Market-building social finance models are often aimed at facilitating the growth and capacity of other social finance intermediaries, regional governments and other actors that are involved in the social finance ecosystem to strengthen their ability to provide access to capital to the S&I sector (including individual newcomers, service provider organizations and networks) and beyond.
The research report identifies the following types of market-building initiatives: wholesale funds, investment and contract readiness funds, social incubator funds, funds designed to catalyze the development of new social impact bonds and public development banks. A few examples include:
Wholesale Funds
The UK is well known for the wholesale fund model, where government funds are provided to intermediaries rather than directly invested in social sector organizations. These wholesale models are aimed at supporting social finance intermediaries to achieve the scale that is necessary to meet market demand for accessible and affordable capital from individuals and social sector organizations. Australia created the Social Enterprise Development Investment Fund (SEDIF) in 2011, which catalyzed three new intermediaries. While there are no social finance models of this type currently in Canada, the UK’s Big Society Capital and the Australian SEDIF provide two interesting models for the development of these enabling platforms.
In May of 2016, Big Society Capital published a paper that explores the potential of social finance for the settlement and integration of migrants and refugees.
Investment and Contract Readiness Funds
The UK and Australia have established investment and contract readiness funds to support social sector organizations in the early stages of development. The primary aim of these funds is to assist social sector organizations to build their internal capacity up to a level that is necessary to succeed in pursuing an opportunity linked to a specific investment or contract.
While it is still early days for the Australian fund, the UK fund has experienced considerable success in helping social sector organizations to secure public sector contracts and to attract private investment. For example, a recent evaluation of the Investment and Contract Readiness Fund (UK) finds that for every £1 spent the fund unlocked £18 in private investment and contracts, and 78 of 155 ventures supported by the Fund have secured contracts and/or investments.
Public Development Banks
Public development banks are capitalized with public funds and have broad mandates to support domestic SMEs. Some of these banks have special programs to invest specifically in social enterprise. Development banks do not make direct investments but rather, they co-invest with private investors in social sector organizations. For example, the US Small Business Association Impact Investment Fund provides capital to designated intermediaries (small business investment companies). The German Reconstruction Credit Institute (KfW) co-invests with private investors on a matching basis, using equity investments to leverage debt financing from commercial banks.
At the time of conducting our research we found no evidence of development banks being applied specifically to the S&I sector. However, the scope of the German or US impact investment programs do not preclude investment in these organizations. SBA has a program designed to promote investments in migrant-owned businesses. Canada’s Business Development Bank is another example of a public development bank that possesses a set of national processes, infrastructure and expertise and is keen to strengthen its commitment to social enterprise and social finance.
Notes
*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.