Chapter 9: Financing

Question 1

Define social finance

Answer 1

(aka impact investing)
An investment seeking to achieve social and environmental returns as well as economic ones
- goal is not just to get yourself more money
- intension is to support organizations in developing social impact

Question 2

SEBs can get financing through which 3 avenues?

Answer 2

Public, private, and social economy sectors

Question 3

What are the different options of sources for revenue for operations?

Answer 3

• earned income
• government funding
• gifts and donations
• investment income

Question 4

Why can financing be a challenge for SEOs that already exist?

Answer 4

• the primary objective of SEOs is not financial - do not generate a competitive rate of return on investment
• considered too small or too risky by banks
• typically do not have collateral
• do not have owners in the usual sense - usually without share capital

Question 5

Explain why financing can also be difficult for new SEOs that are in the first years?

Answer 5

• the first years for SEOs are crucial in terms of fundraising and other supports - usually determines success
• new non-profits often rely on social capital and networks of founders and their communities in terms of raising resources (usually relying on donations and volunteer work)
  > start-up funds often come from founders and supporters; some come from seed grants
• once the organization is up and running, operational costs become a concern
• another thing they need to worry about is capital costs (more fixed and longterm costs) > usually get money for this through different fundraising campaigns

Question 6

What are the 2 ways of categorizing different forms of financing?

Answer 6

1. Return-to-Investor Perspective - how much they generate in return to the people investing in them
   - no return: 100% = grants (ex. social objective of alleviating property)
   - most return: market rate return = commercial investments
   big picture idea > different financing options generate different rates of return for investors (usually determined by the different social objectives that the investor wants in return)
   - investors have different goals and expectations for their investments
2. Considering degree of RISK for the investor and the blend of social and financial returns
   - investors might think through ways of investing according to how much risk is involved for them (when and if they’re going to get their money back and what they’re going to want back)

Question 7

List the different types of Social Financing that we talk about

Answer 7

Mission-based investing
Economically targeted investments
Microfinance
Community bonds
Online Crowdfunding

Question 8

What is Mission-Based Investing

Answer 8

Investments being made to achieve the social mission/program that an organization is trying to do

Question 9

What are Economically Targeted Investments?

Answer 9

Investments that try to generate market returns while also providing collateral benefits

often used by pension funds > The goal is to take existing pension funds and expand it, in a way that meets the goals of the organization

Question 10

What is Microfinance?

Answer 10

Small loans given out to individuals or groups to start projects where they try generating income
- often given to poor and low-income people - banks won’t require any collateral so that people can start income -generating projects and small businesses
- generally thought of as having a major influence on poverty reduction strategies (but this strategy has critiques because using market-based solutions to poverty through encouraging entrepreneurship fits neoliberal focus)

Question 11

What are community bonds?

Answer 11

Debt instrument used by non-profit organizations to raise large amounts of money to purchase capital items (ex. a building)
- the investor would lend money to the organizations for a specified period of time, in return for a regular interest payment over that time period, and the repayment of the loan at the end of the period

Question 12

What is online crowdfunding? What are the 3 models 1

Answer 12

Ways that people pool together money through the internet
3 models:
1. Donation
2. Lending
3. Investment

Question 13

Explain how financing works thorugh the public sector?

Answer 13

(ex. for public sector non-profits)

Government Funding:
- provincial governments provide the most financing to the social economy
- government funding can be stable or rocky at times (especially during a change in government and shifting political context)

Question 14

What are ways for financing through the Private Sector?

Answer 14

Banks:
- mortgages, loans, and lines of credit to organizations that qualify (can be hard for them to get approved though)

Corporate Philanthropy:
- ex. firms cn establish private foundations or engage in non-cash giving - donated services, product donations, computers, media space

Question 15

What are the different financing options through the social economy?

Answer 15

Philanthropy through Community Foundations
- locally run public foundations that administer endowments to support charitable activities in their area

Credit Unions
- owned by members and work towards improving community ; focus on loans to members but also can provide services targeted to social economy organizations

Member Financing
- co-operatives receive equity investments from members through their membership fees ; members receive no direct return on investment but may receive benefits through patronage returns