Community Bonds: A Grassroots Approach to Funding Projects That Make a Difference
Community bonds are an innovative instrument with the power to fund social-purpose projects while increasing community engagement and building community wealth.
What is a Social Purpose Organisation?
Social Purpose Organisations (SPOs) are created to help solve an environmental or social problem. They can be charities, for-profit or non-profit enterprises, cooperatively owned or not; what unifies them is that they prioritize people and planet over profit.
SPOs have a self-sustaining revenue model, which means that they are not dependent on grants and donations for their operations. This is crucial when deciding to take on debt, which may need to be serviced on a regular basis. Moreover, SPOs reinvest the majority of any surplus generated towards the furthering of their mission, and refer to their mission when choosing legal structures and financing.
Some examples of SPOs include:
Affordable housing providers. Real estate developers, or organisations that convert market-rate housing to below-market rate to service underhoused people, single mothers, elderly citizens, or people struggling with addiction and mental health.
Renewable energy organisations. Solar technology producers, wind farms, biogas plants and more.
Community services providers. Charities and non-profits providing services to vulnerable populations.
Sustainable food systems. Regenerative farms, enterprises developing climate resilience technologies, food producers bolstering local supply chains and more.
Art Collectives. Organisations running arts and culture programming, as well as those providing art studios and concert venues to local artists.
(Case studies further below.)
What are Community Bonds?
In Canada, community bonds are interest-bearing securities that social-purpose non-profits, co-ops and charities can issue to fund projects that benefit the community. This is enabled by federal legislation (NI 45-106), which exempts these organisations from having to issue a prospectus for their bond offering.
The bonds are typically issued to members of the community and other mission-driven investors who want to support the organisation’s efforts. In this way, investors lend money to the organisation, and the organisation pays the money back over time with added interest.
Beyond the financial returns in the form of interest paid on the bonds, the investments generate social returns for investors in the form of positive social, cultural and/or environmental impacts of the projects themselves.
Community bonds are not just a tool for project financing, but also a tool for community building. In addition to providing capital for projects they care about, investors have the opportunity to build relationships with the organisations doing work in their communities. In this way, investors can get involved in and engage in shaping their communities.
Whereas with traditional financing the loan terms are usually set by the lending institution, community bonds allow social purpose organisations to set their own terms. Making a case for the social, cultural and environmental returns accrued can result in cheaper financing for issuers. The other side of the coin is that returns flow to community members rather than financial institutions, which helps to build community wealth.
The Role of Community Bonds in funding SPOs
The investment continuum ranges from grants and philanthropic mechanisms, which offer low or no financial return, to public and private equity investments, where investors expect considerable profits. Community bonds can be structured as concessionary investments, providing below-market returns, or they can be structured with yields closer to government debt. If a bond offering is unsecured, then the SPO may need to offer a higher rate of return to compensate investors for the additional risk. It should be noted that community bonds can be chosen due to the lack (or ineligibility) of traditional funding options.
Source: Tapestry Community Capital
Case Studies
Centre for Social Innovation
The Centre for Social Innovation is a non-profit SPO on a mission to catalyze social innovation in Toronto and around the world. Their core business is providing co-working space for other SPOs. CSI was founded in 2004 with 5,000 sq ft of rented space, which grew to 23,000 sq ft by 2009.
Given the rapid and persistent increase in membership, it made sense for CSI to purchase their own building. The challenge was that they had only $50,000 and no assets – the building and renovations would cost them $6.8 million. Fortunately, CSI was able to secure a loan guarantee from the City of Toronto. However, this still left them at a $2 million shortfall, which traditional lenders were not willing to fill.
CSI tapped into their only asset – their community. They launched their first community bond campaign in 2010 and raised $1,4 million by May, allowing them to close the deal on 720 Bathurst. They reached their raise goal of $2 million in 2011.
CSI has since raised millions more in subsequent community bond campaigns, allowing them to purchase two more buildings with a mix of traditional and community funding.
Learn more about CSI’s story here.
Places for People
Places for People (P4P) is an affordable non-profit housing provider in Haliburton County, Canada. They build new units and convert existing ones in an effort to battle increasing homelessness in the region.
With skyrocketing costs of homes, it became clear to the P4P leadership in 2019 that a new multi-unit affordable housing development was sorely needed. The bond campaign was launched in June 2023, and reached its funding goal in just 10 weeks.
Learn more about Places for People here.
Fair Finance Fund
The Fair Finance Fund is a $3.5M social finance fund for Ontario’s local food and farm sector. The fund makes loans ranging from $20,000 to $200,000 to local food producers, food processors, fisheries, breweries, and restaurants. The FFF has disbursed more than $4 million to rural, urban and Northern communities.
Investments are funded by community bonds, which are sold to investors at a $5,000 minimum investment size.
Learn more about the Fair Finance Fund here.
SKETCH Working Arts
SKETCH is a community arts organization that offers arts based programs and wrap-around services to marginalized youth. In 2013 they moved into their current home in the Queen West neighbourhood of Toronto.
Due to rapid gentrification and the accompanying rent increases, SKETCH projected that by 2025 they would no longer be able to afford their studios. When in 2018 their landlord offered to sell them the space, they had to find a way to finance the purchase while remaining sustainable. Project Home was born.
SKETCH was able to raise $1.4 million in community bonds towards the purchase of their space. They accomplished this by rallying grassroots support, with investors coming in as low as $500.
Jour de la Terre is an environmental organization that helps individuals, municipalities and organizations reduce their impact on the environment by running awareness campaigns and rolling out environmental programs and projects in areas like waste management, tree planting, food waste and sustainable mobility.
In 2020, Jour de la Terre embarked on a mission to supercharge the electric vehicle transition by launching EcoCharge – a project to build a network of 100 fast-charging EV stations throughout Quebec and New Brunswick. The projected cost of the project was $14.75 million, the bulk of which would be sponsored by partners. The remaining $2 million would be raised via community bonds.
Jour de la Terre was able to tap into its relationships in the sustainability community in Canada, which it had fostered since the 1990’s. With the help of both retail investors and foundations, Jour de la Terre was able to close the funding gap and begin installing EV charging stations.
Map of EcoCharge electric charging stations.
Learn more about the EcoCharge program and the bond campaign.
