What is a CEDIF?A CEDIF is a pool of capital, formed through the sale of shares (or units), to persons within a defined community, created to operate or invest in local business. It cannot be charitable, non-taxable, or not-for-profit, and must have at least six directors elected from their defined community.
An investment fund is an entity that offers its shares or units to various investors so as to provide a cost-effective means of obtaining diversified investments. Income is earned primarily through interest, dividends and capital gains. In recent years, the growth of financial assets has skyrocketed. It is estimated that more than one-third of Canadian households now own mutual funds.
Unfortunately for Nova Scotia, these funds draw far more capital from the region than is ever re-invested locally. Statistics Canada data indicates that approximately $600 million was contributed to RRSPs by Nova Scotia taxpayers, however, less than two per cent of that is estimated to have been re-invested in the Province. This is a problem for communities in two ways: first, it is often difficult to attract venture capital to invest away from their home location, and second, each investment dollar spent in a community circulates through the economy creating a beneficial ripple effect. Most of our investment dollars are benefiting the Ontario economy (through the TSE).
Through the facilitation of the formation of CEDIFs, we aim to increase the amount of capital reinvested in Nova Scotia to 5% by the end of the year 2010. Having local capital available for investment will reduce the size of the financing hurdle for local entrepreneurs, thereby increasing the number of projects undertaken. Further, people within these communities will start to think more as entrepreneurs and may be more comfortable establishing a commercial venture.
This program is for economic development, and the project must have a measurable, financial return. It is not meant as an alternative manner to finance projects which are more accurately described as municipal infrastructure. For example, a community may want to develop a park facility which it feels will bring benefits to the local population. While this is a worthwhile endeavour it does not produce a revenue stream and is therefore not an eligible use of funds raised through a CEDIF.
A CEDIF must develop within the community. Any individual or group can form a working group to investigate the possibility of starting a CEDIF in their community. A CEDIF need not be large at its formation. A small initial offering followed by annual, or semi-annual offerings will quickly grow to be a substantial capital pool for local investments.