Presentatie stephen cox

Social Finance in the UK

Presentation by:

Stephen CoxSpecialist in Economic Development & Regeneration

7th December 2011, Utrecht

Today’s Presentation

• Introduction

• Why Social Finance and why now?

• Brief overview on supply-side

• Identifying demand-side issues

• Some initial conclusions

Introduction

• Stephen Cox

• Urban planning, regeneration, economic development• Recent study of supply and demand issues around social

finance• Work with many third sector organisations in

regeneration areas

Why Social Finance?

• A new financial mechanism to do familiar things

• An attempt to replace public-sector grant in the third sector/ social enterprise sector

• The start of a new era?

• What is the target market?

• Smart organisations are shifting this way

• Finance sector is responding to market opportunity

• But... Still many issues to resolve, particularly at the grassroots level

Why Social Finance?

• Social economy and social enterprise both hugely elastic terms;

– The concept has shifted over the last decade;

– The context has changed dramatically again with the social innovation movement (NESTA, Young Foundation);

– But capacity has been installed and a broad view of the sector is being operationalised

• There is optimism and lots of talking, but also a lot of fear that social finance cannot replace public grant

Why Social Finance?

• Massive growth in social investment funds of all kinds • Easily the most significant development in the last 6 years

– growth of loan, equity funds following on from the double and triple bottom-line funds of the mid-2000s;

• Government funds to kick-start a social finance market – de-risking for those wary at the outset; - a “new ‘third pillar’ of finance for social ventures; a “new ‘asset class’ to “connect social ventures with mainstream capital”;

• Big Society Bank and dormant bank accounts give scale;• A variety of financial instruments designed to attract

investors (donor advised funds) as much as to seek out a return now available;

Why Social Finance?

Source: Venturesome (2009

The Target Market

Social Enterprise in the UK?

• Pushed from 2002 - US non-profits informed – a business in a market context that uses its abilities and surpluses to serve its social objectives;

•55,000 in the UK accounting for 1% of GDP;

• Retail coops, mutual and RSLs have turnover of £42 bn;

• But the vast majority are very small and lacking in scale and scope – the iceberg and Upas Tree effect (see later);

• Power to mobilise social investment, social and ethical finance – door open to leverage investee funds;• Strong record of success above the iceberg waterline;

Supply-side Product Spectrum

• Grants

• Commercial loans

- Secured loans with mainstream lenders and specialist lenders (Triodos, Charity Bank)

• Soft loans- Unsecured loans from sector-oriented lenders (may

involve public sector support and higher interest rate)- CDFIs are big players regionally (as in USA’s CDLFs)


• Equity and Quasi Equity

- Share capital investment, very low deal flow but has potential in bigger social enterprises; requires distribution of profits and may look for a return of 10%

- Delivered via investment funds:

- Big Issue Invest (c£3m raised)

- Esmee Fairbairn (c£11m committed)

- Bridges Social Enterprise Fund (c£12m)

- CAF Venturesome


• Social Impact Bonds- A form of outcome based/ payment by results contract

with the government as underwriters- Involves an investor, the government and the deliverer- Investor holds contract and takes risk of outcome

payments- Investor covers costs of delivery agent under separate

contract- Peterborough ex-offenders/ reoffending contract is the

prominent one everybody is watching


• Hybrid Philanthropy Capital– Layering of different sources of investment

Source: New Philanthropy Capital (2010)

Relationship Between Risk and Return

Source: Venturesome (2009)

Brief Overview on Supply-side

• Complicated and growing range of products• Increasingly return on investment oriented

Source: Venturesome (2009)

Identifying Demand-Side Issues

General• Shift required from grant-dependency• Change in attitude, culture, behaviour to realise the days

of grant support are over• Move from ‘funding’ to ‘finance’• Not just about commercialisation; not all demand-side

organisations can commercialise

The Upas Tree – courtesy of Prof. Peter Lloyd

Strong PublicGrant AidLegacy

Social EnterpriseSocial Entrepreneurship


Organisational• Governance and management issues around finance• Cultural – attitudes towards and experience of finance• Opportunity cost – time involved in seeking finance• Ability to articulate the proposal and make the case• Organisational restructuring to respond to opportunity• Demand needs to be nurtured, channelled, developed• Demand is latent in many organisations


Inevitably, demand will be greatest for soft capital.

The softer the terms, the broader the appeal will be.

So paradoxically, the supply side will need periodic injections of grant funding.

The high profile players

The root population of community-based organisations

The Social Economy Iceberg – courtesy of Prof Peter Lloyd

REVENUE CAPABILITY

STATE PART-SUBSIDY

Challenges

• There are 900,000 civil society organisations in the UK (170,000 Charities);

• Of these, around 3,000 (2%) account for 70% of the revenue, 83% of personal giving and 91% of legacy income

• Sector to face £3.6 Billion cuts up to 2016;

• Social finance cannot fill this gap, but the cuts will drive demand

• Funds often did not require many to think of themselves as enterprises generating surpluses or building assets;

• Banks and other commercial funders appraising them for loan and equity finance saw them as “poorly managed”;

• Readiness to invest is an issue of the day;

Support is important – Finance Plus ?

Some Concluding Thoughts

• The sector is particularly vulnerable to this phase of the economic cycle

• Resilience is reduced by overdependence on grant funding• Pressing need to redress the balance

Mitigation

• Increase the ability of the sector to access a broader range of funding options

• Bringing in good business practice without compromising social mission

• Achieved through a focus on attitudes, awareness and capacity (more than supply)

• Identify and address cultural barriers • There may be a mistrust of finance and a negative association with

capitalism and the financial crisis• Change must be championed and led by the sector - done by, not

done to

A Big Issue (adapted from NESTA 2011)

“Is our role to help social enterprises and charities to access capital, in order for them to be able to deliver greater social impact? Or is it to invest for financial returns?”

If it is the former, the consequences of this role is that a significant investment providing non-commercial capital will be needed.

If we do not allow for this and prioritise commercial returns, we will fail to support those that we are here to support, and displace capital investments that would otherwise have been provided by a commercial investor.“

Can the worlds of social development and finance come together to help us through the crisis...? Still too early to say

Group Discussion

Contact Details

• Stephen Cox

[email protected]

[email protected]

++44(0)7905 048 613

mailto:[email protected]

mailto:[email protected]

Presentatie stephen cox

Economy & Finance

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