Monthly Archives: July 2013

Best to Invest
– a primer for investors

Best to Invest - a report on Social Finance in the UK
Social Finance explained by NPC – clarity and analysis

Published by New Philanthropy Capital (NPC) this month, Best to Invest is a detailed analysis of the Social Finance market, illustrating how investor readiness, sector awareness, governance frameworks and emerging opportunity in the sector have a conditioning effect on present delivery and outcome.

The detailed contents offer insights for both funders and investees when looking at the Social Finance sector. NPC describe the market as being…

…structured around three main players: investors, which include government, trusts and foundations, individuals and corporates; intermediaries, for example Big Issue Invest, Social Finance and Charity Bank; and investees—mainly charities and social enterprises. Investors supply capital to investees either directly or via intermediaries. The investment may take a different form depending on the needs of the investee, the preferences of the investor and the products on offer by the intermediaries.

You can download a full copy of this report, Best to Invest, in pdf format here…

Best to Invest offers the following four barriers to making social investments in the present market context…

  • The social investment market is not yet mature – opportunity costs to entry can be high, with opportunities to invest only now beginning to widely emerge.
  • Good financial returns on endowments need to continue – organisations created in perpetuity need to maintain their levels of income to sustain grant giving as a continued and effective model. Divergence entails risk.
  • Social investments are often complex instruments – governance is often created in different forms for each investment, whilst organisations may lack core skills and advice professionals in tangential sectors are not yet fully up to speed with sector delivery. (Complexity is well illustrated in our recent journal entry Social Impact Bonds – impactful or notread more here).
  • Regulatory and legal context for investment is also changing – which can be a deterrent to trustees and others, who may perceive a lack of investment advice relevant to the project being considered.

NPC tell us there are two kinds of social investors, those who invest for financial return and those who invest for social return.

In the first case there appears to be evidence that the finance first investor is the one who is looking to diversify their portfolio, to include a social element to their market approach. They will, however, still be looking for a near market rate return on their capital.

The second category of investors, those most interested in social impact, NPC tells us, are often willing to sacrifice their return in order to receive stronger social aims delivery, or to make this sacrifice so that the investment basket which may include more mainstream investors, thereby making  a more viable social return.

Perhaps this is the future of Social Finance, where the pool of capital is drawn from a mixed swathe of well-motivated investors, each with their own expectation on return? (Although, clearly, this would not diminish any of the complexity arguments in the NPC analysis).

On balance the NPC report makes a strong case for an energised Social Finance market. One which is growing, but which contains elements of delivery, governance and risk that are not for everyone.

Social investment is an attractive proposition for funders. Alongside grants, it can help them achieve their mission by enabling charities and social enterprises to scale up their work, develop new activities, and become more sustainable by developing a reliable income stream.

It can also help funders to maximise their social impact by aligning their investment values with their grant-making values. Social investment makes funders’ money work harder: funders can recycle their repaid funds into new investments, meaning that the same money can create social impact several times over.

If you are interested in the Social Finance sector, or developing a taste for investment in the market, then Best to Invest could be the sector primer you have been waiting for.

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Credit Unions
– supporting communities in the next decade…

The Archbishop of Canterbury, Justin Welby, has recently publicly committed the Church of England to the development of the Credit Union network. The church has a ten year plan to develop community credit unions and to make knowledge of their services more widely available.

Expanding credit unions - A DWP report
How to grow credit unions – a feasibility study (DWP)

It is possible that the Church is basing its current development narrative on a feasibility report, published last month by the Department of Work and Pensions, as part of the DWP Credit Union Expansion Project.

The report found the current context of credit union activity populates a community finance landscape with the following characteristics…

    1.4 million have no transactional bank account at present 

    4 million people incur bank charges 

    up to 7 million people use sources of high cost credit

    more than 60% of the 4,500 people consulted for the report said they would use a credit union, if one was available to them…

You can download a copy of the DWP report in pdf format here…

The report also contains findings that the 80% of 95 credit unions consulted agreed that fundamental change was needed in their organisation and there was recognition that they could, and should, offer more modern financial services.

It is recognised in the report that traditional mainstream banking has created, according to British Bankers Association data, some 4 million basic bank accounts since 2003. This number is unlikely to increase in the future now, unless the mainstream banks are compelled by legislation.

The report offers a narrative about change and growth in credit unions at some length. Capacity to deliver and scalability are the key issues, with the DWP positing an argument that a central umbrella body should be responsible for the tactical growth of credit unions and the creation of a sustainable financial structure.

There  are weaknesses in this position. A new umbrella body co-ordinating needed change and ‘managing the money’ runs the risk of becoming another mainstream player in the national financial market. Modern products can quickly develop into yet another High Street portfolio of interest bearing and charge inducing proto-bank accounts.

Is the Church of England the right organisation to carry forward such a programme? Even at this early stage of the discussion there is evidence of conflict between stated social and community aims and the embrace of profit drivers in the sector market place.

Are church communities ideally placed, even at Diocesan level, to push forward a comprehensive marketing plan, embracing the web and new media to facilitate this transformative experience for the credit union sector? How will the injection of faith interests affect the credit union landscape and the make up of any proposed new services?

Credit unions presently rely on grants in aid from a variety of sources, and are not perceived by mainstream financial institutions as sustainable. Is there a Social Finance initiative to be created to help credit unions play an important role in services their customers?

Affordable credit, simple bank accounts with the creation of mechanisms that allow customers to ‘micro-save’ regularly for their bills, with specific local knowledge deployed by branches to enable a bill payments service for customers too – these are some of the additional, innovative services that could be deployed to give the sector additional vitality. All concepts embraced by the DWP report.

Maintaining the local option would be acceptable to the existing network, even though the notion of being a ‘poor person’ lender was seen as a negative, the existing credit unions do have customers who are and make loans to, higher income members of the union network. This cohort of users could be expanded.

Should credit unions, building on this user group, be marketed perhaps as the national key ‘social lender’ of choice, with the Social Finance sector imaginatively supporting local or regional networks of credit unions in line with the DWP report.

Much change is on the way, both from the church, social finance sector and central government we suspect. Our sector will have its role to play we are sure.

If you have a view on this topic let us know. Contact SEEM here.

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Social Impact Bond – impactful or not?

The Social Impact Bond is a topical, a la mode form of payment by results (PbR) device, to enable social organisations to deliver services in the public sector.

This short article draws on detail a paper by the Charities Aid Foundation (CAF), Funding Good Outcomes, from the Autumn of 2012 and from a more recent article by Caroline Fiennes, in an issue of Philanthropy Impact Magazine, What the First Social Impact Bond Won’t Tell Us.

An arguement for Social Investment form CAF
Funding Good Outcomes from CAF

The CAF paper makes a good case for PbR, and how with support the social sector can engage with commissioning bodies and, with its focus on outcomes, use the sector’s sensibility and sensitivity to change in a community of interest to achieve potentially profound results.

PbR based on outcomes presents a real opportunity for not for profit organisations to win public service delivery contracts. As the focus is shifted away from the exact nature of the service towards the outcomes produced, there is more room for innovation and greater freedom for not for profits to demonstrate effectiveness in their approach.

You can download a pdf copy of the CAF paper here

The CAF paper looks at several examples of new, or newish, PbR programmes, from The Work Programme, The Youth Contract and the Peterborough Pilot. The paper does recognise the singular and distinctive flaw in some PbR provision for the social sector. Risk, and the inherent pressure of working capital needs as the service is rolled out to accommodate the strictures of the commissioned work.

CAF cite examples where PbR has driven sector players to extinction as a result of this pressure. They call upon the social finance sector to look at alternative methods of capital deployment to accommodate these new service delivery models.

They cite the need for Social Finance to lend to PbR contractors, in order to help sustain the emerging contract.

They call for options which see the commissioning body contracting with the Social Finance intermediary – with the Social Investment Financial Intermediary (SIFI) mitigating risk by calling upon a spread of external social investors to support the contract delivery.

Thay call for SIFI’s to act as underwriters of the contract, providing payment guarantees to well monitored and managed programmes of work. The interesting example they use is the Goldman Sachs model, where a $10 million dollar Social Impact Bond was funded to transform outcomes at Rikers Island Prison in New York.

So, even within the development of new Social Finance modalities, there is the opportunity to be subtle and agile in approaches to contract structure, whatever the scale of the investment, this author would argue.

See the Fiennes article here...
Philanthropy Impact Magazine – Summer 2013

In the article by Caroline Fiennes, What the First Social Impact Bond Won’t Tell Us, the author looks at the prison system too. This time in Peterborough in the UK.

Fiennes presents an argument, that even with elaborate arrangements in place and the agreement to deliver, the analysis of performance to assess the PbR outcomes can still be a flawed and inherently mis-leading process.

The Peterborough Pilot formal agreement sets out processes to repay investors when the agreed outcomes are reached. So far so good. However, Fiennes argues that assessing the level of re-offending by a target group of prisoners, which the contract uses to trigger repayments, is essentially based on flawed statistical assumptions.

You can download a copy of the magazine in pdf format here

The control group in Peterborough and the individuals receiving the ‘treatment’ are correlated by using a system called Propensity Score Matching. In this case the PSM is of a particularly elaborate kind. Using ten ‘control’ prisoners for each ‘treatment’ prisoner.

Fiennes argues that this methodology…

only ever looks at indicators which are observable, such as age, background and criminal history. Yet is often unobservable factors – such as attitude or resilience – that drive behaviour.

Secondly, the data used is stored on the Police National Computer, which itself is of a very basic nature…where it cannot distinguish whether somebody had problems or a history of heroin use, which obviously would influence their behaviour and the care they need.

The Fiennes paper also argues that it is going to be difficult, even with a ‘successful’ contract outcome, to assess the comparative strengths of the Bond programme, when set against, for example, the good an enlightened and responsive prison governor might achieve, even without the Bond.

Professor Sheila Bird of Cambridge University opines that all of these problems could have been averted, if the the first Social Investment Bond in the UK had been tested against a known intervention with a conventional funding mechanism.

So even having succumbed to the lure of the new, there is much complex reflection needed to justify these new finance tools and to successfully measure their outcomes appropriately.

This does not, we would argue, negate their importance or cease to offer SIFI’s and commissioning bodies examples of financing social outcome, even in areas and communities where the scale of investment and the outcome expected is of more modest proportions.

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Innovative use of loan funding – Charity Bank Award

Below you can see a short video about the recent winner of the Charity Bank Most Innovative use of Loan Finance Award. Reviive is not only a winner, but also exists from the act of two charities coming together with common aims, to create a new Community Interest Company.

Reviive provides apprenticeships and placements for beneficiaries of the organisation, as well as working to generate profits to the two charities who provide the nucleus of the initiative.

A great exemplar of how charitable endeavour, through the use of Social Finance, can be the route to a grounded, effective and successful supplier of goods and services. In this case recycled and re-homed furniture.

Mary Locke, a Charity Bank impact assessment specialist, describes social loans as ‘…the grease that helps the wheel to turn’, but that it is not the wheel itself. The Social Finance borrowers do the work. A wonderfully distinct separation for the charitable sector.

Mary makes the point that in the not for profit sector, unlike in the private sector, it is effectiveness in supporting beneficiaries and the broad range of ‘social mission’ objectives that the loan finance should be assessed against for effectiveness.

The Charity Bank loan to Reviive was £50,000. Social Finance achieving great outputs!

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Ethical business with a social dimension…

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Growth? How to get it…

Growing Your Business: a report from Lord Young
Growth strategies for any sector…

The second part of Lord Young’s report on business, delivered as business advisor to the Prime MInister, focuses on the importance of the micro-business in the UK. A key plank to the development of enterprise and sustainability, whether in the social sector or not, is the long term growth of organisations with less than ten members.

Growing Your Business – a report on growing micro-businesses offers insights into the importance of the sector, and how, as community populations flex and employment rates fluctuate, it is the micro-business that inexorably feeds the enterprise seed-bed activity of the nation.

You can download a pdf copy of the full report here.

The report, publish in May 2013, does contain some reference to the social economy, although not significantly, however the index of resources and the layout of strategies for growth are highly applicable to any ambitious social business organisation.

The report focuses on three key strategic areas for enterprise growth…

Confidence – in the small enterprise embracing the belief that they can make it happen. Particularly important in a groundbreaking Social Business.

Capability – Mapping and deploying your key skills, as well as recognising the ones you do not have, is a key factor in growth. The report clearly evidences that asking for external help is a key indicator of business ambition, but also a key factor in growth and sustainability.

Coherence – a belief that support for micro-business, particularly in the social sector, is ‘…designed and marketed in way they understand, trust and can find…’.

SEEM can play a key part in this role, disseminating good practice, articulating the needs of the sector in a language understood across the piece, as well as working with members and partners to stimulate social finance initiatives and growth across all elements of the sector.

Lord Young covers several key areas on marketing issues in this regard. Do the government articulate or disseminate loans and finance information for any sector widely and effectively?

Is public sector procurement significantly focused on a one stop shop approach, and are procurement processes properly understood, both in the social sector, as well as by the public sector when looking back at us?

This ‘single market’ response to all forms of procurement is of particular importance to the social sector, we would argue. Small or ‘social’ does not necessarily mean unprofessional or ineffective. Do local authorities and other major procuring organisations in the public sector still, even in the summer of 2013, fully appreciate the latent delivery capability of the micro-social sector?

The ‘using what we have better’ section of the report is particularly telling in this regard. Exploit your Social Business potential to the full. Talk to SEEM.

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The landscape and economic impact of Social Investment

The nature of the Social Investment market, a snapshot in 2013
Growing the Social Investment Market in the UK…

The Cabinet Office, in July 2013, have just made widely available a City of London report which looks at the size, nature, depth and effectiveness of the current Social Investment market.

Growing the Social Investment Market shows that In 2011/12 the Social Investment market market surpassed the £200m mark in value for the first time, showing growth of almost 25% in a year. The report strongly evidences the social good that can result from this market growth.

‘The report also shows that there is...evidence of greater coverage of the English regions and Devolved Administrations, which both reinforce London’s concentrated presence in the sector, but still highlights other growth within the UK. There is however, heavy concentration among lenders, with seven SIFIs (Social Investment Finance Intermediaries) providing 90% of social investment capital – and an increasing proportion of this is secured lending’.

Download a pdf copy of the report here...

Some key findings in the report:

  • In 2011/12 the UK social investment market grew by almost a quarter from 2010/11 to £202m through 765 deals.
  • Of the 29 SIFIs actively investing in 2011/12, four large social banks and nine large SIFIs (Social Investment Finance Intermediaries) investing greater than £1m accounted for 97% of the market by value.
  • The volume and value of deals reveals the social investment market was highly concentrated in a relatively small number of SIFIs in 2011/12.
  • There is evidence of greater coverage of the English regions and Devolved Administrations, which both reinforces London’s presence and highlights other developing areas within the UK. This indicates substantial diversity in the geography, sector and social outcomes of investments. 
  • There has been an increase in secured lending as a proportion of the total market value, from 84% in 2010/11 to 90% in 2011/12, making this the predominant lending form. Nevertheless, a greater diversity of social investment products was on offer in 2011/12.
  • The majority of SIFIs (89% of respondents) expected to increase their investments in social ventures over the next two to three years.

Annexe 3 of the document illustrates how wide the research area was geographically.

A positive report, outlining the economic and social impact that Social Investment can drive forward. The blank space in the report, however, is perhaps how to strengthen and widen the role of SIFI’s in the regions. Thereby connecting the regional and local social initiatives on the ground, even closer to innovative, social and effective funding mechanisms.

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A great example of the coming Social Finance paradigm shift to the regions can be found on the web pages of Social Incubator North. You can read more about SEEM’s involvement in the work on our  Press and Media page here.

The main home page of SEEM is here.

 

 

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80,000 hours – how will you spend it?

80,000 Hours is a website that features a team of Oxford graduates/undergraduates as they develop choices, of career, of lifestyle and direction of travel towards the social economy, or not.

The number of hours represent the average spent by professionals in the course of their working lives. Being committed to social business and enterprise, that not only fosters ethical, equal and fraternal business activity, should be a clear and distinct choice mapped against the drivers of our sector.

This short film, below, offers the 80,000 Hours view of students and graduates and how a commitment to the social economy has changed their life. In the 80k Hours model, pursuit of social outcome and a triple bottom line for your start-up are not two mutually exclusive ambitions.

In the East Midlands should the option to develop a Social Business model, regardless of sector start-up choice, be a readily available and well informed choice? We think so. Oxford cannot be the only centre of academe where social mores and ethical sustainability of enterprise will resonate.

The choice of Social Business as a paradigm for success should be an obvious career pathway in mainstream post-academic life. But these choices are not without conflict. The 80k Hours philosophy has, so far, been intimately linked to the Earning to Give model.You can see another short film and an explicatory narrative about Earning to Give on these 80k Hours web pages.

High paying careers in traditional business sectors, where wealth creation is shared with good causes, may seem an ideal solution to well educated graduates. However, if the core giving is funding by non-ethical, non-inclusive, non-sustainable activity, like arguments about carbon- offset, where is the real benefit to be found?

You can see a well argued case for and against the Earning to Give model on the LessWrong community blog here…

Rather the whole embrace of the Social Business sector, where values, community support and sustainability are embedded in the delivery of surplus generation – we would argue, should be the best model.

Lets start a movement to encourage tertiary education institutions, undergraduates and graduates in our region, to actively consider Social Business frameworks as an imaginative, viable and wholly satisfying career choice. Delivering the third sector on steroids in fact, across the next two generations of enterprise activity.

This project may even be fundable?

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Do we need more steak holders?

Creating steak holders?
Creating steak holders?

Kitchenette , an innovative ‘kitchen incubator’ resource in London, have recently produced a report for Nesta highlighting the opportunities and pitfalls of developing catering enterprise. How to best to support and fund innovation in the sector?

A Steak in the Economy offers insights into how important catering and hospitality is, but the work Kitchenette does perhaps also highlights how under-nourished the imagination of the sector can be in developing new ideas and approaches to food entrepreneurship.

Download the report in pdf format here

The data evidenced in the report shows how perilous sustainability can be in the hospitality sector. The very high cost of retail property and high street outlets, combined with high levels of staff churn and shifting tastes in traditional market segments, means the five year survival rate for food based enterprise is dismally low in the U.K.

However, amidst the weight of tradition, this author would argue, continue some fantastic opportunities for a new, lightweight, agile and responsive approach.

Filling the local empty retail space with a pop-up cafe or restaurant? Read the case studies in the report to see how establishing ‘the minimum viable product’, a technology start-up concept, can help deliver innovation.

The report stresses the importance of social media in developing reputation, a customer base and as a lever in scaling enterprise. If everybody is a critic (…we have all eaten the greatest burger or falafel…)  use the technology to turn this to business advantage. Share the great reports of good food delivered with everyone.

When we network we like to eat and drink together. Low capital cost entry into a sector should be counterbalanced by an imaginative customer proposition. Food can be a binding agent across communities in a local social centre. Food can be a creative output for a young team, seeking confidence and skills as they explore the world and their own capabilities.

A while ago The Guardian ran a series of lengthy articles on the emergent USA street food movement. No lack of enterprise or quality was evident in the outlets reviewed.

Quality, food safety standards and a crisp, potent and telling business pitch are a given, whichever entry route to market the entrepreneurial spirit takes. Here’s to embracing the Kitchenette concept and to seeing social finance help create more steak holders!

 

 

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Mind the Gap – financially speaking

Falling between the finance cracks - a social solution
Falling between the finance cracks – a social solution

Dr. Nick Henry and Philip Craig are the authors of this report which examines the evidence around the need for community finance initiatives – Mind the Finance Gap.

Mind-the-Finance-Gap-summary-report available here/pdf format

Funded by The Royal Bank of Scotland and in association with the CDFA the report examines finance demand from social and business sectors which fall outside the consideration of mainstream banking  services.

These groups may be businesses and entrepreneurs, they may be civil society organisations with a wide social remit, including social enterprises or charities. They can also include individuals with unsteady regular income or homeowners with a need for financial support for renovations, for example.

In 2011, the big banks made £75 billion of loans to small and medium enterprises. Between September 2011 and August 2012 banks and building societies combined provided £7 billion of overdrafts and loans and £137 billion of credit card lending to individuals . For those businesses, organisations, individuals and homeowners that cannot access mainstream finance such as that described above,  

This report estimates current potential annual demand for community finance in the UK (excluding the Green Deal) is at some £5.45 – 6.75 billion. In contrast, in 2012, community finance organisations delivered an estimated £0.7 billion of community finance to UK businesses, civil society organisations, individuals and homeowners. Community finance investments generate a wide range of economic and social benefits (especially within the most disadvantaged and excluded communities of the UK) – and which meet a wide range of Government policy objectives.

Community finance organisations, if capitalised to do so, have the potential to generate sustainable economic development and social well being at the heart of UK communities. Currently, the majority of potential economic and social benefits are being lost to UK economy and society.

You can access a full copy of the report in pdf format here.

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Regional Growth Fund adds to CDFA treasury

Money for the social business sector...
Money for social business…

The Community Development Finance Association will see its funds swell shortly, as additional monies are made available from the Regional Growth Fund and Unity Trust Bank.

The money is to be dedicated to the creation of jobs in deprived areas. The CDFA will distribute the money to its members, who lend to social enterprises, businesses and individuals in the target geographical locations.

The new funds, some £12 million, is made up of a £6 million grant from the RGF, with a further £6 million loan sourced from Unity Trust. This new money is additional to the £60 million fund already administered by the CDFA.

The CDFA recently published research that illustrated a conservative unfulfilled finance demand of £1.3 billion from the SME sector. It is part of this unmet need that the Government’s Regional Growth Fund addresses.  A £3.2 billion fund operating across England from 2011 to 2017. It supports projects and programmes that lever private sector investment to create economic growth and sustainable employment. You can find out how the RGF works in detail here.

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