Social Finance Fund: program design

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• Fund manager model
• Social equity lens
• Sustainability
• The Social Finance Fund and Indigenous Social Finance

Fund manager model

The Government of Canada is working with three fund managers to invest capital from the SFF to existing or emerging SFIs, such as:

• credit unions
• community loan funds
• private equity firms

SFIs that receive capital from fund managers will then make investments in diverse SPOs to support innovative projects in communities across Canada - with an emphasis on projects that support equity-deserving groups.

The Government of Canada will not make direct investments in social purpose organizations (SPOs) or social finance intermediaries (SFIs) through the Social Finance Fund (SFF). More information can be found on the SFF Hub.

Figure - Text version

An image shows how the SFF works with arrows indicating in which direction funds will flow and to whom between the Government of Canada, private investors, fund managers, social finance intermediaries and SPOs.

In the top left of the image is the Government of Canada and in the top right are Private Investors. From the Government of Canada and Private Investors are arrows pointing to the fund managers, between them. From the fund managers is an arrow pointing down to social finance intermediaries to indicate the investments that will flow to them. From social finance intermediaries are arrows pointing down to SPOs to indicate the investments that will flow to them.

A box in the bottom left of the image indicates that in rare cases, a fund manager may invest directly into an SPO.

To the left of the SFF model is a bracket that indicates the repayment and reporting activities among SPOs, social finance intermediaries, and fund managers.

Social equity lens

The Social Finance Fund (SFF) recognizes that traditional financial and economic systems have often excluded equity-deserving groups. The design and objectives of the SFF acknowledge that:

• entrepreneurs and organizational leaders belonging to equity-deserving groups face greater barriers to accessing social finance capital
• the disparities experienced by equity-deserving entrepreneurs and organizational leaders exist at all levels of the traditional finance ecosystem (e.g., exclusionary investment practices, risk burden of investment, etc.)

Social finance is recognized as an important tool in addressing inequities present in the traditional finance ecosystem. The SFF was designed through a social equity lens to ensure that investments reach and support diverse equity-deserving communities. This means that consideration of the needs and barriers faced by equity-deserving groups is built into the program.

The social equity lens aims to:

• address the inequities and unequal power dynamics present in traditional financial markets with regards to who holds influence and decision-making authority over fund design and capital allocation
• remove barriers between the supply and demand of capital, particularly for equity-deserving groups and the organizations that they serve, and
• ensure capital reaches and supports diverse equity-deserving groups

Sustainability

The Social Finance Fund (SFF) exists to foster a vibrant, self-sustaining social finance market. It seeks to attract new investment in social finance, improve access to capital for social purpose organizations (SPOs), and increase the capacity of those organizations to generate social and environmental impacts. Achieving a more sustainable market is an integral part of the SFF's objectives.

There are several aspects of the program that support increased sustainability of the market:

• it attracts private capital to be invested alongside government capital
• it demonstrates that social finance investments can result in reasonable market returns, challenging investor perceptions of risk
• it supports the growth of new and emerging intermediaries to serve diverse communities, and
• it increases the capacity of organizations to measure and report data, providing credible evidence that investments produce the intended impacts

Fund managers are expected to take a deliberately staged approach to investing. Investment is expected to be concentrated in the early years of the program in more established and lower-risk funds, through which the fund managers will garner returns to be used in attracting even more capital to the ecosystem. While existing funds are scaled up, new and emerging funds will be supported in building their asset base and increasing their investment readiness. By shouldering the risk burden while demonstrating sound financial returns, fund managers will build investor confidence in social finance investment.

The three fund managers are collaborating to develop the tools needed to collect meaningful data, provide valuable evidence to de-risk the marketplace over the long-term, and facilitate investor confidence in providing capital to organizations and projects focusing on social and environmental outcomes.

The Social Finance Fund and Indigenous Social Finance

Building on the Canadian Government's ratification of the United Nations Declaration on the Rights of Indigenous Peoples and the calls to action from the Truth and Reconciliation Commission, the Social Finance Fund (SFF) will engage in relationship-building with First Nations, Métis and Inuit communities, organizations, leaders, and partners to complement and reinforce the existing and emerging Indigenous social finance ecosystem.

In recognition of economic reconciliation as an important step toward Indigenous reconciliation, $50 million of the $755 million Social Finance Fund was allocated to the Indigenous Growth Fund, which is an Indigenous-led and self-determined fund managed and distributed by the National Aboriginal Capital Corporation Association (NACCA).