You’ll never take a loan

Do you like the idea of new and existing social enterprise being given £100 milllion to enable them to deliver health and social care services? If your answer to this question is ‘yes’ you’ll probably feel that the Department of Health’s Social Enterprise Investment Fund (SEIF) has been pretty successful.

This is the one sentence description of what SEIF was set up to do is: “The Social Enterprise Investment Fund (SEIF) was set up in 2007 to stimulate the role of social enterprise in health and social care, through providing investment to help new social enterprises start up and existing social enterprises grow and improve their services.

SEIF investments between 2007 and 2011 clearly did stimulate the role of social enterprises in health and social care but, based on the overall outcomes achieved, it’s not hugely surprising that promoting the recent publication of ‘Start-up and Growth’, the evaluation of the programme led by the Third Sector Research Centre, may not have been a key priority for Department of Health’s press team.

There’s plenty of (relatively) good news in there from the point of view of the 531 organisations receiving investment during the period covered by the evaluation. The obvious but important one being that SEIF enabled social enterprise activity to happen: “without SEIF investment a significant number of projects would not have gone ahead. The survey found that 72% of respondents believed the project would not be able to go ahead in its current form without SEIF investment and 35% believed it would have been completely abandoned.

The funding enabled social enterprises to employ more people, and develop more and better services. By the time the research was completed, only 48% of investees said they hadn’t yet won any new contracts, and 23% had secured at least 3 new contracts since receiving SEIF investment.

Where SEIF has been doing less well is in the typically challenging areas of measuring social impact and developing the social investment market. In theory, SEIF investees were encouraged to measure the social impact of their SEIF funding using Social Return On Investment (SROI) but: “Despite encouraging social enterprises to use SROI, our own survey suggests that under a third (30%) of respondents were actually using it at the time of the survey (although some indicated that they may use it in the future).”

Apparently those organisations that didn’t feel SROI was appropriate for their organisation just didn’t use it: “Whilst some organisations were aware that SROI was part of SEIF funding requirements, their interest in it ‘fizzled out’. This was often due to the practical constraints of undertaking SROI, including time, resources and money constraints.

And the positive results for those that did use SROI were seemingly limited: “Survey respondents who did complete an SROI were also surprised to find that upon completing it, PCT commissioners did not understand it and so did not take it into account when allocating funds and contracts.

This data reiterates the widely acknowledged situation in the social enterprise world that while social impact measurement is much discussed, there’s still a major lack of both supply (of evidence of impact from organisations) and demand for that evidence from public sector commissioners. Aside from projects where measurement of outcomes is a key element of the activity – such as projects funded through social impact bonds – wider social impact doesn’t yet matter much. The Public Services (Social Value) Act 2012, which becomes active in January 2013, may begin to change that.

The most baffling figures in the evaluation, though, are those that outline how the money has actually been dispersed. At the time the research was carried out, the SEIF had distributed a total of £80,712,510 to 531 organisations. 86% of the funding being distributed as grants. Of the 531 organisations that received funding, only 8 (less than 2% of the total) received a loan only investment – so over 98% of investees received either a grant or a loan heavily cushioned by a grant. Several organisations were offered loans but turned them down.

The researchers note that: “The implication of these findings raises considerable questions for the fund itself, a long term aspiration of which was to be self-sustaining through returns on loan investments. Furthermore, it also raises doubts over the willingness of social enterprises to take on loans, as the vast majority of social enterprises in our evaluation wanted grants only.”

Aside from the challenge of persuading social enterprises to take on loans, the organisations managing SEIF have also had to deal with a situation that those not familiar within the machinations of government will probably regard as, at best, faintly absurd: “The Fund Manager has commented that annuality is a condition of SEIF funding and in part, the low level of loan investment is due to applicants not being able to draw down and spend a loan investment by the end of the financial year in which the investment was approved.

So, in situations where an organisation might want to accept a loan but only draw down, spend and start incurring interest on part of it before the end of the financial year, the only available option was to give them a grant instead so that the money had definitively been spent by the end of the financial year.

This practical difficulty raises questions about the role of government in providing loan finance but the bigger issue is the lack of demand for loan finance. Sooner or later, those who envisage a significant growth in social enterprise delivery of public services (or for that matter, anything else) backed by unsubsidised investments, repaid with a financial return will need to explain how we get from the social enterprise world we do live in, to the one they’d like us to live in.

As it is, the main lesson from SEIF is that you can get new social enterprises to operate in a sector and help social enterprises within a sector to deliver more but you do that (at least partly) by giving them money.

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4 Comments

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4 responses to “You’ll never take a loan

  1. One of those who didn’t get a loan or grant was our local Forest of Dean Healthcare SET a CIC who required the endorsement of Gloucestershire PCT, who wouldn’t give it. It would lead to them dipping into council tax funds and a local scandal. which exposed over £200k of grant funding without trading. Gloucestershire PCT in turn attempted to become a CIC this year and were thwarted by local activism.

    In 2006, a proposal which included a social enterprise investment fund was published and among the first recipients were the international charity EveryChild. As I observed recently, it would re-appear as ‘ideas’ in several other initiarives including the EU social business consultation.

    http://economics4humanity.wordpress.com/2012/12/11/the-marshall-plan-as-a-meme/

    a key point about this approach was civic oversight. The intention was not to return a profit, but deliver social innovation at ‘nil overall cost’ with ‘more than full cost recovery’ elements balancing the lesser return of others. The primary, objective to resolve a human rights crisis in childcare.

    By and large all these social investment funds disregarded the aspect of civic oversight with one notable exception, in Northern Ireland, where perhaps it’s more necessary for democratic involvement to be seen to be done:

    http://economics4humanity.wordpress.com/2012/08/29/social-investment-is-northern-ireland-different/

    Can anyone show me a plan for social innovation created by SROI fundamentalists?

  2. Beanbags admin

    To be fair, Jeff, SROI practitioners don’t claim that they create social innovation – what they’re trying to do is measure whether or not it’s effective.

    I think you’re right, though, that social enterprise delivery of healthcare doesn’t necessarily result in democratic involvement but there’s no reason why it shouldn’t.

    • Consider this David, SROI attempts to ascribe a numerical value to a social problem. Not a real financial return but wealth imagined as social value created.

      The core argument for our social business model is that by abandoning any finite anchor to imagine money into existence as debt, we have created a situation where wealth accumulates in the hands of a minority to the exclusion of many others. It concludes.

      “Economics, and indeed human civilization, can only be measured and calibrated in terms of human beings. Everything in economics has to be adjusted for people, first, and abandoning the illusory numerical analyses that inevitably put numbers ahead of people, capitalism ahead of democracy, and degradation ahead of compassion.”

      To illustrate this point, you may hear Muhammad Yunus say of Grameen Danone, that their “bottom line” is the number of children removed from malnutrition. Ours likewise, was removing malnourished children from insititutions.

      How for example, in the argument offered for reducing the pool of HIV infection among Eastern Europe’s street children, can we relate this to financial value? We can readily imagine that it represents a reduction to our own risk.

      OTOH, we can weigh what is spent on ordnance and argue the benefit of “smart” strategy in foreign policy.

      http://economics4humanity.wordpress.com/2012/12/05/smart-aid/

      It’s a different perspective, but challenging enough to be considered a threat to orthodoxy. Some now go as far as imagining it possible.

      http://economics4humanity.wordpress.com/2012/07/17/love-in-business/

  3. Pingback: Mythbusting: It’s Too Difficult To Demonstrate Social Impact

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