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Beware the social investment buzz

In the course of delivering workshops to voluntary organisations on various topics related to business development, the topic of social investment often comes up. When it does, I notice myself tightening a little, often wondering how the conversation will go, and preparing to feel a little apologetic about what I will go on to say. I expect some of this communicates itself to my audience.

It’s not that I feel unable to talk competently about social investment – as is more often the case when I find myself tightening at workshops. That would perhaps be easier! It’s more a sense that whatever I might say could easily end up contributing to the unrealistic expectations amongst voluntary organisations, particularly smaller ones, about the opportunity that social investment truly presents to them. This is particularly the case when it comes to some of the more pie-in-the-sky visions projected onto the social impact bond concept.

Despite all of the buzz about social investment, I can’t help believing that it is unlikely to present realistic financing options in the near future to many of the organisations I liaise with.

I was first exposed to social investment when working on the Commission on Unclaimed Assets, set up in 2005 to make recommendations for the creation of a social investment bank. At this time, approximately eight years ago, we were already talking about the various challenges social investment posed to a sector culturally averse to taking on risky forms of borrowing. There was common recognition of an excess of supply of investment over demand, as is still the case today. Investors were struggling to get their money out of the door.

Today there is, of course, more that still needs to happen to develop the readiness of charities to take on social investment. However, the reason for my queasiness owes more to the fact that the range of social investment ‘products’ currently available remain out of the reach of many, if not most, voluntary organisations.

Organisations that are smaller in size (certainly below £1m) with uncertain revenue forecasts, few or no fixed assets and no culture of borrowing, need better terms than are currently available to incentivise them to take on investment. There need to be more flexible repayment periods, some blended grant element and more possibility of repayment holidays for investees in order to make investment viable. The social investor Venturesome has highlighted the desirability of some social investors targeting a net loss on their lending portfolio. At the very least, loan instruments need to function more like the way student loans used to work, in that you don’t need to pay them back until you are earning. Most of the finance currently available is closer to a commercial bank loan.

Challenges like this make the launch last week of another commission, led by Acevo and chaired by John Kingston, Venturesome’s founding chief executive, particularly timely. The Commission on Social Investment, “The Local Opportunity”, will explore the potential of social investment to make a tangible difference to organisations working in the west of London in boroughs that sit under the tri-borough area, and to the residents served by them.

Sir Stephen Bubb, Acevo’s chief executive, said at the launch of the commission that, “the conversation about social investment has tended to be dominated by the larger national providers like the Social Investment Business, Social Finance or Big Society Capital. This piece of work is ground-breaking and important in that it starts from the grassroots and works backwards to look at what kinds of finance would be most suitable and how this maps onto what is currently available locally.”

I am personally hopeful that this might be the start of a process leading to better alignment of investment supply.

John Gillespie is director of solutions at Acevo

  • Brian McCausland

    This is a breath of down-to-earth fresh air! There is so much discussion around about things that are really difficult for smaller charities to access and manage.

  • James Renton

    John, I am curious on how work on social investment within the local authority areas in London: Hammersmith and Fulham, Kensington & Chelsea, and the City of Westminster are relevant in anyway to an organisation in a run-down housing estate in a northern city beyond telling them what they already know that this type of funding is not for them??

  • Richard Caulfield

    Whilst I accept the sector is risk averse to loans I think there must be some acceptance that it is not always within the power of many organisations or that some may feel it is morally incorrect to take on debt and service that to the detriment of beneficiaries. even this article somehow seems to suggest that many have not realised the opportunity of social investment: let’s be straight: social investment is not right and never will be right for the vast majority of charities.