Why, in this age of sophisticated capital markets, do charities not have the same avenues as for-profit businesses do to raise capital? A recent case study examines alternative funding structures for not-for-profits, modelled off of vanilla derivatives products.

In the derivatives markets, investors enter into transactions, but never receive any of the products or services from the companies they speculate on. Similarly, donors and sponsors provide funding, but don’t receive service from the charity. How can we spark the kind of demand we see in the derivatives market, in the not-for-profit sector? If we could model donations after derivative payoff structures, NFPs with proven service quality and delivery would be rewarded. And donors and sponsors would have increased transparency and feedback around where their money is going.

Recent Rotman MBA graduate, Nadine Ramsahai, examines why current avenues of raising funds prevent innovation and growth in the social sector. Using Toronto-based NFP Meal Exchange, she proposes a method for articulating value and operations to funders. Then she innovates three funding arrangements based on commonly used derivatives products.

Download the full study here.

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