So you wanna create your own Community Bond?
By now, you get the gist of it.
Community Bonds are a debt instrument that enables nonprofits and charities to access capital by leveraging their networks and turning these networks into investors.
This page is about supporting nonprofits that are contemplating creating their own Community Bonds. It is ideally suited for the business planners, capacity builders and intermediaries that are working in or with nonprofits and charities to help them assess whether Community Bonds might be right for them. If this is you, keep reading.
A Work in Progress
CB's (Community Bonds) were 'invented' (more like branded) in 2010 as CSI needed to raise its own capital to buy a building, but the elements of Community Bonds have been used in part or in whole by other groups across the country (altho perhaps not in this combination). So altho it is 'new' it is also, like so many social innovations, an updated and adapted tool the emerged out of need and struck a cord. There is a new readiness for Community Bonds as social enterprise grows.
Given the recent emergence, we are still figuring out exactly what is necessary to 'scale' this innovation. We are also figuring out 'who' should be taking this idea to scale. So, what we offer here is constantly changing.
Here are ways that you can learn about and take Community Bonds to the next step in your own organization:
1. The Ontario Nonprofit Network (an incubated project of CSI) is hosting webinars about Community Bonds for the nonprofit sector. To learn about upcoming dates check here.
2. The Ontario Nonprofit Network is hosting a constellation of intermediaries that are interested both in digging more deeply into how the bond works but who are also keenly interested in development the field and use of Community Bonds in Ontario. To join this group, go here.
3. The Centre for Social Innovation, with support from the Toronto Atmospheric Fund, is in the process of developing a DIY Guide to Community Bonds. We are targeting its release for April 2011.
4. If you are interested in the policy barriers to Community Bonds and want to learn more about what these are, go here.
The Centre for Social Innovation is actively working with partners to scale this social innovation, but is only able to speak to groups and work with other nonprofits to implement these tools on a fee for service basis. If you are keen to hire us, learn more about our services here.
Some Quick Answers to Common Questions
How did you set your intereset rate?
We tested the market. We asked smart people what kind of return they would expect in this market given the risk level and then we went into pitch mode and saw what would sell. Cool eh?
But we needed to raise $1.4M in under 6 months, so our first investors got a better offer than our smaller invetors. We want to market with 2 products:
Bond A - 10 yr @ prime plus 1.75%
Bond B - 15 yr @ prime plus 2.5%
Once we had hit our target, which was to be able to close on the building, we then created
Bond C - 5 yr @ 4% flat rate.
We have now sold out the full $2M and are working to continue the sale of Bond C in order to buy out the more expensive bond holders and the bank. The challenge now will be convincing the A and B holders to want to be bought out. But the bank is good with it.
How did you make it RRSP-Eligible?
Mortgages are RRSP eligible. The CB is effectively a share of a 2nd mortgage, after the bank. So, the CB is a mortgage-backed investment. Making it RRSP eligible.
Can CB's only be used for real estate?
Hypothetically no, but practically, maybe yes. Here is why. As a concept, CB's are simply a debt intstrument that people invest in where a nonprofit offers a return. CB's could be offered for any nonprofit investment. This said, depending on the amount of money being invested, investors are looking to mitigate risk. Real estate is a fairly solid investment - not without its risks, but certainly more solid than the creation of another coffee shop. And, it is only a real-estate investment that offers easy RRSP eligiblity. (I say easy because there is talk that other types of investments could be RRSP eligible too, but it may make the investment more complex. Someone should try)
Why do you have such a high minimum investment?
We started with a $100,000 minimum investment and have subsequently brought it down over time. It is now a $10,000 minimum investment. This is still too high and we are working on ideas to bring it down even further, but here is what we face.
We did some analysis and discovered that for the RRSP investment our ceased to make sense at about $7000 given the fees that the bank's charge, the high cost of processing and our interest rate. So this became our benchmark. We also left it this high because we need to raise $2M in a very short period of time. Yes, this meant that we were only 'really' working with wealthier investors but we found that there were lots of people who could figure out a $10K investment.
Our goal is to bring the minimum investment down lower, but the offer will not be RRSP eligible. This is because, working with the banks is a pain in the butt. Our goal, once we nail down our own internal systems is to offer this investment directly and to buy out the more expensive investors - like the bank : )
If you have other questions that you would like answered, ask the question below and we will update the page with the answer so that everyone benefits from the response. Be sure to check out this on Community Bonds, delivered by Tonya Surman, Executive Director of the Centre for Social Innovation.