TORONTO — An innovative funding model for community groups could become more common with better coordination and awareness, says a new report released Thursday.
Tapestry Community Capital’s report examines the growing use of community bonds, which nonprofits use to raise money for everything from solar projects to public housing.
Community bonds pay interest and ultimately return the original capital, in the same way as more conventional bonds – but the money is directed to social projects and the nonprofit entity that initiates one is responsible for the guarantee .
They are already somewhat established, with nearly $130 million raised through this model in Canada over the past two decades, according to the report, but while more groups are looking to use them, there are still numerous obstacles to their generalization.
“These are powerful tools,” said Tapestry Chief Knowledge Officer Suzanne Faiza, who was a lead author of the report.
“How can we make them more common, so that they are better used and exploited to their maximum capacity?
Tapestry has helped coordinate numerous fundings. Faiza said the promise of the model makes the group eager to find ways to increase its use.
A key way to strengthen the model would be to create a centralized marketplace where community members wanting to support projects could find them more easily.
As it stands, groups typically raise money from those already involved in or close to the projects, because established investment avenues are tricky. There are restrictions on what financial advisors can recommend, while banks lack awareness, do not accept commissions and bonds compete with bank products, the report notes.
Efforts are underway in the broader benefits investing world to better match investors and projects.
SVX Inc., based in Oakville, Ont., last month launched an index of impact investing options, which is currently limited to high-net-worth investors but which it hopes to offer to retail investors in the future. Tapestry is also working on launching a marketplace.
Other areas that could help strengthen community obligations would be better coordination on best practices, increased support from financial institutions, and increased government support, either through some sort of safety net or by offering better tax treatment, the report says.
Community bonds often offer lower yields than conventional options, with the promise that a social benefit is part of the return. To make the model more attractive, government tax incentives could help, possibly following a model already used in Nova Scotia to help attract investment into local businesses.
The community bond model, often with minimum investments of $500 or $1,000, makes them accessible to retail investors, but groups would also benefit from more institutional investors, possibly by bundling many offerings together, says The report.
Community groups need a wider range of financial tools to adapt to current tensions, Faiza said.
“A lot of community organizations are realizing that there is a space (real estate) crisis,” Faiza said.
“It’s not just a lack of affordable housing, it’s also a lack of affordable commercial space, where community organizations can actually live and do the work that they do.
Affordable housing is the focus of some recently launched community bond offerings.
Last month, Kamloops, British Columbia-based Propolis purchased a $945,000 property where it plans to build 50 affordable housing units as part of a project it is financing in part through fundraising. ongoing community obligations.
In March, Indwell in Hamilton launched a community bond with the aim of raising $5 million to build 140 homes in the city.
And last November, Habitat for Humanity in Guelph Wellington, in southwestern Ontario, broke ground on one of two housing projects it is building after raising about $4.5 million through community obligations.
Groups also use this model to finance their own space and, in some cases, to preserve affordable commercial space for others.
The Kensington Market Community Land Trust launched a bid in March with the goal of raising $2 million to buy a building in the Toronto neighborhood. The group wants to preserve both affordable housing and commercial space for the neighborhood’s eclectic merchants.
Part of the appeal of community bonds is that they are able to set terms and decide what they want to do with the money, which can offer more flexibility or complement other support such as subsidies.
“It is the community organizations that set the conditions of their loan, they have the power,” said Faiza.
She said that given the interest Tapestry groups are generating, there is definitely potential for them to become more popular.
“As we see the need for organizations to access capital…and we see the number of people reaching out to us on a regular basis, we’re going to see more growth.”
This report by The Canadian Press was first published May 2, 2024.
Ian Bickis, The Canadian Press
