Invest in community instead of corporations

Community Mandated Investment lets Canadians put their money where their hearts are

By: David Skinner

  Wondering about investments that deliver specific social as well as economic returns? Community mandated investments are designed to do just that.
  The term "community mandated investment" - often simply "community investment" - encompasses a large and quickly developing field. Traditionally, much of this activity has fallen under the heading "community economic development" (CED). However, in the wake of the government cutbacks and social restructuring that characterized the 1990s, for-profit, not-for-profit, and co-operative organizations are springing up to try to address concerns like the construction of community buildings, the lack of affordable housing and unemployment. While in some instances, this "social" or "community development venture capital" - as it is sometimes called - has the potential to deliver strong returns, profit is generally not the sole or primary goal. Rather, these organizations are mandated to pursue specific community purposes as well as generate financial rewards.
 

Some community investments come with the added advantage of RRSP eligibility

  Forged in an environment where innovation has been the key to survival, both community investments and their investors come in many forms. Generally, however, there are three main types of community mandated investments available to individual investors: community development loan funds; community equity investment funds; and co-operatives. In some cases, organizations operate as a blend of these different vehicles and work in conjunction with governments and community partners to identify, develop, and deliver projects and services.
  Community development loan funds generally come in three varieties: i) those that specialize in capital projects; ii) those that provide assistance to individuals for business start-ups and similar ventures; iii) those that raise money in Canada for investment outside of the country in international development efforts.
  Funds that provide capital for community projects invest in projects like the construction of affordable housing, seniors centres, and community centres. They range from those that are totally financed by private money and have a firm eye on the bottom line, like the ACRE Fund (www.acrefund.com), to those that blend public and private monies, like the Calgary Community Works Civic Loan Fund (www.communityworks.ab.ca). Such funds often supply both the capital and expertise to make projects viable. The Acre Fund, for instance, provides both micro-loans and project management skills to get projects through the planning phase, and then mortgages to finance construction.
  Business start-up loan funds come in several forms. With some, the investor's money is held in a term deposit and used as collateral for business start-up loans made to those who, for various reasons, don't otherwise qualify for a loan. As "return," the investor receives the interest paid on the deposit. Another popular loan fund model is the "loan circle" or "peer lending." Modeled on the Grameen Bank in Bangladesh, business loans are given to small groups of people who assume responsibility for each others' debts. Here, the investor usually receives a small interest payment on the loan. Other funds, like the Edmonton Community Loan fund, draw upon individual investments, donations, and federal government programs to make loans directly to individuals. While most of these loans are "micro-loans" - that is, under $10,000 - in some cases they can be much bigger. In still another instance, the Association Communautaire D'Emprunt de Montreal/Montreal Community Loan Association combines investment from a range of private and public sources to provide both technical and financial support to employment and community development projects. Across the country, such funds have been key in creating employment and alleviating poverty.
  International community development funds gather capital in Canada for investment in "low income" countries. In some instances, like the Sarona Global Investment Fund (www.saronafund.com), investors can either take up certificates of deposit or buy shares in the fund. In others, like First Oikocredit Canada (www.oikocredit.org/ca) investors receive interest payments on bonds that are invested in the fund. The general purpose of these funds is to empower people to become self-sufficient in sustainable, environmentally friendly enterprises.
  Community equity investment funds operate much like loan funds, except that they assume ownership positions in the projects they finance. Operating them requires specialized skills and they are few and far between in Canada at the moment. However BCA Holdings (www.uccb.ns.ca/bca) on Cape Breton Island and the Nova Scotia government's Community Economic Development Equity Program, offer innovative examples of how these kinds of project can operate.
  To facilitate community investment, credit unions often act as a bridge between investors and borrowers. For instance, Vancouver City Savings Credit Union in B.C.'s Lower Mainland, Assiniboine Credit Union in Winnipeg, and Metro Credit Union in Toronto all offer their members community mandated investment opportunities.
  Finally, as one of the fastest growing forms of business organization, co-operatives are increasingly providing opportunities for community investment. Their key feature is democratic governance, and they are often structured to meet with specific community purposes as well. Because they are generally provincially regulated, the rules governing their structure and size varies from province to province. But, depending on the jurisdiction, investments in co-operatives can be in the form of loans or equity holdings. For more information on co-op investment opportunities in general and worker co-ops in particular contact the Ontario Worker Co-op Association (e-mail: owcfcame@web.net) or contact your provincial co-operative association.
  Some community investments come with the added advantage of RRSP eligibility. Others, however, do not. Given recent changes in the foreign content limits, changes to make more investments in this field RRSP eligible would be particularly appropriate. As Eugene Ellmen, executive director of the Social Investment Organization, points out, "it's outrageous that the federal government is allowing Canadians to invest more of their tax assisted dollars world-wide and still prohibits them from investing them in their own neighborhood." People working in the field of community economic development have been advocating similar, although more specialized, tax credit measures designed to encourage equity investment in community projects and ventures. Nova Scotia's Community Economic Development Equity Program - with its combination of tax credits, loan guarantees, and RRSP eligibility - stands as a particularly innovative example of what can be done here.
  Minimum levels investment vary widely as do returns which are often - but not always- lower than on traditional investment vehicles. However, lower returns are not usually the product of defaults or problems with borrowers. Rather, they are the product of factors such as the high costs associated with making and supervising small loans and preferential interest rates given to borrowers (in many cases they can't afford higher rates).
  In the end, of course, private investment cannot and should not replace public investment. And with governments flush with surpluses now is the time to lobby for increased public investment in our communities - not tax cuts that will further tilt the social balance. That said, however, community mandated investments can offer reasonable economic returns as well as an innovative means to deliver positive social benefits to individuals and communities as well as positive social returns to the communities in which they are made.
  For more information check out "community investment" at the Social Investment Organization's website at www.socialinvestment.ca or Calmeadow's directory of micro-loan funds in Canada under the button "Canadian Small business Lending" on their website at www.calmeadow.com.

David Skinner is the authour of The Ethical Investor: A Guide to Socially Responsible Investment in Canada (Stoddart, 2001). This article is adapted from material in that book.

Posted: February 05, 2001

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