Bâtiment 7 is a 90,000-square-foot space branded as a “factory of collective autonomy” in Montreal’s Pointe Saint-Charles borough.

There, people can visit different co-operatives to do their grocery shopping, have a beer, grow, transform and collect food, borrow recycled equipment, or learn to repair their stuff.

However, this was not the original plan. Once occupied by CN workshops, Loto-Quebec, the crown corporation overseeing lottery and gaming in the province, intended to build a casino.

The citizens saw things differently. 

Supported by community organizations, they planted their flag, claiming the space for community use.

Pointe Saint-Charles is on the edge of the Lachine Canal. Once the industrial heart of Montreal, today, it is a mixed neighbourhood seeking to preserve services for its original low-income population.

Bâtiment 7: the $1 deal with  $4.2 million financing

After years of collective struggle, property owner real estate promoter Mach sold the lot to the community for 1$.

It sounded like an incredible deal. However, the collective “7 à Nous,” which self-manages the space, had yet to find $4.2 million to repurpose part of the industrial heritage building.

The financial arrangement was made the “Quebec way” as a blended finance deal.

“Most social finance deals done in the province include up to eight partners,” said Elias Michelina, director of research and strategic development at La Fiducie du Chantier de l’économie social.

Bâtiment 7’s initial financing included funds from the City of Montreal and the Government of Quebec, loans from la Caisse d’économie solidaire et la Fiducie du Chantier de l’économie sociale, donations, and alternative financing sources like community bonds and quasi-equity from Béati Foundation.

Emeline Le Guen, of le Chantier de l’économie sociale and former impact investment manager at Vancouver’s Thrive Impact Fund, said quasi-equity is a loan with the advantages of equity. 

Thrive Impact Fund removes the need for collateral for non-profits, co-ops, and for-profit social organizations by offering flexible term loans and revenue-based financing.

“Quasi-equity is more like equity than debt because it is future-focused. The investor considers growth and revenue perspective, like when you buy stocks, rather than past performance, like when you give a loan,” added Le Guen.

Béati Foundation quasi-equity was a $37,380 long-term loan granted during the Bâtiment 7 pre-start-up phase. It covered the expenses associated with the land transfer. Since Collectif 7 à Nous owned the building at the time, no guarantee backed this loan.

The origins of blended finance: international development projects

Bâtiment 7’s financial partners had different missions and risk and return expectations, which is the essence of blended finance.

“It always implies catalytic capital,” said Alexandra Chambertin, impact investment manager for the McConnell Foundation. 

“Philanthropic and public money take on more risk and accept fewer returns to attract private money.”

“In Quebec, all social finance instruments include government contribution to absorb the first loss,” said Nathan Cohen-Fournier, former head of social finance for the Chagnon Foundation.

Blended finance also has been used for decades for international development. “This is how big infrastructure, energy, health or education projects get financed in emerging countries,” added Cohen-Fournier.

Convergence, the global network for blended finance, publishes a report on the state of international blended finance every year.

In Canada, blended finance is underused, except for in Quebec.

But the conversation is starting, said Sally Miller, executive director for the Fair Finance Fund, an Ontario non-profit that provides loans and support to local food and farm enterprises.

“Blended finance is reflective of what is going on in social finance. Since we started the Fair Finance Fund in 2019, we have seen a huge difference in investors’ awareness, interest, and commitment to social finance,” said Miller

“But they are all coming from different directions and interests and levels of impact they are looking for.” 

The recent consortium of six foundations to finance the brand new Canadian Canoe Museum in Peterborough is one of the few Canadian blended social finance initiatives. The group provided a $6.2M line of credit to cover cash flow over the next five years as grants and donations roll in.

However, blended finance should not be confused with co-investment. 

“Co-investors are usually committed to the same contract. Blended finance deals are more complex,” said Filsan Farah, program lead at Ontario’s Verge Capital. Verge invests in social enterprises in Southwestern Ontario.

“Blended finance initiatives require many conversations to understand and respect the partner organizations’ different mandates and craft the contracts.”

“I like how these conversations are naturally happening in Quebec’s social finance ecosystem,” Farah added.

How it all started in Quebec

“We do not live in a unicorn and flying elephant universe,” smiled Nathalie Villemure, general manager of Le Réseau d’investissement social du Québec (RISQ).

“But in my days as an analyst at RISQ, I spoke more often with colleagues from other social finance organizations than with my colleagues. And that is expected. It is our way of structuring social finance deals.”

Villemure said this collaboration is rooted in Quebec’s DNA. 

Why? Le Guen suggested the province’s “economic community development culture.”

In 2013, the government of Quebec implemented the Social Economy Act. 

This act acknowledges the social economy’s contribution to the province’s socioeconomic development in all sectors and regions, thus enshrining into law that Quebec’s social economy organizations should be supported.

“In most parts of Canada, we are fighting against decades of misconceptions about social enterprises,” said Jane Bisbee, executive director of Alberta’s Social Enterprise Fund from its creation in 2011 to 2024.

“We must acknowledge they are part of the economy and should be supported to use the best business practices to deliver their social mission sustainably,” said Bisbee.

Villemure said any Quebec social economy organizations seeking support can knock at their city’s door, contact their regional economic development bureau, la Caisse d’économie solidaire Desjardins, one of Investissement Québec’s offices, or a social finance intermediary office.

“The result will be the same: any partner receiving the dossier will call its peers. Together, we will determine our financial contribution according to our mission.”

Connect: building the network

Blended finance happens when networks work together.

St-Johns’ Kaleidoscope is one of the most structured social finance networks outside Quebec. In 2023, the New Brunswick organization loaned more than $1 million for the first time.

With its 50 partners, it covers three pillars: social impact finance, training, and real estate.

Bisbee sees a natural move in English Canada to build social finance networks. In Alberta, one of the first steps was launching Namada, a digital directory that helps social purpose entrepreneurs find support and resources.

Farah said the municipal, provincial and federal governments can all play critical roles in building connections that lead to blended social finance deals.

“Any program, big or small, having people working together allows us to talk to people outside our social finance conference universe.” 

“The program does not need to be social finance-specific. It could be accessible to any entrepreneur. Many people who access capital in traditional finance could and should also access social finance. But they don’t know of us, or maybe they don’t understand the language when they meet us.”

Verge has not yet participated in any blended finance deals; “however, it is something we would like to do.” 

“The conversation around blended finance is timely. There are many crises and social challenges. And the demographics of the country are changing. We have to consider financial instruments for different groups.”

Four social financial instruments Quebec created over the last five years

L’UTILE, a fast-track non-profit creating and operating affordable student housing, counted on Fonds Emergence from RISQ twice for financing. However, a third round of financing became a barrier when they needed to finance multiple constructions simultaneously.

It was time to get creative and add a new instrument to Quebec’s social finance toolbox.

At the time, Michelina, a senior financial analyst at RISQ, created the Social Economy Innovation and Growth Fund (FICÉS).

FICÉS is revenue-based financing that lends up to $250,000 per organization. 

Repaying the loan depends on the organization’s growth pace, so payment then varies depending on turnover.

“It is inspired by traditional venture capital, where investors get rewarded with revenues,” said Michelina. 

“We added solidarity measures to fit the social purpose.”

FICÈS filled the gap for fast-growing non-profits. Another product, L’ampli, was created to complement participatory financing.

“It is pure blended finance,” said Cohen-Fournier, who contributed to l’ampli’s development while working at the Chagnon Foundation. 

For each dollar a social organization raises in community bonds or preferred shares, the Chagnon Foundation lends a dollar up to a maximum of $100,000. The loan is repayable after five years or can be converted into a term loan.

Meanwhile, in response to the toll Canada’s housing crisis is taking on community organizations, Montreal United Way created l’Initiative immobilière communautaire du Grand Montreal.

This fund helps non-profits buy their own space. The financing covers the feasibility study, the acquisition to secure the land or the building, or the real estate project itself.

The partners include four foundations, two workers’ funds, the city of Montreal, the governments of Quebec and Canada, a family office, a financial institution, two social finance organizations, and a coalition of neighbourhood associations.

Since 2019, a few Quebec Foundations have offered a solidarity guarantee for financing that needs an extra push. It is available to social economy enterprises, community organizations, and cooperatives.

This instrument was initiated by McConnell Foundation in collaboration with la Caisse d’économie solidaire Desjardins.

When an organization contacts La Caisse for financing, it works out the details with the other social finance partners. Once a reasonable lending ratio is set, if more financing is needed, La Caisse can ask the partner foundations if they want to guarantee the remaining portion of the loan.

“This guarantee is the last piece of the finance puzzle for many organizations,” said Chambertin.

“Without it, those projects would not happen.”

McConnell is considering replicating the solidarity guarantee formula with other financial institutions, like Vancity in B.C.

Fair Finance Fund experiments with the Inclusive Prosperity Project

The Inclusive Prosperity Project, a spin-off of the Fair Finance Fund, is an emerging blended finance initiative to watch.

The Fair Finance Fund sold community bonds to accredited, non-accredited, and institutional investors, providing loans and mentorship to local food and farm enterprises since 2019.

However, its financial tools did not reach specific groups.

Between 25 per cent and 30 per cent of the fund’s clients are Black or Indigenous, and conversations with these entrepreneurs highlighted the limits of community bonds in serving their needs, said Miller.

Almost all young farmers in Ontario who have access to land either have access to public land or are getting the down payment from their families, Miller added.

“But the Black community does not have intergenerational wealth. So, these entrepreneurs resort to things like year-to-year leases. It is not a sustainable way to farm; you will burn out. 

“The security of access to land is one of the most important things we can do for this clientele,” she said.

This led to the Inclusive Prosperity Project, a partnership between the Fair Finance Fund, Social Economy through Social Inclusion, and the Learning Enrichment Foundation, and includes the African Canadian Farmers Fund and the Nourish Fund.

“We are exploring blended finance tools,” confirmed Afua Asantewaa, project manager for the Inclusive Prosperity Project. 

The Inclusive Prosperity Project is attracting blended finance. Some private investors from the Fair Finance Fund are interested in contributing. Philanthropic money, like seed investment from The Northpine Foundation for urban farming, will also be involved.

“We also plan to contact the Black Opportunity Fund and explore the possibilities of the federal Social Finance Fund,” said Asantewaa.

However, implementing this layered investment structure will be time-consuming, said Asantewaa. 

“We have to make sure that the drive for financial returns from private investors does not dilute the aim or the focus of achieving the impact.”

The solution lies in part in partnering with like-minded private investors.

“I feel the younger generation wants to contribute to correcting historical wrongs. The Inclusive Prosperity Project is allowing them to do so.”

How guidelines will accelerate blended finance deployment

Quebec’s social finance ecosystem has its bible called “Le guide d’analyse des entreprises en économie sociale”. People who finance, support, or study non-profits or co-operatives use this guide.

It covers non-financial considerations like the mission, governance, community anchor, and traditional finance like revenue streams and financial forecasts.

“We all evaluate the projects submitted with this guide,” confirmed Villemure.

Meanwhile, on the West Coast, the Thrive Impact Fund is mapping the blended finance process for contracts with the contributions of experts like lawyers.

Once mapped, this process would serve both the financial partners and the receiving organization, said Kristi Fairholm Mader, managing director for Thrive.

 “Our goal is to reduce the time, the effort, and the cost for organizations to go through multiple due diligences, to line up different grants, bank debt, and concessionary capital (with lower returns). They will be able to compile the financing they need to make it happen,” said Mader.

Thrive also wants to make it easier for financial partners to collaborate. 

“We need to make it more visible with a clear process behind it,” said Mader.

The limits and challenges

Blended finance strength is the combination of various risks and returns. However, the returns possible on most social projects are limited.

Bisbee cited affordable housing projects.

“We have to make sure that private investors’ returns crafted in a blended finance contract do not compromise the affordability of the units,” she said.

It is a balancing act, added Cohen-Fournier. “Government can’t take all risk while private investors take none.”

Another challenge is silo thinking. One could look at the Northpine Foundation method to break this – where no analyst is grant or loan-assigned, said Cohen-Fournier. “Everyone considers all the financial instruments available and identifies the most relevant for the project,” he said.

“As long as foundations and governments maintain silos between grants and loans evaluation, it will be a challenge to create blended finance initiatives.”

When we contacted the McConnell Foundation for this article, they had begun scanning their past projects, identifying when they attributed grants and when they chose loans.  

“It’s a good thing you contacted me,” said Chambertin. “It is a reminder to further our reflection on blended finance.”

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