As a Board Member of the Social Entrepreneurs’ Network Scotland, HUCKFIELD once more declares an interest. Senscot promotes its own definition of Social Enterprise. These are the details of the Voluntary Code of Practice for Social Enterprise in Scotland – the Senscot Code

HUCKFIELD in this posting projects the Government’s next steps to promote Social Investment. It is clear that the Social Investment Market which the Government seeks to create, supported by national Third Sector Organisations, is encountering more difficulties, since its Financial Projects are inaccessible, inappropriate and unwanted by the overwhelming majority of Social Enterprises, as they battle their way through financial hardship to address real social need.

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Cabinet Office Technical Assistance Funding

In the Stanford Social Innovation Review of Thursday 07 February 2013, Jenny North, Policy Director at the London based Impetus Trust, wrote a piece Building a Social Investment Market by Design, in which she said:

    “So the supply side of social investment looks healthy in the UK. But what about the demand side? Any market depends as much on a pipeline of great entrepreneurs seeking investment as it does on a supply of capital. Although the UK has a well-established, passionate, and innovative nonprofit sector, research shows that it 1) lacks the necessary scale or appetite to take on repayable finance, and 2) lacks the robust impact measures needed to persuade investors to fund it.

It is now apparent, that as Social Investment and Social Finance encounter more difficulties, more public funds will be needed.

Currently, the Cabinet Office has been using four different technical support funds:

  • Investment and Contract Readiness Fund. The Cabinet Office has provided £10mn funding. “From Monday 21 May 2012, grants between £50,000 and £150,000 will be available on a rolling basis to ambitious social ventures who will go on to raise at least £500,000 investment, or who want to bid for contracts over £1 million”.
  • Social Action Fund. The Office of Civil Society has provided £20mn for this Fund.
    “The Fund aims to inspire organisations to create new social action opportunities; encouraging people to give what they have, be it time, money, assets, knowledge or specific skills.”
  • Social Incubator Fund
    “The Social Incubator Fund is a £10mn investment aimed at driving start-up social ventures into the social investment market by increasing incubation support and attracting new incubators into the market.”
  • Social Outcomes Fund.
    “The Social Outcomes Fund is a £20m fund managed by the Cabinet Office. It is intended to deal with the main problems holding up the growth of SIBs: the difficulty of aggregating benefits and savings which accrue across multiple public sector spending ‘silos’ in central and local government.”

HUCKFIELD projects that the Cabinet Office and Office for Civil Society will soon seek to step up this £60mn of Technical Assistance funding.

An example of one possible variation is the Big Venture Challenge fund with £8.5mn Big Lottery funding, administered by UnLtd, ClearlySo and the Shaftesbury Partnership. This offers match funding between £50,000 to £250,000 alongside funding from private investors. In other words, Big Lottery offers to ‘double your investment’ with Big Venture Challenge. With its series of Big Venture Challenge Roadshows, UnLtd almost sounds desperate by holding three in Birmingham in January 2013.

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Copying from the US Model

Impetus Trust has produced From Social Innovation to Social Investment: Learning from the US which on page 6 How it Works, describes the process in the US:

    “SIF (Social Innovation Fund) is a Government initiative designed to get robustness and capital into the social innovation marketplace. In just two-and-a-half years, it has awarded $137mn of federal money, which has been matched with $350mn of non-federal and private funding. It is intended to improve the lives of people in low-income communities by funding intermediaries that provide grants to social organisations in its three priority areas”.

    “The SIF’s funding flows through intermediary organisations, which are selected through open competition. The SIF’s intermediaries are mandated to offer not-for-profits support, usually consisting of funding, management support, and pro bono expertise, to develop infrastructure as they grow. Intermediaries are held accountable not only for growing organisations but for reporting and evaluating their results”

This exactly summarises the process described in Huckfield’s recent posting Who Will Speak Out against the Financialisation of Social Enterprise? on the handling of the Investment and Contract Readiness Fund by the Social Investment Business, which shows 27 “providers”, most of which have no orientation to Social Enterprise.

Impetus continues in From Social Innovation to Social Investment:Learning from the US on page 13 – which almost writes the UK Government’s script:

    “We believe the sector must embrace the core principles of social investment, but we urge caution in how quickly funders, particularly government, move to “non-grant mechanisms”. They should only do so when non-grant funding can be demonstrated to be a more effective use of resources to achieve the intended social impact. Government, and the Social Investment community, need to better understand the role of grantmakers and venture philanthropists in a maturing social investment market before reducing grant funding or cutting it completely on the assumption that front-line organisations can readily switch to Social Investment capital”.

From Social Innovation to Social Investment:Learning from the US on page 18 summarises its detailed recommendation for the Government’s next steps:

    “1) Consolidate disparate grant funding “pots” into a single fund (or funds at departmental level), explicitly dedicated to scaling up successful social innovation

    “2) Widen the growing use of intermediaries, and match funding, to extract best value for money from government grant funding

    “3) Explicitly recognise the role, and value, of grants (including those given by private philanthropists) within the social investment chain.

    “4) Develop thematic focuses in areas where social innovation is needed, and align government and private grant making, including venture philanthropy, with these. In our decade of experience, we have become ever more convinced that the best results are yielded when the public, private, and social sectors work together to scale up the best innovations. This partnership working is crucial to developing a social investment market that can truly provide social and financial returns.”

And what about Impetus Trust in all this? In a carefully manicured Impetus Blog: The Big Society and the Fate of Social Investment on Monday 01 October 2012, its Chief Executive Officer lacked subtlety in asking for more funding:

    “The missing trick is the first step: the relatively minuscule committed investment in the capacity of the most innovative and effective charities and social enterprises. This is the work that Impetus and a few peer organisations do, and this type of capacity-building needs to be much more widespread and accessible to social sector organisations. There is an urgent need for funding that allows social sector organisations to scale up and extend their reach to help more people – precisely the goals most likely to lead to an organisation becoming investment ready”.

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Social Impact Bonds reach Investors’ Chronicle

Investors’s Chronicle on Friday 08 February 2013 carried the story Social Impact Bonds hit the Retail Market.

      “Allia, a social investment organisation, has just launched the Future for Children Bond which will invest in the Social Impact Bond (SIB) for Essex County Council (ECC), which is being used to fund intensive support programmes for 380 children aged 11-16 who are at risk of going into care.

“The success of the SIB – and the subsequent level of return to bondholders – will be measured by the reduction in days spent in care by the children, improved school outcomes, and reduced levels of reoffending. Allia is offering £1mn of bonds with a minimum investment of £15,000 for an eight-year term. The minimum return to investors will be 100% of funds invested.

“At worst, your initial capital outlay will subject to the ravages of inflation for an eight-year period, but it may well transpire that municipal bodies will be keen to see this form of financing succeed by making the returns attractive to investors”.

If that doesn’t worry you, if the Government gets its way, just think about more and more Children’s Services being offered on the same basis over the next few years.

Commerce and Conscience. Financial Times Print Edition February 23 2013
“The hardest questions concern the returns that investors will demand if SIBs are to attract serious amounts of money. The Peterborough SIB dangles an annualised return of up to 13% if reoffending rates go down by enough; but investors lose everything if recidivism does not fall by at least 7.5%. That sort of equity risk is not going to appeal to many, acknowledges Nick Hurd, the British government minister for civil society. “SIBs need to evolve so that they become more like a debt instrument.”

“Sibling rivals
Signs of just such an evolution are becoming apparent. The New York city SIB reinforces Goldman’s reputation for dealmaking as much as its philanthropic image: a guarantee from Bloomberg Philanthropies, a foundation, caps the amount of money the bank can lose if recidivism targets are not met. Some think this model, with philanthropists ensuring that a portion of investors’ principal is returned, is the way to bring in more capital.

“Another option is to blend the returns from SIBs with other assets. Allia, a British charity devoted to social investment, this month made a SIB available to retail investors for the first time. Of every £1,000 invested, £780 goes to a fixed-rate loan to a social-housing provider, which when repaid with interest will give investors their money back. Another £200 will go into an SIB providing therapeutic support to troubled children in Essex, which offers investors the potential for a return. (Fees eat up the other £20.) These are still early days, but big ideas often start small.”

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