Product Overview: The Resilient Capital Program (RCP) allows retail and accredited investors to invest in a long-term deposit product that is used to make debt and equity investments in eligible social enterprises and blended-value businesses. The program aims to fill the gap between traditional lending and grants.
Organization Description: Vancity Credit Union is a member owned financial cooperative headquartered in Vancouver, British Columbia. By asset size, Vancity is the largest community credit union in Canada with $18.6 billion in assets, 58 branches, and more than 500,000 members.
Structure: Investors choose between five-, six-, and seven-year term deposits. These term deposits are 100% insured by the Credit Union Deposit Insurance Corporation, thereby eliminating the downside risk to investors. The term deposits are not directly linked to the potential gains or losses in the underlying investments. Investors receive steady and predictable returns.
Target Demographic: Retail and accredited investors that are members of Vancity.
Impact Focus: The RCP is committed to enhancing the social, economic, and environmental well-being of communities by providing patient, flexible capital to eligible social enterprises and blended-value businesses. Figure 1 is an overview of some of the social enterprises that have received investment from the RCP. The program targets impact in the following areas:
- Local food and food security
- Aboriginal communities
- Environment and energy efficiency
- Support for persons with disabilities
- Employment of marginalized individuals
- Affordable housing
- Social purpose real estate
- Arts and culture
The development of the RCP was driven by a growing pipeline of social mission businesses that were unable to secure financing, a growing interest among credit union members in impact investing, and funding from the provincial government to support social enterprise in British Columbia.
First, RCP was created to meet the needs of small business members of the credit union, including social enterprise and blended-value business that the credit union was unable to serve through its traditional credit underwriting process.
Second, the RCP was created to introduce institutional and retail investors to the concept of impact investing. It was envisioned that the RCP would allow investors to track the impact of their deposit money. The challenge for Vancity was to develop a debt or equity product that provided investors with an acceptable level of risk.
Third, the RCP was created to take advantage of new funding from the province of British Columbia. In recognition of the funding gap facing social enterprises, the province provided $2.2 million to the Vancouver Foundation (the Foundation) to support the sector. The Foundation selected Vancity Capital Corporation (VCC), a subsidiary of Vancity, as its partner.
Because the product was driven largely by the assumption of sufficient demand, Vancity did not conduct a formal demand assessment survey. Senior management staff played a role in driving the process, which was important for maintaining the momentum for the program.
“If you’re going to do it [develop a retail investment product], then you’d better be certain about the impact that you are trying to achieve, and you’d better have the support of stakeholders and the resources to do it right”– Garth Davis, former VP, Vancity Community Capital
Vancity already had knowledge of community needs and investment opportunities among its own business members. It also had some experience to draw on through its Shared World term deposit, which provides members with the opportunity to invest in a one-year non-redeemable product that supports international organizations dedicated to alleviating poverty. A key lesson from the success of this product is that it is vital to ensure that the credit union understands where members would like to see their investments directed. If that direction is fundamentally different from what the credit union is already doing, Andrea Harris, Director of Community Leadership at Vancity, suggests that credit unions ask themselves, “do we have resources to make those investments and to provide information and stories back to members and to track impact?”
The leadership at Vancity worked closely with the Vancouver Foundation and the Province of BC to frame Resilient Capital. It was initially envisioned as a limited partnership where VCC would act as the fund manager. Vancity later revised its initial approach in response to challenges such as the perceived risk–return mismatch and a complicated fee structure. The new plan for the RCP was to provide investors with a term deposit product. A detailed history of the RCP is provided in Eight Tracks, a report authored by New Market Funds that provides insightful analysis on the challenges that Canadian social investment funds face in launching and deploying capital. It is recommended that credit unions interested in a model similar to the RCP read this report for a detailed description of these challenges.
“The big lesson is, if you want to develop a product with multiple bottom lines, you need to take that seriously. You need to be developing them like any other product. Otherwise they will not be successful” – Andrea Harris, Director, Member and Community Insights, Vancity
To mitigate internal risk, Vancity and the Foundation each contributed $1.75 million to create a $3.5 million loss reserve pool. These reserves could be used to cover any financial losses on investments. Losses beyond this amount would be covered by Vancity. Based on the size of the loss pool, RCP was capped at $15 million. The RCP team worked with Vancity’s product development staff to create marketing materials. Other departments that were engaged in the planning stages include governance, legal, tax, accounting, finance, Inventure Solutions, communications, credit, account managers, community engagement staff, and wealth advisors, with much of the work representing a stretch beyond conventional job descriptions.
“Resilient Capital was designed for a specific purpose for a limited time; it was not a new permanent vehicle. The idea was to begin to get investors and Vancity staff more comfortable with a more direct and focused link between their deposits and the positive effects these could have on their communities. – Andy Broderick, VP Impact Market Development, Vancity
In 2011 the deposit offer was opened to investors, and it was closed in February 2014. A unique feature of the RCP is that the majority of the investment pipeline is sourced from Vancity’s traditional lending departments: Community Business and Community Capital. Businesses that apply for financing from these two departments and do not meet traditional financial requirements but do meet the RCP’s definition of impact are referred to the RCP by a Vancity account manager. It is also possible for potential investees to directly contact the program manager. The RCP has benefited from the staff’s ability to leverage its existing relationships within the community. Notably, Vancity has not had to spend significant time seeking opportunities because it is able to draw on its reputation and credibility in being offered and proactively identifying opportunities within the community.
“A partnership approach has been extremely valuable to us. If you can, partner with like-minded organizations, and play to each other’s strengths. We invest in initiatives that move the conversation forward for the institution, but also to build the broader ecosystem. This is a big part of how we work, and what we want to achieve.” –
Mandeep Sidhu, Associate, Community Investment, Vancity
Any investment that is made through the RCP must meet specific impact criteria defined by Vancity. For each investment, Vancity together with the impact business being financed jointly establish a set of impact indicators that are unique to each investee. For example, affordable housing impact indicators look at the number of people that were housed, whereas employment for marginalized populations impact indicators might look at how many new jobs were created. In Vancity’s experience, the investee organizations are dedicated to the measurement of their respective impact because not only do investors want this information, but it helps investees measure their own progress. However, it can be a challenge, as impact measurement is resource intensive, as the program manager must maintain the metrics, do quarterly and financial reviews, and talk to investees on a regular (quarterly) basis.
While the RCP provides investors with guaranteed return of their principal, prospective investors remain uncertain, which interviewees suggested is perhaps due to misunderstanding the risk protection or the illiquidity of the investment product. The local focus of the program also presents a challenge for attracting investors outside of the community, and investors that are interested in specific social and environmental issues that are not addressed by the RCP.
“With regard to social enterprise, there will always be a challenge in the sense that credit unions tend to be more local, and the ability to show impact on a local level tends to be smaller scale and tends to be higher risk.” Garth Davis, former VP, Vancity Community Capital
To keep investors informed about the financial and social impact performance of investees, the RCP set up an internal website. Vancity makes an effort to hold a call with their depositors at least once a year. Staff members are also available on an ongoing basis to answer depositor questions.
“A big part of the value-added for Resilient depositors are the robust metrics, insights, and exemplary practices that are transparently shared through rich quarterly reports and other materials. It is through this intentional exchange of information and experience that impact investors are going to figure out how to move mountains.”
Lauren Dobell, Director of Strategic Partnerships and Advocacy, Vancity
Step 1: Any investor interested in the Vancity RCP is referred to the program manager for more detailed information. Once an investor is committed to the investment, a minimum $10,000 deposit is made into the RCP.
Step 2: Money from the deposit investors is pooled internally within the Vancity Credit Union.
Step 3: The pipeline is sourced from Vancity’s lending departments, specifically Community Business and Community Capital. Businesses that apply for financing from these two departments and meet preliminary impact criteria but are unable to meet traditional financial requirements are referred to the RCP manager by an account manager.
Step 4: At this stage in the process, the account manager and the RCP manager work together to assess the business’s fit for the RCP. The account manager focuses on evaluating the financial health and needs of the potential investee and the program manager evaluates the potential impact of the organization.
Step 5: Once the program manager and the account manager are satisfied with due diligence, the loan, if approved by Vancity’s Credit and Risk teams, is deployed to the investee business. Within the organization, loans deployed to the RCP investees are separately coded and tracked to ensure accurate information and supporting data. At this stage in the process, the program manager is introduced to the investee to discuss potential metrics to track the impact of the investee organization.
Step 6: Once the loan is deployed, the program manager maintains the relationship with the investee organization, collecting quarterly impact metrics. The account manager keeps track of financial performance, while updating the program manager. All relevant information is uploaded to a private investor site by the program manager where investors are able to check the impact and financial performance of the investee organizations.
Key Success Factors
- Vancity staff emphasized the importance of assessing not only the start-up costs, but also the ongoing maintenance costs that are involved in the process of creating a new retail impact investing product.
- Vancity understood that investors wanted to track how the RCP is doing both in terms of financial performance and social impact. The website played a key role in communicating impact with investors.
- Vancity’s extensive business banking and community networks allowed it to develop a large pipeline of potential deals from which to identify viable loans and investments.