Recently, I’ve been writing quite a bit about how social programs are often run by either the government or by charities.  But there’s another way, and it’s called social finance. 

Now, let me first say that I do not consider myself an expert on this subject.  It
is complex and dynamic, and if you really want to hear from experts, I suggest you pop over to the Social Finance.ca site and read what they have to say.

For the purposes of this post, though, I will take a crack at a general introduction to the topic.  As I understand it, the social finance movement seeks to create opportunities to both make money and create social good through the same activities.  They see no reason why a person or organization can’t do good and do well at the same time.

The most basic example of social finance is what’s commonly referred to as social impact investing.  Like any other investment, social impact investors put their money into projects and companies that they expect will make money.  Unlike other investors, though, they are also looking for those projects and companies to produce a social benefit as part of
the same plan that generates the financial return.

There’s more than one way to get to where you want to go.

The recipients of the social impact investors’ capital, then, are ventures designed to both make money and do good, and are often known as social enterprises.  Social enterprise is a key component of social finance as I understand it.  It’s a beautiful, because there’s no
charity or government involved, but positive change is still happening, plus the funder has a good chance to make money on the deal!

I wish I could remember where I read about my favourite example of this, so I could link you to it, but we will have to do with what I can remember of it:

Apparently, the kerosene lamps used in most non-electrified areas of the world are very dangerous, and mishaps injure many, many people every year.  Some brilliant social entrepreneur realized that if solar light devices could be made available to these areas at an affordable price, the benefits would be at least three-fold.  First, the people would have a safe light source and fewer injuries would result.  Second, once a person purchased a solar light, they would no longer have to keep buying kerosene, thus helping to alleviate their poverty.  Third, due to their safety and economic advantaqes, the lights would be very likely to sell like proverbial hotcakes, and make the manufacturer a lot of money.   Everyone wins!

If I were a social impact investor, I think I would be all over something like this. But social impact investing is, I think, only one of the simplest forms of social finance.  Micro credit, where small amounts are lent to entrepreneurs in developing nations, also qualifies.  So does an absolutely ingenious strategy called social impact bonds.  I’d love to explore social impact bonds further in this post, but I’m afraid it would be make for too long-winded an entry, so maybe we can save that for another day.  The point is that social finance can take many forms.

It’s really starting to take off here in Canada, and is even farther along in some other countries.  Here at home, a Task Force on Social Finance was recently launched to promote the idea, and it includes such luminaries as former federal finance minister and Prime Minister Paul Martin.

I think this can only be a good thing.  At the very least, it’s another tool in the box we can draw on to solve problems and create positive change.  There seems to be a real creative energy within the social finance movement, where the old approaches of government and charity can sometimes feel a bit stagnant and same-old.  As I’ve admitted, I don’t
completely understand it, but I do find it exciting, and plan to keep watching as it develops.  Why don’t you join me?