At a time when many philanthropic funders are looking to address the power imbalance between community organizations and their funders, supporting community bond issuers and building a thriving marketplace is one way to do so.
On the eve of the Ottawa Community Land Trust’s launch of a new $1.7-million fundraising campaign in May, executive director Mike Bulthuis was nervous about the weather. The launch event was set to be held on the patio at downtown Ottawa’s Arlington Five coffee shop – and the weather report was threatening a downpour.
What eased Bulthuis’s nerves about the campaign itself, though, were three “votes of confidence” he’d already secured. Three local organizations – United Way East Ontario, Le Centre de ressources communautaires de la Basse-Ville, and Sandy Hill Housing Co-operative – had committed $100,000 investments each in the organization’s community bond raise and would be announcing these investments at the launch event.
Community bonds are not a new concept in Canada, but they’re a new kind of investment for many philanthropic funders.
Community bonds are not a new concept in Canada, but they’re a new kind of investment for many philanthropic funders. Community bonds are loans that are issued by charities, non-profits, and cooperatives to finance socially and environmentally beneficial projects. Issuing organizations set the terms, interest rates, and maturity dates, and in Canada, anyone can buy a community bond and earn returns, from retail (or individual) investors to local businesses to community foundations and beyond.
In the case of the Ottawa Community Land Trust (OCLT), community bonds will help the organization preserve affordable housing throughout the city. With the capital the group raises, it will create a fund that will allow OCLT to act quickly when a residential building providing affordable rental units goes on the market – and keep it out of the hands of an opportunistic landlord who might raise the rent. The organization’s guiding principle, as with other land trusts across the country, is to hold land in perpetuity for community benefit.
While the majority of OCLT’s community bondholders will be individuals who want to invest in a cause they believe in, the three institutional investors they’ve already attracted are playing an important role in “crowding in” those retail investors. By investing and sharing those investments publicly, they’ve simultaneously drawn attention to OCLT’s campaign and boosted many retail investors’ trust in the offering, especially given the comprehensive due-diligence processes most institutional investors require.
“I think that was noticed by folks,” Bulthuis says. And it was especially helpful as a new organization. Bulthuis, his fellow staff member Glenn Grignon, and the OCLT board have decades of experience in social finance, cooperative housing, and community organizing, but OCLT itself is new to the community. “We’re still introducing ourselves. We’re still introducing our work. And specifically in the context of the bond campaign, we’re earning that credibility.”
We argue that philanthropic funders play an important role in building a thriving community bond marketplace.
It’s this kind of support we call on the philanthropic sector to provide to community bond issuers in Tapestry Community Capital’s new research, a report released in May called Moving Community Bonds Forward. Tapestry Community Capital is a non-profit cooperative that aims to democratize access to capital. In particular, we provide technical assistance to these social purpose organizations to become investment-ready and then raise capital. In our new report, we argue that philanthropic funders play an important role in building a thriving community bond marketplace.
But why does Canada need such a marketplace in the first place? And why should grantmakers help build it?
One easy answer on the grantmakers’ side is that, as calls grow louder for foundations to align their investments with their organizational values and divest from harmful industries, they need somewhere to move those investments. Non-profits and cooperatives with solid revenue models and plans for positive change in their communities are a natural landing place. And a growing group of Canadian foundations are already investing in community bonds – including Inspirit Foundation, Hamilton Community Foundation, London Community Foundation, Lawson Foundation, McConnell Foundation, and more.
Inspirit Foundation’s director of finance and investment, Jory Cohen, told Tapestry last year that Inspirit appreciates the tangible impact of the projects that community bonds finance. For instance, Inspirit has invested in SolarShare, a cooperative that owns 52 commercial-scale solar-power projects across Ontario. “Most of the stuff that we look at is pretty concrete, and we were able to see or even interact with end users,” he said.
Comparing the clean and simple nature of community bonds to private equity deals or social impact bonds, it’s just simpler. I think that’s certainly an advantage of it.
Jory Cohen, Inspirit Foundation
Cohen told us the “clean and simple” nature of community bonds is appealing, too – investment terms are usually simple and predetermined. “Comparing that to private equity deals, comparing that to social impact bonds, it’s just simpler. I think that’s certainly an advantage of it.”
Tapestry also calls for the establishment of pooled funds that would allow foundations with bigger minimum investment sizes to invest across multiple community bond campaigns, thus avoiding “crowding out” retail investors and missing the spirit of community investment altogether.
That spirit of community wealth-building is another way community bonds are aligned with the goals of many philanthropic funders. Whereas a non-profit might otherwise get a loan from a bank and return interest back to that big institution, the majority of a community bond campaign’s interest payments are returned to individual community members. In 2024, we calculated that Tapestry-supported bonds have returned about $17 million in interest payments to community investors. With investment minimums as low as $500 in many campaigns, people of many income levels can build their investment portfolios with community bonds. And with research showing that nearly two-thirds of Canadians are interested in moving more of their money into responsible investments, there’s lots of room to grow.
That spirit of community wealth-building is another way community bonds are aligned with the goals of many philanthropic funders.
The accessibility and returns offered by community bonds can be ways to connect younger generations of Canadians to social causes in a time when the number of Canadians donating to charitable causes is, according to the 2024 CanadaHelps Giving Report, declining for the 11th year in a row. Just under half of Canadians surveyed who’ve stopped donating altogether in the past three years say it’s because of financial constraints. To be clear, the dollar amount of donations is rising, meaning that affluent Canadians are still donating, and donating more than in the past. But many younger people and lower-income communities aren’t engaging with the causes they might otherwise support because they simply can’t afford it amidst a cost-of-living crisis.
Community bonds offer an alternative to those who can part with some money for a period of a few years, with the promise of getting it back with interest and supporting a cause they care about in the meantime.
While we see great benefit in philanthropic funders investing in community bonds, we also believe that they could support community investment in some truly transformative ways. One method is providing first-loss capital, or an agreement that they’re the last to be paid out should an issuer not be able to repay all investments – effectively “de-risking” investment for those retail investors who may be hesitant to part with their money during tough economic times, and therefore helping to build those lower-income investors’ wealth while also supporting the community bond issuer.
Those declining donation rates could signal trouble for charities’ and non-profits’ own financial well-being, too – as the CanadaHelps report notes, relying on fewer numbers of large donors is risky. Organizations that raise community bonds go through a process of building business plans and financial modelling, to make sure they have the infrastructure and revenue streams in place to repay community bondholders. This process of preparing for investment makes non-profits and cooperatives more financially resilient.
The community bond model offers organizations agency and puts them in the driver’s seat with relation to their financing. Whereas a traditional lender usually sets the terms and borrowers can take it or leave it, community bonds allow issuing organizations to decide when they’ll seek investment and exactly what terms – interest rates, maturity dates – they’ll offer to investors. For many organizations, moreover, it can also be a relief to not always have to rely on grants, which can involve lengthy forms, on the timeline of the funder, and defined for specific purposes.
The community bond model offers organizations agency and puts them in the driver’s seat with relation to their financing.
At a time when many philanthropic funders are looking to address the power imbalance between community organizations and their funders, supporting community bond issuers and building a thriving marketplace is one way to do so.
Of course, community bonds aren’t right for every organization as it is repayable capital, and issuing organizations need a viable revenue model or a viable business case. But for many social purpose organizations, it’s well worth it to try community bonds: the cost of capital is often much lower than traditional borrowing, they get to raise it on their own terms, their supporter base grows, and they get to build up their communities’ wealth in the process. Organizations across the country are raising community capital for affordable housing, renewable energy, community arts, and more. These are causes that need our investment – and our attention.
For philanthropic funders, now’s the time to get in on the community finance movement. Connect with your grantees to learn about their financing needs. Learn from trailblazing foundations already investing in community bonds. It’s time we worked together to fundamentally and systemically change the financing landscape for social purpose organizations.
