An Indigenous-led investment group plans to harness private capital to tackle diabetes in First Nations communities through a diabetes-reduction bond.
Under the proposal, investors would put up money for programs that would help improve the health of people with diabetes and prevent new cases, and the federal government would pay returns of 5 per cent to 9 per cent to investors from its savings in health care costs.
The projects financed through the proposed five-year bond would reduce diabetes rates and medical expenses, and provide community benefits such as improved access to healthy foods, said Jeffrey Cyr, managing partner with Raven Indigenous Capital Partners, the Vancouver-based firm behind the concept.
“The idea is to change the funding patterns and the way that government works, and to actually innovate in the space,” Mr. Cyr said. “It is something different.”
Details of how the federal government would pay for the health outcomes have yet to be finalized.
However, Indigenous Services Canada has provided funding for groundwork with six First Nations communities as part of an Indigenous solutions lab, spokeswoman Danielle Geary said in an e-mail. Raven and community partners are using those lab results to design the proposed bond.
Rates of diabetes among First Nations people are three to four times higher than in the Canadian population at large, and Indigenous people are at increased risk of developing the disease. The proposed bond would cover projects such as community kitchens and fitness programs for a five-year period in the six communities.
The diabetes bond, announced in February, would be in essence a social-impact bond: a financial instrument for private capital to invest in projects intended to generate a public benefit.
The World Diabetes Foundation in February announced a US$506,000 grant toward Raven’s diabetes fund. It is the first time the foundation has put money into a project in Canada – reflecting the degree to which diabetes is hitting Indigenous communities, and the possibility for the model to be used elsewhere.
“We see great potential and opportunity in trying to scale it up,” said Kirza Buch Kristensen, a Denmark-based senior adviser with the foundation.
Social-impact bonds open the door for private capital to fund programs or services that typically rely on government or philanthropic money, said Rod Lohin, executive director of the Michael Lee-Chin Family Institute for Corporate Citizenship at the Rotman School of Management.
He calls social-impact bonds a niche instrument, citing the complexity that comes with multiple parties.
“The track record [for social-impact bonds] is mixed – and I think no one, even those who succeeded, would say that it isn’t incredibly complicated and doesn’t involve a whole range of risks,” Mr. Lohin said.
Social-impact bonds are part of the larger, burgeoning universe of responsible investing, said Adam Jagelewski, co-founder and executive lead of the MaRS Centre for Impact Investing.
The specialized bonds can provide new sources of revenue for non-profit organizations and, if properly designed, improve accountability and tracking of results for money spent, Mr. Jagelewski said.
The initial plan is for programs in six communities – two in Prince Edward Island and four in Manitoba – over five years. Potential returns to investors could be higher than 5 per cent to 9 per cent, Mr. Cyr said. The idea is that savings would come through, for example, reducing the need for travel to hospitals.
Type-two diabetes is a “massive cost-driver” in the health care system, Mr. Cyr said. Community research to date for the bond indicates, for example, that a person who gets diabetes at the age of 45 can be expected to need about $285,000 over their lifetime in health care services. Projections from the four Manitoba communities suggest about 90 new cases of diabetes this year, at a cost of $20-million, he said.
Investors could include philanthropic groups, but also institutional funds that are hunting for ways to add public benefits to their holdings. Raven Capital expects to raise money for the bond later this year, aiming for $20-million to $23-million. If the bond succeeds, Mr. Cyr hopes more will follow.
“We’re really drinking from a straw when it comes to using private capital to solve social problems. And we really need to be drinking from a firehose.”
Editor’s note: An earlier version of this article included an incorrect estimate of the health care costs for someone diagnosed with diabetes. This version has been corrected.
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