In last month’s issue of Invested, I explored the ethics of philanthropy and the potential issue of an imbalance of power between philanthropic funders and the organizations they support, highlighting the need for approaches that empower community and charitable organizations. One such approach is the use of community bonds—an innovative social finance tool that enables non-profits, charities, and co-operatives to raise capital for projects and programs. Functioning similarly to traditional bonds, community bonds offer investors a fixed financial return over a set term, while delivering the dual benefit of financial gain paired with meaningful contributions to community well-being. (Adair & Faiza, 2024)

How Community Bonds Work

Community bonds allow organizations to directly engage their supporter base and transform social capital into financial capital. These bonds are issued to raise upfront capital for specific initiatives, such as purchasing property, renovating facilities, or launching new programs. Investors purchase the bonds, providing the organization with the necessary funding, and in return, they receive regular interest payments and the repayment of their principal investment when the bond reaches maturity. Typically, the term of a community bond ranges from two to seven years, offering investors a rate of return between 2.5 and 5 percent interest. (Duhatschek, 2024) Since 2018, it is estimated that community bonds have returned approximately $17 million in interest payments to community investors, demonstrating the tangible financial benefits for supporters. This structured repayment plan, funded by project-related revenue such as rental income or membership fees, ensures financial viability and builds trust with investors. (Adair & Faiza, 2024)

However, it must be noted that community bonds aren’t suitable for every organization, as they involve repayable capital. Issuing organizations must have a viable revenue model or business case to ensure they can meet repayment obligations. (Adair & Faiza, 2024)

Organizations can manage community bond campaigns independently or with the support of specialized entities like Tapestry Community Capital. Tapestry guides organizations through the process, from designing bond terms to engaging community members as investors. They provide critical support by managing key events, distributing communication materials, and monitoring milestones throughout the bond’s lifecycle. (Tapestry Community Capital, n.d.)

Community Bonds in Canada

Community bonds have emerged as a successful and versatile social finance tool in Canada. For instance, Tapestry has facilitated the issuance of over $110 million in bonds across Canada through the engagement of over 4,000 community investors in support of more than 59 projects in multiple sectors like renewable energy, affordable housing, and community spaces, such as the Centre for Social Innovation in Toronto. This facility pioneered the use of community bonds to purchase and renovate a 36,000-square-foot building, raising over $2 million from their community of supporters. (Tapestry Community Capital, n.d.)

Canadian charities have also seen the potential of community bonds to address the challenges of declining charitable donations. According to the 2024 CanadaHelps Giving Report, the number of Canadians donating to charitable causes has been declining for 11 consecutive years, driven in part by financial constraints. Although total donations are rising, primarily due to increased giving by affluent Canadians, many younger people and lower-income communities are disengaged from supporting causes they might otherwise champion. Community bonds then offer a solution, providing accessible philanthropic opportunities with tangible returns, which can help connect the population of Canadians to social causes during a time of financial uncertainty. (Adair & Faiza, 2024)

Community Bonds in Calgary

While community bonds have gained traction in some parts of Canada, their adoption in Calgary has been limited. However, the city has begun exploring similar financing mechanisms. In March 2024, the City of Calgary issued its first municipal bond, raising $180 million at a 4.20% interest rate. The funds from this initiative will be directed toward community projects and are projected to save the city approximately $1.6 million annually over the next decade. Although municipal bonds differ from community bonds—being issued by municipalities rather than non-profit organizations—they share the common goal of engaging community members in financing local development. The success of Calgary’s municipal bond issuance may encourage local non-profits and co-operatives to consider community bonds as a viable financing option. (The City of Calgary, 2024)

Calgary’s vibrant non-profit sector and engaged community make it a promising landscape for the adoption of community bonds. Local organizations could use this tool to finance a variety of projects, while involving residents as investors who are passionate about contributing to their city’s growth. By adopting community bonds, Calgary-based organizations can diversify their funding sources and strengthen connections with their supporters. This approach not only generates financial resources but also builds a sense of shared ownership and community pride in local initiatives.

Community bonds offer an intriguing blend of financial innovation and community-driven impact, highlighting their potential to bridge gaps between traditional funding models and grassroots engagement. When I encountered this idea, I was impressed with yet another way organizations and individuals have come together to collaborate and innovate in order to address social challenges.

Investing in community bonds is a meaningful way to support local non-profits, but this type of investment may not be suitable for everyone. Before investing, consult your financial advisor to assess whether this aligns with your investment goals. As with any investment, community bonds carry risks, including default and inflation risk, so ensure you’re comfortable with these risks before investing.

Bibliography

Adair, K., & Faiza, S. (2024, July 15). A growing group of foundations are investing in community bonds – here's why. The Philanthropist Journal. https://thephilanthropist.ca/2024/07/a-growing-group-of-foundations-are-investing-in-community-bonds-heres-why/

Duhatschek, P., (2024, August 15). Affordable housing: How banks, loans, and neighbours help make it happen. Retrieved November 16, 2024, from https://ici.radio-canada.ca/rci/en/news/2096676/affordable-housing-banks-loans-neighbours

Tapestry Community Capital. (n.d.). Community bonds: Transforming social capital into financial capital. Retrieved November 18, 2024, from https://tapestrycapital.ca/community-bonds

The City of Calgary. (2024, March 15). City set to save millions with first municipal bond. Retrieved November 16, 2024, from https://newsroom.calgary.ca/city-set-to-save-millions-with-first-municipal-bond