment products and over 30 regional social investment funds in Canada.[8] The country’s first social impact bond (SIB) was launched in 2014, and plans for others are underway.

While many encouraging pilot projects exist at the regional level, a more deliberate approach is needed to overcome the structural barriers that stand in the way of reaching Canada’s full market potential in the social finance space.[9] Like any market, building the market for social finance requires coordinated action to enhance capacity across demand-side actors, supply-side actors and intermediaries.[10] More experienced markets offer important lessons in these three areas that can be adapted to the Canadian context.


On the supply side, a significant challenge identified in the literature relates to attracting private investors.[11] Most investors are reluctant to provide much needed early-stage capital, due to high perceived or actual risks and transaction costs.[12] Below-market, program-related investments are permissible among Canadian foundations but in a restricted sense relative to the US.[13] Many social finance leaders believe that, at least for complex social issues, impact investments may require some form of subsidy to attract some types of investors, such as a guarantee or tax credit.[14]Such instruments are especially relevant in the context of Canada’s risk-averse investor culture.[15]


On the demand side, there is widespread recognition that more needs to be done to increase the organizational capacity of social sector organizations.[16] Building organizational capacity is necessary for enabling social sector organizations to attract management talent, deploy investment capital and, ultimately, to generate social and financial returns.[17] The Investment and Contract Readiness Fund in the UK has been successful in supporting early-stage social ventures by leveraging £79 M in private investment.[18] Similarly, Australia established an Impact Investment Readiness Fund. In contrast, Canada has relied heavily on civil society to build investee capacity.[19] Recent developments in this space are encouraging, such as the Ontario Social Enterprise Demonstration Fund, which provides early stage support to social enterprises, and a national social finance accelerator initiative announced in Budget 2015.

A second challenge on the demand side in Canada is the lack of an enabling regulatory regime related to revenue-generating activity for the not-for-profit sector.[20] Not-for-profits exhibit a long-term dependence on grants. That said, the sector is beginning to shift toward more diversified revenue sources in the face of constrained public funding.[21] The US, UK and France have adopted regulations that accommodate hybrid corporate forms.[22] Consistent with Canada’s regional approach, only two provinces (BC and Nova Scotia) have adopted regulations to this effect.[23]


To bring these demand-side actors together with supply, a strong base of intermediaries is essential.[24] Intermediaries are difficult to establish and nurture, particularly in an emerging market.[25] The US, UK, France and Australia have all established different national initiatives to catalyze and support their intermediaries. The most prominent example is the UK’s £600M Big Society Capital (BSC) fund. While BSC is widely regarded for its commitment to building the supply side (as a wholesale provider of social finance to intermediaries), challenges have been identified with the lack of investment readiness on the demand side.[26] In the US, the Small Business Association launched a US$1B impact investment initiative in 2011, though deployment of capital has been slow due in large part to the lack of a standard approach to measurement of impact. The Community Development Financial Institutions (CDFI) Fund has placed over US$ 2B in individual CDFIs. Through France’s 90/10 Solidarity Funds, one million corporate pension plan members have allocated US$7.7B to social finance intermediaries, such as France Active.[27] Australia’s Social Enterprise Development and Investment Fund created three new intermediaries.

In contrast, Canada’s relatively low population density and provincial system favours fragmented and ad hoc initiatives.[28] For example, most Canadian investment funds have a narrow regional focus, with the exception of the Community Forward Fund (which operates nationally). Moreover, most investment funds in Canada are small relative to funds in the US an UK, with less than $15M in assets under management.[29] In 2010, the Canadian Taskforce on Social Finance recommended the creation of a national impact investment fund to support the growth of regional investment funds. Despite initial interest and a preliminary feasibility study, the fund not yet been established. There is progress in other areas of intermediary development, such as the development of advisory firms (such as Purpose Capital and Finance for Good), platforms (such as the Social Venture Connexion) and capacity development programs (such as the Enterprising NonProfits program).[30]

A final observation is that the Canadian social finance literature is only beginning to focus on specific sectors.[31] Some sectors – renewable energy, affordable housing, sustainable food and agriculture, among others – have seen high interest and activity, relative to others.[32] Settlement and integration services are unique because they cut across a broad range of impact sectors including finance, health, education, employment and housing. Like gender, S&I for immigrants and refugees could be understood as a lens to be applied across impact sectors, rather than an impact sector in its own right.[33]

  1. SIITF (Social Impact Investment Taskforce). 2014. The Heart of Markets. Accessed Sept 23 2015.
  2. SIITF 2014;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.
  3. OCASI (Ontario Council of Agencies Serving Immigrants). 2013. Ontario Council of Agencies Serving Immigrants Input on Canada’s Settlement Policy December 2013, p. 4
  4. JP Morgan and Global Impact Investing Network (GIIN). 2015. Eyes on the Horizon: The Impact Investor Survey. May 04, 2015. Accessed: Oct 01 2015. http://www.thegiin. org/assets/documents/pub/2015.04%20Eyes%20 on%20the%20Horizon.pdf.
  5. Jackson, E.T. and Harji, K. 2012. Accelerating Impact: Achievements, Challenges and What’s Next in Building the Impact Investing Industry. Ottawa: Jackson, E.T. and Associates Ltd.
  6. Harji, K. and Hebb, T. 2014. Impact Investing in Canada: Iterative Experimentation with Policy and Practice. Impact Investing Policy Collaborative.
  7. Harji and Reynolds 2014
  8. Harji, K. and Reynolds, K. 2014. State of the Nation: Impact Investing in Canada. PC (Purpose Capital) and MaRS Centre for Impact Investing.;NMF (New Market Funds. 2014. Eight Tracks: Impact Investing in Canadian Communities. May. Accessed Oct 02 2015. http://newmarketfunds.ca/.
  9. Harji and Hebb 2014
  10. SIITF 2014
  11. 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.
  12. NMF 2014
  13. Harji and Hebb 2014
  14. NMF 2014
  15. Harji and Hebb 2014
  16. SIITF 2014
  17. ibid 2014
  18. Ronicle, J. and Fox, T. (2015). ICRF (Investment and Contract Readiness Fund) Final Report. Intermediaries: Do we want them to thrive or just survive? October 2015.
  19. NMF 2014
  20. Harji and Hebb 2014; SIITF 2014
  21. Hebb and Thaker 2014
  22. SIITF 2014
  23. Harji and Reynolds 2014
  24. OECD 2015a
  25. SIITF 2014
  26. SIITF 2014; ASCI 2014
  27. Dupuy, G. and Langendorff, C. 2014. Bringing Mass Retail to Impact Investing: The French 90/10 Solidarity Investment Funds. Impact Investing Policy Collaborative.
  28. Harji and Hebb 2014
  29. NMF 2014
  30. Harji and Reynolds 2014
  31. SRDC (Social Research and Demonstration Corporation). 2013. Can Social Finance Improve the Outcomes of Employment and Training Programs?
  32. Harji and Reynolds, 2014
  33. see IIPC 2015 IIPC (Impact Investing Policy Collaborative). 2015. 10 Do’s And Don’ts of Gender Lens Investing. March 12, 2015. Accessed: Oct 02 2015. http://iipcollaborative. org/10-dos-and-donts-of-gender-lens-investing/.

*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.