Weā€™ve heard a lot about resilience during the COVID-19 pandemic. We know what resilience means for the human body, mental health and for community well-being, but what does it mean for a nonprofit and charitable sector now straining to keep doors open and lights on?

COVID has shone a spotlight on many systemic weaknesses. Vulnerable populations ā€“ the elderly, those living in poverty, precarious workers, racialized communities, and people with disabilities ā€“ have all been disproportionately affected. This is as true in Canada as elsewhere. Governments have demonstrated their value through this difficult time. So too has our nonprofit and charitable sector. Food banks, shelters, community health services, employment services, housing, eldercare, and childcare are just a few examples of assistance to Canadians through this crisis. But the sector isnā€™t immune to systemic weakness. At a moment of great need, itā€™s in the precarious position of lacking the resources required to serve communities in trouble.

The sectorā€™s reliance on government transfers and individual donations makes it vulnerable when those resources are scarce ā€“ as COVID has demonstrated. But this dilemma isnā€™t new. I and others have long argued that social finance offers a way out, a way that enables organizations to diversify revenues. And the capacity to diversify strengthens resilience ā€“ witness sewing co-ops shifting to make personal protective equipment, or food-based social enterprises providing meals to isolated seniors, or courier companies pivoting to deliver groceries.

Social finance doesnā€™t replace traditional sources of funding for nonprofits and charities. Itā€™s only one of many sources. As noted by the : ā€œSocial financeĀ is a tool that seeks to mobilize private capital for the public good. It creates opportunities for investors to finance projects that benefit society and for community organizations to access new sources of funds.ā€ This intentionality for both a financial return and a positive social or environmental impact distinguishes social finance.

Social finance allows a charity or nonprofit to recognize its assets, articulate its value and to ask ā€˜Who else values these assets?ā€™ and ā€˜Whoā€™s willing to invest in what we do?ā€™. This mindset is entirely different from one that asks ā€˜Who will fund my good works?ā€™. Such a shift can unlock significant creative energy and innovation within an organization.

Yet despite its benefits, social finance has been slow to advance in Canada. For many years, I and others saw the lack of investment capital as the major barrier to a well-coordinated social finance marketplace. But it turns out that while access to capital is necessary, itā€™s not sufficient. Challenges also exist around the demand for capital. A report just released by details the obstacles that Canadian charities face in using social finance to diversify revenues. Drawing on a survey of more than a thousand charities in Canada, the report finds that risk aversion (particularly from boards of directors), small size, and lack of knowledge remain major barriers to the demand for social finance capital today.

One of the lessons of the Covid-19 pandemic is that resilience in our sector requires a broad suite of resources to ensure that services can be delivered when most needed. Letā€™s not overlook a tool in our toolbox when our communities need us more than ever.

Tessa Hebb is an Adjunct Professor at the School of Public Policy and Administration. Sheā€™s also a Distinguished Research Fellow and past Director of the ŠÓ°ÉŌ­““ Centre for Community Innovation. Her research focuses on Responsible Investment, Impact Investment, Social Finance and Impact Measurement. Hebb is on and . Photo of shelves is courtesy of Konstantin Rotkevich and Pixabay.

Social enterprise is common across the nonprofit sector, and is embedded in how the sector funds activities. At the macro level, earned-revenue activity accounts for 41% of organizationsā€™ revenue sources. In the face of declining revenues from nearly all sources ā€“ governments, donors and likely corporations ā€“ thereā€™s considerable hope in the ability of organizations to earn revenue from markets for merchandise, food and services of all kinds.

Social finance is an evolving category of financial instruments intended to increase social enterprise. Beyond a simple, repayable loan offered through a bank and available to businesses and individuals, social finance is meant to be easier to access and repay, often with lower interest rates. The investor offers the capital in exchange for a blend of financial and social returns, or for the knowledge that the funds are being used to advance a social purpose. –Bernadette Johnson

However, Imagine Canadaā€™s recent report () tells us that charities aren’t by and large interested in taking on social finance loans, and their awareness of this revenue source is relatively low, particularly among small and medium-sized organizations. The survey gauges the level of investment readiness of 1,018 participating registered charities, in advance of the release of capital offered through the . Results show thereā€™s still a lot of work to be done to reach Canadaā€™s charities.

Charities have a low awareness of “social finance,” with 66% of respondents saying either they’d never heard of the term or had heard of it but weren’t clear on the details. From Imagine Canada’s “Are Charities Ready for Social Finance? Investment Readiness in Canada’s Charitable Sector” (Aug. 2020).

The social finance ecosystem ā€“ consisting of service providers, investment funds, ecosystem mobilizers and organizations taking advantage of flexible financing instruments ā€“ is a pioneering field in Canada. These players, offering advice and connections to the investors, are not well known to the sector. This is curious, as most social enterprises in Canada are either a charity or a nonprofit, and organizations have been engaged in social enterprises for decades. Why wouldnā€™t flexible, cheap capital offered in exchange for social return be more in demand by those who are, well, good at doing good?

Some speculate that the social finance instruments on offer donā€™t do enough to meet the unique needs of charities ā€“ that, in fact, thereā€™s a lack of flexible, inexpensive capital available to charities. Others say that the barriers to charities are too high because charities are risk averse and accustomed to grants. But according to Imagineā€™s survey report, many charities carry various forms of debt, so Iā€™m left to wonder at the possible reasons for the lack of interest in social finance tools. Whatever the explanation, Imagineā€™s survey data, which offers an in-depth look at the many drivers of investment readiness, will advance the conversation.

Due to the COVID pandemic, the social deficit that we predicted would hit the sector (a $30 billion gap between demand for nonprofit services and funds available to pay for them) is here, now, in 2020. This should leave everyone ā€“ governments, funders, communities and markets of all sorts ā€“ concerned.