Wednesday, 5 October 2011

Loans work!

An important publication is launched today by The Social Investment Business. As Chair, I commissioned one of my trustees – former City banker and then chair of BTCV, Dr Rupert Evenett – to conduct an analysis of the state of the UK social investment market, and to look at the record of social finance so far.

He and co-author Karl Richter have produced an important contribution to the debate about extending loan finance for our sector .

The unique element of this review being that it is written from two perspectives – from the " bottom-up" perspective of third sector organisations and entrepreneurs as well as from a financial perspective, seeking comments and insights from social lenders like Triodos and Social Finance as well as commercial financial institutions such as Deutsche Bank and RBS.

The whole project has been sponsored by our friends CityUK, who represent the financial services industry, which shows how seriously traditional commercial lenders are taking the issue of the development of the UK social investment market.

Funding for the third sector isn’t something that’s ‘nice to have’ when the economy is strong, it’s something that’s more essential than ever when the demand for the services offered by the sector is increasing.

Yesterday's news that growth has flatlined and the cuts in public spending have the greatest impact on the most vulnerable. If charities, social enterprises and community organisations are going to take on more public service delivery and more help to the unemployed and marginalised they need a robust and sustainable financial platform.

This review explains in detail the need for an integrated social impact investment market with a range of financial products suitable for the different stages of organisations’ development with a range of funding providers, bringing in traditional lenders and investors to what has so far been a niche investment area. The “sell” to financiers shouldn’t be hard, social investment has all the characteristics of a distinctive asset class – best understood as an intermediate capital market with features of both debt and equity - which, from an investor’s perspective, can offer sustainable financial return, assessable risk and the potential for diversification.

But there are still reactionary elements in the sector who are fighting the whole notion of "loans". This is deeply damaging. On tuesday I had to counter arguments being put forward by Debra Alcock- Tyler at the NW voluntary sector annual meeting that the big society capital is a bad thing. She advanced the wholly unjustified view that loans only support larger organisations. This is simply not supported by the facts if Debra had bothered to check. Loans from SIB have gone to a large number of small and local organisations nd community enterprises. Organisations that could not access grant or fundraising at the level they need to expand and acquire assets. The 2 independent academic evaluations of the these loan programmes demonstrated their power in community development. Its time debra and those who have supported this line got a grip on the evidence. I shall be sending her our new report.

At a time of huge pressure o our sector it strikes me as quite damaging not to support new ways of diversifying income streams and campaigning for our sector to have access to capital. Its a progressive cause. Let's push for it.

Next steps? Expert social investors need to start working together to launch drive growth in the market, including by launching new funds that are attractive to commercial investors – pension funds, investment banks and high net worth individuals. Markets don’t just happen, they are created – and it’s time that social investment market moved from the margins to become a mainstream option for traditional investors. The track record has been achieved by the pioneers to prove to others it can be done.

The foreword by my good friend Oliver Letwin MP calls the report “an important and useful contribution to the debate..which offers a prospectus for practical actions to help take that market forward.”

You can download it atwww.thesocialinvestmentbusiness.org/sir

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