Download Does Social Enterprise Understand Social Need?

Does
SOCIAL FINANCE
SOCIAL ENTERPRISE
understand
SOCIAL NEED?
Robbie Davison
January 2013
Does Social Finance Understand Social Need?
Foreword
As the Director of a social enterprise that has previously had, is currently in
receipt of, and is looking for further social finance, I understand implicitly the
constraints of the social finance market.
This paper examines the current social finance market set against the
backdrop of a growing need to tackle some of the more pressing social issues
within an austere economic climate.
Throughout, it adopts a practitioner’s perspective, taken as the Social
Enterprise sector adjusts to new forms of finance in order to, firstly, survive and
secondly expand, with a view to continue tackling social need.
The content is arranged as a mixture of occupational observation, a literature
review considering academic papers, sector specific documents and a range
of practice-based viewpoints.
Questions are raised, a few opinions expressed, concluding with a list of
potential solutions that are intended to offer pointers for improvement and
discussion. I’m hoping it will stir-up a lively and important dialogue about Social
Finance and its ‘partnership’ with Social Enterprise...
... Feel free to join in!
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Does Social Finance Understand Social Need?
Abstract
This is a position paper featuring some of the pressing issues that communitybased social enterprises face today.
The title of the paper ‘Does Social Finance understand Social Need?’ is
intended to frame a lively and growing debate that now exists within the social
enterprise movement – a debate that is becoming increasingly polarized
around the question of whether the current social finance model fits the needs
of the community-based social enterprise marketplace.
This paper notes that there are roughly 30 Social Finance intermediaries in the
arena. As part of the writing process, I have met, negotiated with and loaned
from a third of these organisations.
Any views formed are positioned to represent a social enterprise sector that is,
at origin, community based and trading within an annual turnover of no more
than £500k and, in the majority of cases, less so. Little reflection is given to
public sector ‘spin outs.’ These are viewed to be trading in a different or even
artificial environment that is for consideration outside the scope of this paper.
Much has already been written from the social finance perspective – what is
proposed/ intended, as they the social financiers release their products for the
benefit of social impact. Hardly anything exists to position what it is like to be a
social enterprise trying to secure finance in the current marketplace. This paper
takes a step or two towards redressing the balance.
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Does Social Finance Understand Social Need?
Glossary
The following definitions contextualize the topics of this paper:
Social need: This paper prefers to use the description of need as opposed to
impact. Need1, by definition, ‘requires something because it is essential or very
important.’ Need focused work, requires product/service solutions - it is
outcome based. Whereas impact can require nothing more than contact
and/or advice – it is in general terms, output based.
The former sets out to solve problems, the latter to fix.
Social Finance (Investment): Social investment is the provision of finance to
organisations with the explicit expectation of both a social and financial
return. In the context of this paper, it also includes patient capital and the
provision of grant.
Social Financiers/Intermediaries: Organisations (other than banks) that provide
loans and/or grant directly to social enterprises.
Social Enterprise: A business that trades with the aim of tackling social
problems by improving communities, people’s life chances and or the
environment. It has a clear sense of its mission and how activity addresses a
particular need2– People matter.
Social Entrepreneurship: The product of individuals/organisations that deliver
innovative market orientated approaches underpinned by a passion for social
equity and environmental sustainability3.
1 Dictionary Definition.
2 The Ambitious Social Entrepreneur, 2012 – Clearly So.
3 Social Entrepreneurship: Business with a Conscience, 2012 – Leadership.ng
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Does Social Finance Understand Social Need?
Background
Community-based activism, traditionally the fertile inspiration for social
entrepreneurship, often acts as the catalyst for what has been historically recognized
as true social enterprise. Recently in this space, so much has changed and it’s
changed quickly. The UK Voluntary and Community Sector (VCS) will lose around
£911million in public funding a year by 2015-16. Cumulatively, the sector stands to
lose £2.8billion over the spending review period (2011- 2016).4 Current estimates
reckon that there will be a replacement investment of £500m5 and this investment will
be almost entirely loans.6
Dominated by these cuts, the sector is now driven by new rules of engagement
largely dictated by how to find new markets and how to raise the loan capital
necessary to reach those markets. The days of the local project set up to address the
local problem are disappearing; there must now be growth and there must be scale.
And no more, the first offer of grant to start up and more grant to keep going which
was the route of many of those existing social enterprises that are today lauded as
local/ national successes.
The new rules seemingly advise that grant should be viewed as a ‘thing of the past’
and loan finance is the order of the day. Positioned behind terms such as Investment
Ready, Return on Investment and First Loss, this financial project appears to be
establishing a top-down approach, with lending mechanisms drawn instinctively from
other financial sectors, at odds with large swathes of the social enterprise movement.
In this climate, the social enterprise sector is required to make a seismic shift to
engage with financiers; the sector must learn and understand a new investment
dialect. Social enterprise practitioners are being asked to consider finance above
need. Additionally, there is a case for claiming that social financiers are prohibitively
leveraging that need.
To be clear, finance is important, very important. But, the way in which this finance is
offered and whom it sets out to serve is of equal importance here. Especially if the
Social Finance brand is to move beyond being just another SME lender and add
anything of value to a marketplace, where tackling need is to remain the core priority
for the social enterprise movement.
Reading papers such as Investing for the Good of Society,7 you get a feel for the
insular ‘horse trading’ that exists within the social finance market. Throughout this
particular paper, finance is the explicit driver with need the ‘nice to have’ rather than
investors wanting to use their money for good with a return on their investment. This
4 Counting the Cuts, 2011 – NCVO.
5 Investment Readiness in the UK, 2012 – The Big Lottery.
6 Note: Figure excludes Lottery Funds.
7 Investing for the Good of Society, 2011 – Nesta.
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Does Social Finance Understand Social Need?
reads of a future where Investors seem to require intermediaries to coax and
convince them to invest for good, which in itself determines a set of conditions that
could fail to move the social aspect of the debate forward.
The social enterprise sector therefore faces some significant challenges, none more so
than how to attract the necessary finance under the right terms, thereby continuing
to exist as a movement, in touch with its roots whilst facing up to growing need.
Defining need
“To have real knowledge, one must understand the essence of things and
not only their manifestations.” - Daniel Barenboim
Roll back a decade and the world was a very different place. Businesses were
booming, public institutions had overflowing budgets, third sector organisations had
access to lottery money and other funds and communities were recipients of such
funds. Each of these sectors stood independently on their own feet, paying little or no
regard to each other – there was no need to.8
One of the most pressing questions now facing a developed country like the UK is how
to put our considerable resources to work in innovative ways to address major social
challenges. From social exclusion to long term ill health, demographic change to
climate change, these social challenges are increasing. However, the ability of our
public services and civic society to respond is too often constrained by straitened
public finances or by institutional inertia.9
National evidence suggests that the biggest impacts from Government enforced cuts
will be felt in the most disadvantaged local authorities.10 In many inner cities and
among certain communities of interest, the UK already has endemic need that is both
fiscally and socially damaging. Looking ahead, we know that total welfare cuts could
reach £28billion by 2017.11 The need of those most marginalized will, without doubt,
continue to grow.
For the purpose of this paper, two areas of national concern are selected below as
relevant examples of need that show little evidence of diminishing. Both are
significantly detrimental to the wealth (social and economic) of our communities.
8 Social Impact Metrics, Ta’eed, O., 2012 - Northampton Business School.
9 Investing for the Good of Society, Westlake S, 2011 - Nesta.
10 Serving Deprived Communities in a Recession, Hastings A et al, 2012 – JRF.
11 New Economic Foundation, Penny J., 2012 (untitled).
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Does Social Finance Understand Social Need?
Prisons and Prisoners:
• Over 86,000 prisoners are housed in our prisons12
• As many as 75% of young offenders re-offend within 1 year13 and;
• Re-offending costs £11billion annually14
Young people:
Over 1million young people are unemployed15
• 66 Young people now compete for every service/retail sector job.16
• The scarring effects of youth unemployment at its current levels will ratchet
up further future costs of £2.9billion per year for the exchequer (equivalent
to the entire annual budget for Jobcentre Plus) and £6.3billion per annum for
the economy in lost output.17
•
Our prisons are full. Our young people are facing the prospect of becoming a lost
generation at considerable human and economic cost to the nation. Returning to the
earlier definition of need – the treatment of each area requires action that is ‘essential
and/or very important.’ In social planning terms, both areas are classic Wicked
Problems and where such problems exist, it is recognized that linear solutions tend to
fail. This is because the information needed to understand the problem in the first
place depends on the individual/group’s understanding of it.18
In circumstances of ‘high need’, it is often the Government and its change agent
intermediaries who set about understanding the problem, thereafter administering a
set of impacts largely bound by a formulaic criteria featuring primary drivers of costand risk-aversion. The example of prisons/young people, indicate that these formulas
achieve impact only around the points of ‘security’ and ‘containment’, and remain
largely binary19 in their delivery.
12 Transitions, 2011 – RSA.
13 Rehabilitation Green Paper, 2011 - HM Government.
14 Fullfacts.org, 2012
15 A Good Job Is Hard to Find, 2012 - Guardian.co.uk.
16 The challenges for disadvantaged young people seeking work, 2012, Tunstall et al- Joseph Rowntree
Foundation.
17 Youth Unemployment: The Crisis We Can’t Afford. 2012 – ACEVO.
18 Dilemmas in a General Theory of Planning. 2004 - Rittel & Webber – Proquest.
19 Note: Binary, Rehabilitation example: It is an either or approach – if someone offends they go to jail,
if they don’t there is little or no help available. It does not cater for rehabilitation. There are current and
growing instances of this approach to service provision.
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Add into the equation the resource demands for rehabilitation and the creation of
real jobs, what becomes starkly apparent from the figures is that new routes to
change are required and these routes require innovation, investment and risk.
Within the preceding two examples, so much money lies dormant or even dead as
they remain treated as part of macro-based, negative internalized economies that
are, in themselves, only industries of control. For service providers, there is big money
to be made here just by maintaining the status quo. Take a step back to view the
needs from a micro solution-focused approach and it becomes evident that there is
an opportunity to break through this pejorative cycle of finance-sapping, societal
decay.
This is where impact investing is supposed to play a big part - Stepping back, then
stepping in where there is societal market failure. Impact investment should be
looking for solutions that overcome the deficiencies of the norm and take on the
challenge of supporting services that wish to expand by providing solutions to societal
need. This is the marketplace of community based social enterprise and its targeted
micro services; The very same marketplace with which social finance struggles to
engage and has, thus far, struggled in its current form, to make any meaningful
contribution towards.
Micro Solutions and Market Failure
Solutions for ex-offenders and unemployed young people are currently sought
through macro structural programmes, such as the Work Programme, Apprenticeships
or even the scandal-ridden Workfare. In these environments, as the above figures
indicate, the correct change/improvement seems to be unobtainable at this time. So
where will the change come from?
One approach is to source and support solutions that are born out of implicit
knowledge of the problems; those solutions that are micro in start-up/design and are
more able to later gather traction to become more potent macro alternatives. These
are the routes that social entrepreneurs and their community-based social enterprises
strive to provide.
Social entrepreneurship was manifested primarily at community level; As such, it was
positioned as closer to the field of traditional community development than as
originating innovation within the mainstream voluntary or public sectors.20 It is known
that most entrepreneurship involves the inheritance of routines and knowledge from
past experience21 and sometimes enterprises take their lead from those who have
experienced the need first-hand. These individuals nearly always set about
20 Social Entrepreneurship in the UK: From Rhetoric to Reality? Grenier, P., 2009 – Emerald.
21 Financing Social Enterprise – Social Bricolage or Evolutionary Entrepreneurialism. Sunley, P. and
Pinch, S. 2012- Emerald.
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challenging the ‘conventional’ with their ideas and service interventions. These
innovators rarely tend to be linear in their solutions but in finance terms they are
generally marginalized as a reflexive action22 as there is a start-up/ growth cost and
they are invariably new to market.
This points to a deficiency in risk capital and the very place social finance
intermediaries talk up and walk away from in equal measure, possibly in relation to the
earlier comment about market failure.
Overcoming market failure is risky and expensive, requires research and
development, innovation, and generally provides low returns on investment.23
This is the very space that the social enterprise sector is looking to operate in, although
the social finance market seems to be looking in the opposite direction! Instead,
social financiers seem to be casting out their nets to capture ‘dead certs’,
disaggregating need into impact and consciously choosing to show lending on its
own balance sheet that is of minimal or no risk.
This presents a displaced picture of finance versus need; a picture that is at odds with
the assumptions that most social enterprise practitioners have about the purpose of
social finance. This picture also appears to have the social financiers conceiving new
products in a vacuum. Wherein they negotiate with each other and seemingly launch
product after product that is counter-intuitive to the needs of the social enterprise
marketplace.
Social Finance – buying not building
Nearly 10 years ago the seminal paper Financing Social Enterprise, A Special Report
was published, to start a discourse on how social enterprises could be funded. Many
of the issues listed within the paper still exist today. At that time, the term ‘social
finance’ had no foothold whatsoever. Moving on to as little as five years ago, most
who operated within the social enterprise sector still had no awareness whatsoever of
this entity called social finance. Back then there was just talk of grants and the
occasional reference to contracts and in finance terms to ‘borrowing’.
At the time of writing, performing a Google search for the term “Social Finance”
produces 877,000,000 results; More than the cumulative total result for searches on the
UK’s three main political parties. Further still, following the index contained within the
Clearly So paper, The Ambitious Social Entrepreneur and 30 investors/intermediaries24
are listed as being in the social finance space. As both a programme and a brand,
Social Finance is starting to stick. Those who have entered the marketplace as traders,
22 Innovation Comes From the Edges, 2012, Hershaw – Skollworldforum.com.
23 The Trouble With Impact Investing p3. Starr K – Stanford Innovation
24 Note: The total omits finance from business angels and similar. The total also does not include trusts,
foundations and the Big Lottery who should also be considered as trading in the social finance
marketplace.
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have quickly changed the intention of the market and the directional flow of the
money. Just a few years ago, ‘social enterprise access to finance’ was bottom-up
from the needs of the sector. Today, the narrative is one of “social investment” which
looks top-down from the point of the investor, wherein, the debate has shifted from a
focus on market failure addressing unmet need, to a leap of faith in social
investment/finance becoming a good thing per se.25
Nevertheless, Big Society Capital still claim that there are two compelling reasons for
social organisations to use social investment:
1. Social investors have a superior understanding of social business models and;
2. They are able to take risks on innovations with primarily social, rather than
financial, returns.26
These may be compelling reasons to seek social investment, but if enterprises
approach an intermediary from this school of top-down lending with anything less
than a substantive proposition (asset or contract linked), or, should you be new to the
market, then the actions of the intermediary will likely tell a different tale altogether.
Navigating this world between activist and entrepreneur, or profit and non-profit, can
be difficult especially in terms of finding funding.27 Experienced social enterprise
practitioners know that those social investment goals, that are independent of social
enterprise goals, put an undue burden on the entrepreneur and actually lesson the
ability to advance the social goal.28
Conceptually, the worlds of Social Finance and Social Enterprise are supposed to be
inextricably linked with missions, aims and vision all aligned. However, take the
practice of what enterprise actually means; something that is ‘difficult’ or
‘entrepreneurial’ (in other words risky) and most lenders remove their option to lend.
This means, that start-up for-profit social entrepreneurs have a hard time getting
funded at all, whilst impact investors pile onto a very few enterprises that seem like
safe bets.29 This renders social financiers as no different to a traditional SME type
lender, preferring to become short-term buyers in a lower impact market that is
already positioned towards the top of the service pyramid.
This method of financing generates conflict, as the market requires lenders who see
themselves as builders making long-term investments for the future.
Builders who take risks to support and strengthen the base of the pyramid, using their
lending model to tackle deep-rooted social need.
The term ‘builder’ refers to a process of investment that is knowledgeable in its
understanding of the problems and is patient in the reclaim of any investment. As
25 Common Capital: Telling Tales of Social Investment, 2012 - Common Capital,
26 The First Billion, 2012, Boston Consulting Group, Big Society Capital.
27 Social Entrepreneurship: Between Business and Activism, 2012, Brister, M. - CIPE.
28 The Social Enterprise Ecosystem, 2012, Wright S - Social Capital Markets,
29 The Trouble With Impact Investing Part3, 2012, Starr K, Stanford Innovation.
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builders, investors acknowledge that building takes time and is an episodic process
that will understandably feature peaks and troughs in performance. During troughs,
builder investors work with the investee to design the appropriate programme of
support to enable their enterprise to cope and, later, prosper.
Crucially, these types of investors are aware of the right time to dismantle their growth
capital ‘scaffolding’ in order to demonstrate that they have helped build an
enterprise that can stand on its own. In a market focused on tackling need, these
lenders are the real change-makers.30 Right now, there is a chronic shortage of
builder investors.
The Role of Intermediaries and the deal flow
“Risk literacy and risk awareness are where we need to get to - not just
risk v risk aversion.” - POPSE 2012.
The Government’s stated objective is to grow the social investment market and make
it easier for social entrepreneurs to access capital.31 There are numerous routes by
which finance flows into the systems of the intermediaries. One such route and a
major player contributing to the UK’s financial growth of these intermediaries is the
Government itself, arranging and circulating the funds contained within Big Society
Capital (BSC). Increasing numbers of intermediaries are now turning towards the
opportunities BSC presents, positioning some or all of their products to suit. Thus, it
would be fair to hope that the next few years may bring ‘easier access to capital’ for
social enterprises. There are, however, a number of blockages that will need to be
removed or managed before this improvement becomes apparent.
In recent years, many of the funders who have entered the burgeoning field of social
entrepreneurship have come from a background of commercial finance, and
naturally they favour definitions of finance focusing on the social ventures’ ability to
repay investments.32 Yet most social enterprises are not seeking conventional business
loans or equity finance because they have instead adapted to working in resource
poor environments.33
As funders, intermediaries continue to trade as if these resource-poor environments do
not apply; as though all social enterprises can be moulded to fit some sort of loan
criteria or thereby accept that there may be no funds available to them. This hardline
environment adds little to the finance/need conundrum and sees social finance
intermediaries serve the marketplace as would a bank. It also smacks of joining with
those regenerators past and present whose proposition is, “We know this will be useful
to you”34 – furthering the ‘done to you, done for you’ approach.
30 Building Is Not Buying, 2011, Overholser GM - The Non-Profit Finance Fund.
31 Growing the Social Investment Market (update), 2012 - HM Government,
32 Define Social Entrepreneurs by their Impact, Not their Income Strategy. Forbes 2012.
33 Financing Social Enterprise – Social Bricolage or Evolutionary Entrepreneurship, 2012, Sunley P, Pinch
S. Emerald.
34 Imagine Trying to Get a Loan Without a Financial Identity, 2012, Chhabra E, Stanford Social Review.
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Intermediaries claim that being investment ready is a problem for the social enterprise
sector, but exactly what it means to be investment ready will vary from one investee
to another as, to a significant degree, this is determined by the eye of the beholder.35
There is no discernable consistency to follow or uphold. Interestingly, even the
cash/asset rich world of social housing finds the assessment process and terms of
social investment punitive, preferring to put their business with traditional banks.36
Conversely, intermediaries tend to want to see that social enterprises have been
declined funding through their bank/s before any approach to the intermediary is
made. The social enterprise will then be looking for a financier that understands the
conditions of their previous decline and is able to step in with alternative and
considerate methods of assessment, understanding the trading predicaments and
enabling a deal to flow.
Unfortunately, the type of lending that ‘understands’ is in very short supply, although
financiers would have you believe there are adequate products already available.
The main range of financial products currently offered by UK intermediaries is
depicted in Figure 1 below.
FIGURE 1: Buyer-Builder Finance Template
(Adapted from the Shared Impact Diagram)37
35 Investment Readiness in the UK. 2012. Clearly So/Big Lottery.
36 Ignorance prevents housing providers from claiming social investment. Cook, B., 2012 – The Guardian.
37 Next Generation Social Impact, 2012, Cheng P - Shared Impact.
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The risk line, sitting across the centre of the table is symbolic of the tension at the heart
of the social finance/social enterprise debate in the UK. It is accepted that whilst most
of the lending administered by intermediaries occurs above the risk line (as buyers),
what social enterprises actually require are those products listed below the risk line
(builders).
This position is divisive and causes both ideological and strategic tensions; on one side
intermediaries, focusing on buying impact, try to protect their capital and their own
business model, whilst on the other side, social enterprises find themselves prevented
from accessing a lending environment that was supposedly conceived for them.
Taking this thread further still, Figure 2 portrays how the separation between
impact/value and need plays out from the perspectives of cost and operation; those
funding products above the line, being cheaper to implement, process and are
project orientated. Products below the line are those programmes financed to service
need, are the more enterprising and, as such, are likely to cost more.
FIGURE 2: Impact / Value & Need
(Author’s own diagram)
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Assessment forms the greater part of the intermediary/social enterprise dynamic, with
enterprises needing to perform to criteria that varies widely between lenders. Often
the lender’s assessment process is solely subjective according to their own investment
panel, regardless of whether their officers have passed the application through duediligence or not. This leaves the enterprise exposed to months of work towards an
application that can simply be rejected with little or no explanation for this refusal.
One particular practitioner recently described this application/rejection process as
“little more than a beauty parade – if your face fits and you are in the right place, you
have a chance of the money.”38 This is unfortunately the experience of scores of
good enterprises that are made to continually tread the fine line between trading on
minimal resources vs demonstrating ambition. In this climate, it can be argued that
regardless of the finance process being competitive and intermediary resources
limited, as is often the claim, what would best serve all concerned would be to create
financial arrangements based on building relationships.
This would mean less of the existing approaches that see financiers gatekeeping,
sometimes adopting adversarial positions which are akin to ‘this is our money, come
and try and get it.’ This negotiating space is wasteful for all concerned and fails to
release the money with the necessary poise. Moreover, it sometimes reflects on
intermediaries as being avaricious in their quest for returns, detached from the real
programme of need and often self-serving.
Grant is Good and Nearly Always Necessary
Services for the poor become poor services and the bureaucracy treats the
unemployed [or under-employed] with an insouciant incompetence it would never
dare to inflict on the middle classes.39 This describes in part what many community
based social enterprises respond to, taking a lead in places of dysfunction, driving up
the quality of service and cutting out bureaucracy, but they still need to ‘break into’
the existing service delivery model - and to do so requires careful and considered
investment.
For a multitude of reasons, larger organisations trading within the sector often have
access to income streams that are out of reach to those smaller enterprises servicing
the lives of the poor. For those smaller enterprises, income from tenders/contracts
(that have real income attached), Payment by Results or the larger investment pots
from social financiers, remain only on their wish list. In the face of growing need, it is
therefore appropriate for these particular enterprises to fight for the continued
injection of grant as both necessary capital for start-up and growth.
38 Note: Taken from a discussion of social enterprise practitioners at a gathering in London October 2012
39 Children Go Hungry for Want of Tory Compassion, 2012, Cohen N., The Observer.
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The grant-giving scene servicing the third/social enterprise sector has remained
consistent for a decade or so. In the past, these sources have underpinned the start
up and development of many of the most successful social enterprises. It is fair to say
that some of these enterprises would not be trading today had grant not kick-started
their business or even saved them at critical times during their evolution.
In this ‘cash strapped’ climate, these key sources of grant face their own challenges
and, as 2013 approaches, one of these sources (local authorities) may no longer be
relied upon as grant makers.
The three main grant sources shape up as follows:
-
Local Authorities: Traditionally a big source of grant making, now depleted and
unreliable as a source of grant.
Big Lottery: Still a large grant giver but looking to be part of new products that
are loan-based in output.
Trusts and Foundations: Providers of grant both large and small but some are
being encouraged to diversify into loan-based products.
Facing up to a diminishing supply of income options, there are a number of other
developments in the social enterprise income paradigm…
1. Social entrepreneurship is being conceived as an inherent part of the
normative shift that argues that non-profit organisations should take a more
market-based approach to acquire funding.40
2. Integral to this shift, social enterprises are finding [in the wider social finance
space] that the role and impact of grants is being questioned.
3. Social enterprises are being forced to succumb to unrealistic expectations
imposed upon their revenue models and above all else;
4. Impact investing is creating the illusion that traditional business models can
solve big problems in places where poor governance and huge market failures
are the rule41 - This is just not the case.
It is to be conceded that 100% grant-based funding is, and should be, a thing of the
past. 100% grant is a falsehood that serves to undermine the credibility of the sector
and is ultimately bad for business. Though, reducing grant in any deal to beyond an
80:20 loan/grant split or to offer just loan only, is equally detrimental. This too falls into
the bad business category.
Figure 3 is able to demonstrate how grant can make a difference in de-risking
investment to the benefit of all stakeholders, offering stronger guarantees to the
investor and greater operational surety to the investee. With investment models
available and with some financiers already proving that a grant+loan approach can
pay dividends, it is strange that many of the majority of UK’s social financiers seem set
40 Social Entrepreneurship: Critique and the Radical Enactment of the Social. Day, P., Steyaert,
C. 2012 – Emerald.
41 The Trouble with Impact Investing P2, Hattendorf, L. 2012 - Stanford Social Innovation.
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on driving grant out of the market without any proven rationale or explanation as to
why.
Current indicators given later in this paper show that there is a much bigger
requirement by the market for unsecured lending options, or finance into the system
that is able to add patient capacity into service delivery. As part of this requirement
for a significant change to the supply of funds, grant should play a pivotal role and be
included as a pre-requisite to a social finance market, if the intention is to treat need.
FIGURE 3: Risk-weighted returns (with / without Grant)
Author’s own diagram; Information taken from Lighting the Touchpaper (2012).
Measuring impact: Who is measuring what and why?
“The barrier to change is not too little caring;
It is too much complexity.” - Bill Gates
The world of non-profit organisations/social enterprise, philanthropy and now [social
finance] has been preoccupied with two powerful mantras in recent years. Since the
early 1990s, the refrain of accountability has been ascendant, with demands from funders,
taxpayers and clients for social enterprises to be more transparent about their
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Does Social Finance Understand Social Need?
fundraising, spending, how they are governed, and what they have achieved with
the resources entrusted to them.42 As both social investment/impact investment and
impact measurement continue to grow in prominence, the challenge for their
proponents is to come up with convincing, evidence-based explanations of what
they're for and - most importantly - what positive social impact they deliver compared
to other methods of investment and evaluation.43
With the language of impact measurement and social metrics pervading social
enterprise, what specifically does it all mean to a social enterprise looking for finance?
In the absence of any consistent train of thought as to how measurement is viewed
by financiers, how can a social enterprise bogged down by the day job, possibly
know what all this measuring entails and it is therefore right to question whether any of
it adds value?
At the sharp end of looking for finance, social enterprises receive rejection letters from
financiers, even though they remain convinced of producing a water-tight, fundable
application. Financiers’ letters are typically bereft of any viable reason as to why their
proposal has been given a ‘no’, citing only a lack of some sort of impact in their
model. For the applicant this is a major source of anxiety as often a great deal of
work has gone into presenting the case and on a closer inspection many of the
refusals are heavily subjective according to a lack of knowledge and/or transparency
of the prospective financier.44
Next, take a look at how measurement has been rolled out in certain circumstances
and there is a thread of inconsistency and disengagement from within the social
finance sector itself. The recent publication of the Social Enterprise Investment Fund
(SEIF) Evaluation tells an interesting story on a number of levels and is concise about
how SEIF’s push for SROI was adopted (or not) once the money was awarded.
The evaluation notes the attitude of social enterprises towards measurement and their
approach/comments included:
- Organisations’ interest ‘fizzled out’, ‘felt they were too small to use it’, ‘saw it as a
luxury’ and did not use at all ‘because of its complexity.’45- In effect, they ignored it.
All this measurement activity is aptly described by one practitioner as impact buying.
He goes on to state that, “Funding those measurement investments makes solutions
more expensive and less sustainable.”46
The cause to create a workable impact model is a noble one and by attempting to
create one, a number of intermediaries at both the entry finance end and the exit
42 The Limits of Non-Profit Impact, 2010, Ebrahim A, Kasturi Rangan V - Harvard Business School.
43 Poised for Impact, 2012, Floyd D, Beanbags and Bullshit.
44 Note: The Author has a number of refusal letters/appeals that indicate this approach and can identify
numerous social enterprises who have faced the same responses.
45 Social Enterprise Investment Fund Evaluation, 2012, Third Sector Research Centre.
46 Social Entrepreneurship & Social Innovation: Not the Same Thing, 2012, Wilcox D, CSR Wire.
[email protected]
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Does Social Finance Understand Social Need?
outcome end47 have tried to create metrics that can both assess and measure what
has and will be achieved and the resulting work is of high quality. But take a look for
interpretation, implementation and take-up and these models as well as others, are
not being widely adopted because they are deemed too complex or too expensive
to administer.
In the social finance industry, where being cost effective is relative and often
subjective according to the interests of the investor, there is again no industry
standard to follow. One social financier can ask for a £20k upfront fee to establish the
social enterprise as being Impact/investment ready. Then, consider the monitoring
process itself; for example, using SROI, researchers have found that a small impact
measurement project could cost a social enterprise between £12-15k, with larger ones
rising to £40k.48 Applying these figures to any assessment of cost-benefit and it’s clear
that only the larger organisations can afford to pay.
Whilst in some isolated instances, this may well be money well spent, these processes
being expensive see none of the cost met by the social financiers – even though it is
the financiers who are often the instigators for requesting the information in the first
place!
The introduction of social value into the competition/delivery environment may in the
distant future settle in, making costly measurement processes worthwhile. In the
meantime, it’s worth considering how anti-competitive this process, of gathering the
associated data for these metrics, actually is. Imagine for example, being a private
sector company watching its social enterprise competitor become bogged down
with measuring whilst they get on with earning/growth. You can almost feel their joy,
incidentally, it’s already happening in the marketplace.
Income is the primary concern of social enterprise right now and every measurement
requested should have a direct value attached to it. If financiers require measuring, it
should be the financiers who carry out the initial work of developing an industry
standard model. The financiers should also be able to place a value that the
applicant can refer to and make sense of.
To clarify, social enterprise measurement, at both entry and exit, requires a purpose
and a competitive fit.
47 Note: Look for The Good Analyst, Investing for Good or SROI Toolkit, NEF.
48 The Ambitions and Challenges of SROI, 2010, Arvidson M et al, Third Sector Research Centre.
[email protected]
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Does Social Finance Understand Social Need?
So Is Social Finance more about Finance than Need?
“Change Begets Change As Much As Repetition Reinforces Repetition.”
- Bill Drayton
Innovation comes from the edges, so it comes as no surprise that innovators are found
at the margins.49 This is real social enterprise, identifying complete market failure and
devising solutions to address it. Read most of the glossy criteria produced by social
financiers advertising/presenting their products and the words innovation, risk and
scale are regularly and positively promoted. Arrive at the point where these topics are
discussed during an application assessment and the reverse becomes the norm –
often this contributes to the confused discourse that is current across the social
finance/social enterprise product.
In trying to get investment out and accepting that the purpose of social financiers is
largely to fund social enterprises, then they are, by-and-large, enterprise support
agencies; they remain amongst the most un-enterprising agencies around.50 Also,
whilst there are exceptions, the social investment sector as a whole, doesn’t actually
offer the things social enterprises require – expertise, riskier money, and cheaper
finance – and it’s not even clear that most investors and intermediaries have even got
to the point of aspiring to do so.51
Returning to the SEIF Evaluation, it offers another stark indicator of how difficult it is to
get money from a funder, even when that money was intended for shaping a market
and ‘taking risks.’ Of all applicants into the fund, 73% were unsuccessful.52 One
example of the 73% was an organization being held in the due-diligence phase of
their application to SEIF for 6 months, only for the panel to refuse the investment on
the basis of the applicant not meeting the fund criteria.53 The high percentage of
refusals and the preceding example indicates something fundamentally wrong in the
investor/investee relationship.
Up until now, social lenders have been disinclined to invest heavily without security.
The First Billion found that in 2012, 84% of social investment was secured lending,
dominated by social banks whose responsibility to depositors forced them to take low
risk positions. This compares with an estimate for the nature of true demand that
suggests by 2015 an entirely upside-down54 need for primarily unsecured forms of
finance will be required.55 (See Figure 4 overleaf)
49 Innovation Comes From the Edges, 2012, Hershaw E, Skoll World Forum.
50 A Pop Up Social Enterprise Think Tank, 2011 - POPSE.
51 Social Capital Part1, 2012, Floyd D - Beanbags and Bullshit.
52 Social Enterprise Investment Fund Evaluation, 2012, Third Sector Research Centre.
53 Note: Author’s own experience of the SEIF Fund.
54 Quote from Paul Halfpenny, Social Entrepreneur.
55 The First Billion, 2012, Boston Consulting Group, Big Society Capital.
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Does Social Finance Understand Social Need?
The social finance market would benefit from a mechanism that all key stakeholders
sign up to. For example, a product with agreed and adjoining targets to demonstrate
that it wants, and can make, the transition from a market that predominately buys to
one that builds. Looking at the measures that appear in Figure 4, the market seems at
best, a ‘work in progress’.
FIGURE 4: Supply vs Demand
Adapted from The First Billion (2012).56
If social finance is to choose this stated direction, Figure 4 allows for another two years
to pass for social financiers to comply and get their lending house in order. There is
obviously a complexity in the financiers complying, none more so than take a look at
current intermediaries’ existing product portfolio and what becomes starkly apparent
is that they have considerable change to make in order to achieve any sort of
transition/ compliance. Furthermore, it is not even clear that the financiers’ own
business models will allow them to make the shift required – so what happens next?
What is becoming apparent is that rather than working harder or working in a different
manner to shape the market to fit true social enterprise, the favoured adjustments are
to encourage and possibly disjoint the social lending environment by inviting private
sector into the social lending space.
56 The First Billion: A Forecast of Social Investment Demand, 2012, Brown A., Swersky A., BCG/BSC.
[email protected]
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Does Social Finance Understand Social Need?
One idea has surfaced from the main player, The Big Society Capital. Their First Billion
paper talks of there already being five forms of investment being open to businesses
with only two of them available to social enterprises, the rest being finance available
to the private sector. Yet, their idea advocates permitting private sector businesses in
as long as they state their social impact intentions.
Add to this idea the latest call for business ideas from UNLTD and their Big Venture
Fund, who state:
“Match funding of between £25,000 and £100,000 is available from Big
Venture Challenge if a co-investor is prepared to invest an equal of greater
amount during the 12 month award period. The organisations can take on any
legal form acceptable under UK law, they can be for profit or not for profit but
they must be relentlessly focused on sustainable, scalable, disruptive social
impact.”57
The UNLTD call may well be a genuine approach to encourage social enterprise to
take on more commercial legal forms able to accommodate different types of
investment – this is needed. What both ideas have in common though, is the opening
of doors to businesses that are, in the first instance from the private sector. This is in not
social enterprise.
So, here we have a social finance market that is not yet able to service its intended
marketplace, but it’s largest wholesaler - along with one of the key intermediaries to
that marketplace - seemingly prepared to channel vital funds out of a sector into
businesses with no previous experience of tackling need. It appears that those who
are charged with creating this new financial supply chain are already choosing to rearrange how social enterprise is defined and, more importantly, how it is delivered. In
this context, the aims of Figure 4: 2015 look even further away than ever.
This paper is clear: There is a significant difference between adding impact and
treating need. Whilst there can be arguments both in support of and against this
stance, what is clear is that everything will be judged on results and its here we start to
make credible distinctions.
One observer makes a pertinent point:
“Investments that provide a big return don’t count: the market will take care of
those, and we don’t need conferences to get people to put money in.” 58
In addition, financiers with a narrow focus on the simple numbers (people advised,
temporary jobs, volunteers created etc) will serve only to distort delivery, in favour of
the low hanging fruit.59 This will be no accurate measure of what is going on
57 Note: Taken from Big Venture Challenge Promotional email - released November 2012.
58 Trouble With Impact Investing p1, 2012, Starr K - Stanford Innovation.
59 Social Investment In Scotland, 2012, SENSCOT.
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Does Social Finance Understand Social Need?
regarding deep-rooted need. Services that target impact will be nothing more than a
sticking plaster over an increasingly deep wound.
If this is what social finance thinks its role is, then, it is already fulfilling it. But if need is
the focus, it has a considerable road yet to travel and this practitioner could find little
evidence of a want or wherewithal to try and tackle need. The existing social
finance conditions seem just too set and/or profitable, even detached, for the current
array of intermediaries to want to change.
It is fair for the social finance market to claim that the conditions they trade in,
created by an era of austerity, are not those they can be blamed for. The market is
an ever-changing landscape that everyone is adapting to. However, it is fair to raise a
concern about how the social finance market is adapting and positioning its products
to address the market it now serves and understands.
Attend any gathering of social enterprise practitioners and it becomes quickly
apparent that the majority of practitioners feel that the raft of products being offered
do not place the appropriate emphasis on releasing money on the correct terms and
into front line need.
Social Financiers have complete responsibility for the terms upon which they receive
funds into the marketplace. Additionally, in their negotiations, they need to safeguard
against a future array of prohibitive terms that are currently passed on to social
enterprises. Too often the complaint from social financiers is that they only administer
terms they themselves have to adhere to. This will not be good enough going forward.
If the marketplace can’t afford to pay for the product, what is the point of the
finance in the first place? Lower interest rates and longer repayment terms are the
changes that matter.
At a Big Society Capital sponsored seminar in November 2012,60 their own
representative acknowledged that the large and current gap is targeted working
capital available to social enterprises for the purpose of taking risks. This, together with
the removal of short-term repayment levies placed on loans, are probably the most
important issues faced by community-based social enterprises searching for
investment.
There needs to be a number of social financiers championing these important
changes and attempting to do so at a reasonable scale. Only when this sort of
finance appears on the market, and financiers choose to take responsibility for this
change at scale, can the social finance sector credibly say it is moving more towards
supporting real social enterprise and societal need.
60 Note: Taken from Big Society Capital Seminar, Warrington 8th November 2012.
[email protected]
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Does Social Finance Understand Social Need?
Concluding thoughts:
Adding to the earlier examples of young people and prisons, according to the Joseph
Rowntree Foundation, there are now 6.5 million unemployed or under-employed
people, all looking for work that does not exist.61 Foodbanks are popping up all over
our communities and we learn that children are stealing to eat.62
In this eco-system, we tend to rely upon charities to pick up the pieces of failing
communities and provide an extra safety net to those most vulnerable. Back in 2007,
charities with incomes of less than £1m (per annum) showed an overall surplus of
£325m for the financial year.63 In 2011, those charities reported total combined deficits
of £306m. It’s clear from these figures how quickly and how deeply the economics of
decline have eroded the safety net underpinning our society.
As a consequence, the UK’s deficit laden economy is having a swift and devastating
effect on charities - 6000 have closed since the last election64 and according to new
research, two out of five charities face imminent closure, with many set to disappear
as early as 2013 unless things improve.65 What is apparent is that need and its feeder poverty, may well expand exponentially over the next couple of years.
The rhetoric of the [coalitions] political campaign is misleading; subversively leading us
to believe we must to choose between Government or business to provide a way out
of this economic hole, as if those are the only two routes we have open to us.
A large proportion of social financiers would also have us think the same but there are
other routes available to us.
One of the most interesting stories in social change today is how much creative
problem-solving is emerging from citizens scattered far and wide. Citizens taking it
upon themselves to fix things and who, in many cases, are outperforming traditional
organizations or making systems work better.66 These citizens [social entrepreneurs] are
invariably risk takers and able to demonstrate improvement through innovation.
Except what they do is often lost in translation when, as community based social
entrepreneurs, they present their case for start-up/ development finance – It is here
that social financiers appear uninterested.
61 Against George Osborne's war on the poor and the vile stupidity of his 'workers vs shirkers'
narrative, 2012, Jones. O. – The Independent.
62 We’re Dealing with a Crisis: Starving Children Stealing to Survive, 2012 – The Mirror.
63 Small and medium-sized charities had £306m deficit in 2011, 2012, Civilsociety.co.uk
64 Training Restaurant Hoxton Apprentice Seeks Buyer after Charities Collapse, 2012, Smithers R, The
Guardian.
65 One out of six charities say they may have to close in 2013, 2012, Doward J – The Guardian.
66 The Rise of the Social Entrepreneur, 2012, Bornstein D - NY Times.
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Does Social Finance Understand Social Need?
Worth considering are views expressed by two experienced practitioners in the USA:
1: “Everything that non-profits have be trying to fix for the past 30 years have become
worse and it has more to do with the position of capital within the relationship between
those who need help and those who can help.”67
2: “Succeeding in business is very difficult. Succeeding in a business with an integrated
social mission doubly so. Despite the occasional success story, social entrepreneurs
and social financiers will have to get used to thinner profit margins that will, generally
speaking have an inverse relationship to social impact.”68
These aforementioned issues capture, in essence, the nature of this paper and mirror
the UK social finance predicament. Social enterprise capital is still positioned
incorrectly and tackling need is difficult and is not to be confused with straight
commercial approaches to providing public services, cheaper than the mainstream
market can cater for. What is integral to achieving change is targeted investment
capital that can build, is patient and realistic about the returns.
The issues are complex and it is to be accepted that few solutions that meet the
fundamental needs of the poor will get you your money back.69 Although, the UK
approach to social finance attempts to extract a return from every deal,
systematically leveraging need, which, in the longer term, is untenable.
Then there are the added risks from the social enterprise perspective. The climate of
loan only, quick return capital is threatening for social entrepreneurs. It may force
them to abandon lower-revenue strategies that could lead to higher impact and is
dangerous because it locks out social entrepreneurs working on particularly tough
problems with very early markets that are years or decades away from generating
returns.70
There are [and should be] moral objections to ‘marketising’ social need. In the end,
the question of markets is a question of how we want to live together. Do we want a
society where everything is for sale, or are there certain moral and civic goods that
markets don’t honour – money can’t buy,71 and that force large numbers of people
outside of the scope of services that can truly help, moreover cure need.
The fixation with the return on investment, with interest, within 5 years (or less)
constrains the negotiations that take place between the enterprises and
intermediaries. This approach is just not feasible and should not be deemed so when
dealing with need. Although there are some intermediaries who will have you think
that the quick returns route is the only option. This presents a clear rupture in the link
67 Lessons from SOCAP. 2012, Zweynerf A – MYFI.
68 Five Predications for the Future of Social Entrepreneurship, 2012, Malinsky E - Forbes.
69 The Trouble with Impact Investing Part1. 2012, Starr K., Stanford Innovation,
70 Define Social Entrepreneurs by Their Impact not Their Income Strategy, 2012 - Forbes.com.
71 Social Investment In Scotland, 2012, SENSCOT.
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Does Social Finance Understand Social Need?
joining the investor to the investee – the money into the system is proving too
expensive and the returns are too short term.
Then there are the business models of many good social enterprises deemed ‘not
investment ready’ because they just can’t get the income in quick enough to cover
the necessary repayments. This is one of the main reasons so many good bids are
refused and why investments seem inaccessible.
The problem of lending is compounded, as intermediaries are risk adverse. These
intermediaries have no intention in ever treating need and are the classic ‘low
hanging fruit’ gatherers, who like nothing more than to finance services locked into a
‘fatal embrace’ which assumes a delivery model akin to an already existing public
sector service.72 There are lots of these types of intermediaries about and this sort of
approach could be aptly described as a race to the bottom, which could ultimately
deliver no long-term gains for either social finance or the social enterprise movement.
As David Floyd recently wrote in his frequently insightful and always contemporaneous
Blog, Beanbags and Bullshit, “If social investment is going to reshape the social
enterprise world in its image, the process is unlikely to be pretty.”
It is important for social entrepreneurs/ social enterprises to stay resilient in the face of
increasing and sometimes unforgiving circumstances, in which some of the current
social financiers are playing their part. If the objective therefore, is for social enterprise
services to target need at the bottom of the pyramid, then entrepreneurs need to
think hard about the kind of capital they require, given their mission, stage and scale
of their enterprise.73
Faced with inevitable funder pressure, social enterprises need to further consider
whether or not any compromise they make negotiating funds changes the integrity of
their programme and be brave enough to say ‘no’ if it does. Many social enterprises
are finding this sort of decision difficult in the current climate.
Community based social enterprise has shown itself to be able to rise to difficult
challenges before, but that was at a time when there was a fair supply of investment
available. Right now, this is not the case, as such many good enterprises will cease to
exist and those who have strong business propositions will likely be overlooked in
favour of those larger capital rich organisations that choose only to ‘people traffic’74
and move need around, being more focused on guaranteeing investors their share of
returns.
72 Fatal Embrace, 2012, Floyd D - Beanbags and Bullshit Blog.
73 The Trouble with Impact Investing P2, 2012, Hattendorf L - Stanford Innovation.
74 Note: In this context the term relates to large organisations creating swathes of training/volunteering
placements without ever providing equal amounts of jobs – moving the problem on rather than
sourcing/creating a solution.
[email protected]
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Does Social Finance Understand Social Need?
Using the words of Bob Dylan, “You’re gonna have to serve somebody” and it is
about who it serves that social finance has some decisions to make. Should social
finance wholeheartedly point towards and serve those who are putting money into
the social finance system (Government, Philanthropists etc)? Or does social finance
primarily represent the needs of the social enterprise market and the terms the market
requires to function and grow? From this viewpoint it feels like the former.
Reintroducing an earlier point. The area of discussion propagated by social financiers
claims that social enterprises fail to understand how difficult it is to get money into the
system in the first place. This maybe true, however there is implicit understanding of
how difficult it is to get the same money out into a trading space that is able to make
a difference.
It is incumbent upon all those who have an interest to challenge the blockages
wherever they may appear. If these blockages are from the Government, big
business or philanthropists asking too much in return for their money – wanting it back
too quickly - then social financiers must challenge and exact change at the start of
the supply chain. If those blockages are social financiers wanting to enforce
particular conditions that are simply impossible to sustain, then social enterprises must
challenge, or even refuse, these terms. Social financiers should thus accept the
challenge as positive and progressive. Unfortunately, these challenges are either
sadly lacking in the current supply dialogue or, in the case of many social enterprises,
are misunderstood (or worse, ignored) by social financiers at the point of challenge.
This has to change and change quickly if the whole social finance programme is to
become a credible force able to service the social enterprise market.
Let’s hope there is enough intelligence and humility to accommodate and negotiate
the overall challenge these next few years will present.
A Few Solutions...
The Intermediary and the Social Enterprise:
-
Doing a Deal - It’s a Relationship Stupid.
One researcher said, “If you are part of the problem, you cannot be part of the
solution.”75 As this paper indicates, there are plenty of social enterprise case studies to
draw upon of intermediaries keeping applicants in due diligence processes for
months, only to refuse the finance.
This approach is unnecessary and has a significant human, service and relationship
cost which has to be covered, almost entirely, by the applicant. Investors claim that
they have limited resources available and thus applications are made in a
75 Beyond the Big Society, 2012, The Royal Society for the Arts.
[email protected]
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Does Social Finance Understand Social Need?
competitive environment, but should this be the case and is this the best way to do
business?
Each stakeholder in the investment chain has an interest in removing the adversarial
competition that is often in-built to the application processes. There is a commonality
in both parties being candid, cordial and informed about what is possible. Thereafter
both parties can build relationships that are predicated on serving each other’s
interests and not just stipulating or passing funder tests.
Protecting grants, tackling need:
-
It’s About Market Failure First, Enterprise Comes Later on – the 80:20 factor.
Social enterprise rising out of previous market failure takes time to build and the
enterprise element of delivery also takes a considerable amount of time, patience
and luck to find strong income streams. This is exactly the time when there is a benefit
to all parties that educated grant-giving should be seen as a positive tool towards
facilitating success.
A fair rule of thumb should be, if you want to be an intermediary in the social finance
world your lending model should contain grant or routes to including it. Any discussion
about grant is always contentious but experienced social enterprise practitioners who
are in the need game, understand the importance and difference grant makes. The
ratio of grant involved can differ to suit individual circumstances.
As mentioned earlier in this paper, 100% is rightly a thing of the past – so how about
starting the bidding at an 80:20 split – the 20 being the grant element. Agreeing this
could really add value to the wider social finance/social enterprise relationship and
would go some way to moving the sector forwards, towards outcome/need focused
work.
The Right Measurement Model:
–
Could One Size Fit All?
Whether at the point of application or later when programmes are in full swing, many
a social enterprise gathering will sit and ponder, why are the models so complex?
Who is actually benefiting from all the current models?
One approach expressed a few years ago seems like a good place to start:
1. Does the project have measurable and proven impacts? [with no more than 5 areas to be
considered]
2. Are the impacts cost-effective?
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Does Social Finance Understand Social Need?
3. Will the impacts be sustained?
4. Can the model be scaled and replicated?76
One final thought would be to leave the smaller operations, namely those that have a
turnover of under £500k, alone to get on with running their business without
interference – impact measurement should be optional in this situation.
Supporting Micro Social Enterprises to scale:
-
New is not better, it’s often just new and big is often just simply big.
A great deal of the funding sits trying to prime small new start-up enterprises or
servicing the bigger deals hooked up to existing public sector contracts. At the newer
end, the funds tend to be too small to matter and much of what is funded is simply
new, with little guarantee that it will work and take hold. At the opposite end, hardly
any of these bigger deals are enterprising, they are more akin with adopting the
earlier description of the ‘fatal embrace’ and consistent with moving the issues
around, shaving off bits of cost here and there, trying to make sure this same contract
is won again the next time around – these are both buying markets.
The market needs an intermediary strong enough to negotiate with Government/
Investors in terms of need and the longer-term project.
Which amongst the existing intermediaries will stand up as the Builders of the market;
able to inject the risk capital into those enterprises currently trading, has a track
record and the micro solutions that can scale? There is a big gap in the market here
and, if managed well, could be a part of the market that becomes, in the longer
term, very productive in terms of servicing need and generating returns.
Social Finance that Understands both Societal & Social Enterprise Need:
-
Setting and signing up to Targets: A Compact/Alliance for Social Financiers and
Social Enterprises – a place to challenge and change.
In the Coalition Governments own publication, it describes social finance as a
“market lacking transparency, there is only a limited amount of information about the
social investment market. This is a symptom of market dysfunction.”77
No self-regulation here then! With this market dysfunction already internally identified
as a problem, why does there appear to be no improvement on the horizon?
76 Real Good, not Feel Good: A brief guide to high-impact philanthropy. (updated 2009) Fisher, MJ.,
Starr, K. www.RealGoodNotFeelGood.org
77 Growing the Social Investment Market, 2012 - HM Government.
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Does Social Finance Understand Social Need?
In the past, Compacts or Alliances have been set up to try and ensure compliance to
change and improvement, so why have similar not yet been set up for social finance?
For example, the creation of a Compact/Alliance could include:
- Big Society Capital,
- Some of those Social Financiers they invest into,
- Social enterprise practitioner’s chosen by the regional networks...
This, or similar, would ensure there is a knowledgeable discourse shaping the delivery
and future of social finance.
To make any Compact/Alliance work, it will require legitimacy and resources.
Resourced well, this compact/alliance could become the ideal place to target need,
challenge issues, change the method of delivery and improve outcomes.
After all, isn’t this exactly what the Social Enterprise-Social Finance arrangement is all
about?
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[email protected]
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Does Social Finance Understand Social Need?
About the Author
Robbie Davison is the Director at Can Cook CIC and a Board Member of both Social
Enterprise North West (SENW), Social Enterprise Network (SEN - Merseyside) and Open
Culture.
Robbie is a practitioner, with 24 years’ experience in developing and leading Social
Enterprises.
You can contact him via email at [email protected]
Share your comments on our blog – go to www.cancook.co.uk
For more information about Can Cook, please visit
www.CanCook.co.uk
@RobbieCanCook
@CanCookStudio
[email protected]
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