For ten years, as part of our work to support stronger and greener local economies, Ecotrust Canada operated a loan fund – a bold and important early experiment in the field of social finance in Canada. We completed 87 mission-based loans over 10 years, dispersing $10.7 million in total loans, leveraging $40 million in additional loan capital, and creating almost 900 jobs in some of the most remote places in BC. Our 10 year experiment demonstrated that if we are serious about social enterprise and market innovation, we have to deploy capital in new ways.
Lesson One: Don’t go alone
We chose to place our limited capital very strategically in each lending instance as subordinated debt, or in unsecured 2nd or 3rd position, or para-persu with other lenders, or as ‘last to exit’, or into working capital instead of asset purchase. Essentially our capital allowed more conventional forms of capital to enter deals they would not otherwise have done because it provided security in some form, allowing our limited capital to go further.
Much of the current interest in alternative forms of capital is being driven by very new ventures that are incredibly high risk – there are far more innovations out there than capital comfortable with risky lending. Effective ‘bundling’ of investment opportunities to distribute risk and attract capital is sorely needed.
Lesson Two: Your partners reflect your mission
We loaned only to entrepreneurs and enterprises that could demonstrate triple-bottom-line inputs and outputs in their business model. This was really mission-based lending in the truest sense of the word, which had the effect of ‘injecting’ capital and opportunity into businesses concerned about social, environmental, and financial results.
The outcomes of our lending practice continue to demonstrate the value of this approach: most of the employment created is still in place, many of the businesses supported through our lending had a cornerstone effect on the economy of smaller communities, and in many instances environmental conditions have improved.
Most of our co-lenders were pleased to be able to report on social and environmental metrics associated with these deals even though their primary indicators of success were capital recovery and safe exit.
Excerpt from a speech given by Brenda Kuecks as part of the “Impact Investing in BC: The Way Forward,” conversation, part of the Social Enterprise Catalyst event in Victoria on April 2nd.