Community bonds: A social finance innovation

Working in partnership with members of the Ontario Social Economy Roundtable and the Ontario Nonprofit Network, Centre for Social Innovation (CSI) is pleased to present our briefing to the Provincial Partnership Project. In this paper, we are inviting the province to clarify and assist in scaling up Community Bonds.

Most of you know that CSI is hard at work promoting our Community Bond offering — 4% return for a five year — held inside your RRSP — but once you buy a CSI bond, wouldn’t it be amazing to be able to have your whole portfolio holding local social enterprise investments? Equally tantalizing, wouldn’t it be amazing if non-profits and social enterprise could leverage their greatest assets — their communities — to build community infrastructure?

CSI and its partners is inviting the province to consider streamlining, clarifying and enabling the widespread take-up of Community Bonds in Ontario.

If you are as geeky as I am, take a look at the attachment below to find out how we might do it. Or just read a little further where I keep making the case : )

The Ontario Social Economy Roundtable (OSER) is a network of independent and connected organizations that have been working with and supporting the social economy sector in Ontario. The Canadian Community Economic Development Network (CCEDNET), Ontario Co-operative Association, (On Co-op) Centre for Social Innovation (CSI), Toronto Enterprise Fund (TEF) with the United Way Toronto, the Ontario Nonprofit Network (ONN) and Centre canadien pour le renouveau communautaireen (CCRC) are partnering around a series of briefing papers to the Partnership Project related to improving access to capital for nonprofit organizations and other social finance issues.

These partners are recommending that the Ontario government utilize existing infrastructure to create an enabling environment in which social enterprise can thrive. They are recommending:

  1. Clarifying and scaling-up the role out of Community Bonds — RRSP/TFSA eligible debt instruments designed to enable nonprofit financing
  2. Expanding Infrastructure Ontario’s eligibility to enable nonprofits to access $3.8 billion in financing through an existing infrastructure
  3. Creating a Social Enterprise / CED Tax Credit

This briefing will focus on the implementation of Community Bonds in Ontario.

Community Bond

In simple terms Community Bonds are securities issued by a nonprofit to an individual or an organization in return for an investment in the nonprofit. It is a binding promise by the nonprofit to pay the investor a specified rate of interest over the life of the bond and to return the investor’s capital at the end of the term. It could be secured or unsecured depending on the purpose of issuing the bonds.

Put another way, Community bonds are loans that provide a fair return on investment and enable non-profits to leverage their greatest asset — their clients, members, donors and constituents — to create assets that will serve the community in perpetuity.

A community bond is:

  • A debt instrument — it is essentially a loan (nonprofits and communities can’t issue equity)
  • RRSP/TFSA Eligible — Community Bonds can be RRSP/TFSA eligible and are held inside their RRSP/TFSA portfolio
  • Accessible — minimum investments need to be affordable for citizens to be able to invest

Community Bonds are about leveraging the one asset that nonprofits do have — their relationships with their communities.

Just imagine how small towns could create the performing arts spaces, financed by their audience, how hockey rinks could be financed by the hockey mom’s or how existing property owners could re-finance their assets with community bonds to do vital green retrofits.

Community bonds are open to all investors — individuals, foundations, companies, business people or retiree’s. They are a true ethical investment — one which citizens could often walk in to and point and say that they ‘own’ a piece of these. They democratize social finance making investment possible to everyone. Community Bonds are the ultimate “buy local” strategy.

Community bonds are also a vital tool for citizens to re-engage with their communities that have the potential to: shift a system; transform a marketplace; change behaviour; and create social value. At the same time, it rebuilds the relationship between the citizen and the commons, provides a kick-ass tool to the citizen and non-profit sector and enables communities to create their own solutions.

Community Bonds are a “bottom up” solution that will be driven by the nonprofits and civic entrepreneurs but require legislative clarity and oversight to give confidence to both the investors and investees.

Community Bonds would be very much like corporate bonds. Like corporate bonds the process of selling Community Bonds to the public needs to be regulated. Investors would be in a position to assess the level of risk that they are willing to assume, as with any investment. We recommend that this be done by an Offering Statement Process and that provisions similar to those in the Co-operative Corporations Act be included in Bill 65.

For more on community bonds watch the video below from a TedxToronto talk:

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