Social Investment – the Ongoing Debate

The BSSEC blog dated 14th January Gerrymandering Social Enterprise, linked to an interesting article summarised well by Alun Severn, is clearly only part of the increasing debate about social investment/social finance and the social enterprise sector.

As ART probably led the way in the UK as BOTH a social enterprise and a social investment intermediary (Community Development Finance Institution – CDFI), making loans to businesses and social enterprises, I feel the time for adding my thoughts to the reflection and comment on the state of the market is right.

I have to confess that I was in partial agreement with some of the case made in the original article, which I am told by those in the know is an extension of a long held belief by the author and followers that ‘if you want to grow social businesses, you really need long term, patient financiers, who are prepared to lose their money or take low returns’.

The author’s take on where you get this kind of money is from local social investors, who can be close enough to the locality and the problem to both want to fix it and understand the local context well enough to make good investments. This chimed with ART’s beginnings.

ART raised funds in 1997 from local and national companies and from individuals who were seeking social change.  They were all prepared to make a social investment, not being promised or even expecting a financial return. In 1997 this was a real social investment. The social return being that ART would provide access to finance where banks were unable to help and support local jobs for local people through enterprise. The capital would in the plan not be lost.

We still have the money safe and sound in our balance sheet and it continues to be used for the social and economic purpose intended. We have supported and levered additional finance over the years from public and private sectors to support the mission – local jobs for local people.  We have now lent over £17m and the businesses and social enterprises we have helped have created or preserved over 6000 jobs.

The pool of investors prepared to forgo any financial return was too small for expansion and we soon needed to seek policy guarantee funds/local government/ARI-type money and national Regional Growth Funding to underpin the lending operation and enable ART and other CDFIs to raise funds from commercial sources.  Some of the early stage money even emerged from banks under their Community/CSR budgets as grants.

In discussing the ‘Gerrymandering and Social Enterprise’ article with one of the fellow co-founding social investors at ART, Danyal Sattar, who now resides at Big Society Capital, Dan made the point that there is a pretty substantive social investment movement out there that isn’t all about social enterprise – CDFIs, the Social Banks (Triodos, Ecology BS, Charity Bank, even Unity), community share issues, overseas stuff like Shared Interest, Traidcraft.  A bit of microfinance perhaps; include personal lending and credit unions with 900,000 members, and things start getting pretty substantive.  All of that could be classified as a big spectrum of Social Investment.

This is, in my opinion, where the social investment sector remains in difficulty especially linked to the public sector and social enterprise, with many counter arguments.  Nearly all the social finance organisations retitled by Big Society Capital as ‘Social investment financial intermediaries‘ seek a financial and social return and it appears that there is a blurring in the line of what the public sector will inject (grant) or invest for their policy return.

The ongoing challenge is to satisfy the two camps in the social enterprise world – those seeking long term low cost funding up to £250K (probably main demand level £100K) and those providing the capital who need a financial and social return.

There is further interesting discussion in an article on Pioneers Post although I have to say the round table debate it reports on clearly lacked anyone with an understanding of risk/reward and sustainability from a lending viewpoint.

No doubt the debate will continue…

Leave a Reply