Education, not regulation, biggest hurdle in federal social finance push: Lawyer

OTTAWA – A lawyer who helped set up the first social impact bond in the country says the biggest barrier to expanding the community financing initiative in Canada is lack of knowledge, not regulatory hurdles.

Susan Manwaring, who specializes in the emerging area of social finance, says the strategy could help expand the use of social impact bonds — private investors underwriting social programs such as job skills training, in hopes of realizing a return on their investment by way of a government payment.

Not every project or program is a good candidate for a social impact bond, Manwaring said.

Nor is it easy for groups to set realistic, measurable outcomes that will define whether the program is a success and, by extension, whether investors get paid, she added.

That’s where the education aspect comes in; Manwarning wants to see it considered in the government’s overall strategy.

The federal government has been pushing its way into the nascent social finance marketplace since 2011, believing that it could reduce government costs and spur innovation in how programs are delivered.

The attraction for governments is that investors take on the financial risks, while the premiums paid out match the ensuing savings through things like fewer people collecting employment insurance and more people working and paying taxes.

“I don’t think anyone is suggesting this is going to replace governments being a source of funding for charitable and non-profit groups,” Manwaring said.

“This area is meant to attract money that may otherwise have been in the stock market and could be a complement to the existing money to allow the sector to be stronger and do more.”

The federal government estimates there is $2.2 billion available in Canada for so-called “impact investing.”

Federal pilot projects focused on essential skills training run by non-profits or charities have turned up multiple challenges, including finding investors, some regulatory and legal hurdles for non-profits and charities, and a federal funding apparatus that isn’t designed to handle community-funding models to tackle complex social issues.

Manwaring said many of the rules regulating charitable activities and the use of securities aren’t much of a legal hurdle when setting up agreements between groups offering social projects and the investors providing the money to pay for the programs.

Most corporate organizations, whether they be a charity or non-profit, can issue bonds, Manwaring said. Canada Revenue Agency rules can be an issue, she said, and the government needs to make it easier for charities to seek private investors without the worry that they will lose their charitable status.

She said everyone involved in the sector — from non-profits, to investors, to lawyers — is waiting to see the details of the anticipated strategy federal officials are crafting.

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