If you liked grants, you’ll love social investment

The point is that no one knows whether this neo-liberal Utopianism will work. But its advocates will need to explain it more clearly before individual or corporate investors can be expected to sign up with hard cash.”

That’s Martin Bright, blog for The Spectator about yesterday’s long-awaited launch of Big Society Capital, a wholesale finance institution ‘established to develop and shape a sustainable social investment market in the UK’.

Bright’s actually quite keen on the idea of Big Society Capital, and social investment in general but he also raises the point that: “Big Society Capital will not save charities now facing closure because of the withdrawal of local or central government grants. This is about creating a whole new culture of social investment that should probably not be called charity at all. Those encouraged to invest under the new models developed by Big Society Capital will be expecting a return. This is not philanthropy.

The fact that Big Society Capital is not just dishing out some money to worthy causes is hardly big news to the social enterprise movement but, in these moment when social enterprise (and socially enterprising charitable activity) briefly gets a burst of coverage in the mainstream media – such as this really good piece featuring HCT Group on yesterday’s BBC News – it’s important to remember that doing business for both financial and social return is still quite a complicated idea for most people not directly involved in trying to do it.

My position on Big Society Capital and the ‘social investment market’ in general has always been a broadly hopeful scepticism. I completely agree with Patrick Shine of FranchisingWorks – speaking to the BBC yesterday – when he says that the big barrier to growth for social enterprise has been ‘the absence of risk capital’. One reason for my scepticism about the social investment sector in the pre-Big Society Capital era is that this is precisely the kind of investment it has talked about conferences but failed to deliver in practice.

In a blog post yesterday, my fellow hopeful sceptic, Toby Blume, of Urban Forum, cut through some more of the (well-intentioned) bluster around the Big Society Capital project. He’s definitely right to point out that the fact that Big Society Capital’s money came from dormant accounts doesn’t obsolve politicians from responsibility for using it wisely: “Perhaps spending £400m on building the market for social investment is a good idea. But we don’t need to blithely accept that this is the only way this money could be used. It could have been used to support the thousands (hundreds of thousdands?) of charities and community groups that have seen their funding cut as a result of spending cuts…

The big underlying question, though, is about the ‘whole new culture’ that Martin Bright anticipates. Those of us working in social enterprise all get the idea – that social enterprises (and socially enterprising charities) are businesses who, if investors are prepared to take the risk, will often be able to deliver both a reasonable financial return and a transformative social return. But to what extent is that idea a practical reality.

It’s definitely true that, when social enterprises respond to questionnaires, one of the biggest ‘problems’ highlighted is always lack of finance. For example, 44% of respondents to last year’s Fightback Britain social enterprise survey claim ‘the availability and affordability of finance to be their greatest barrier’. The problem is it’s impossible to say how many of those 44% are ticking that box as a proxy for ‘we really, really, need some money’ as opposed to ‘our business could be much bigger, and deliver far more social impact, if only we could get a quasi-equity loan’.

The clearly are some social enterprises, HCT Group being one, for whom the latter statement is true but equally clear is that, right now, there are nowhere enough other similar social ventures for Big Society Capital to invest £600 million with a realistic hope of getting its money back. The gamble the government – and social enterprise leaders – are taking is that massive injection of cash will stimulate the creation and growth of significant numbers of relatively large social ventures that are able to generate a trading surplus.

At yesterday’s launch, the prime minister, David Cameron, said: “Big Society Capital is going to encourage charities and social enterprises to prove their business models – and then replicate them. Once they’ve proved that success in one area they’ll be able – just as a business can – to seek investment for expansion into the wider region and into the country. This is a self-sustaining, independent market that’s going to help build the big society.”

Whether or not Big Society Capital is ultimately self-sustaining depends, one way or another, on income streams to social ventures that are not. Some social ventures will benefit from investment, others would be better off without it, but there’s no getting away from the need for revenue. The ‘whole new culture’ Martin Bright talks about will still involve social ventures being paid to what they do by some combination of public sector agencies, and people or organisations who use their services (or buy their goods). This is not a politically neutral space. The arguments around what is paid for, how and by whom will be heavily contested. And, for the foreseeable future, there will continue to plenty of vitally important charities (and some organisations calling themselves social enterprises) for whom the only logical business model will continue to be ‘get some money through grants and donations’, ‘spend it’.

But this is a big moment. If UK social enterprise were a Samuel Beckett play, Godot would now have appeared on the stage. Big Society Capital’s investments will (hopefully) help a good number of existing and new social ventures to get their products to a wider market, it’s difficult to predict what might happen next.


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3 responses to “If you liked grants, you’ll love social investment

  1. jeffmowatt

    Nobody knows whether it will work, except me perhaps.

    The collapse of Russia’s economy in 1998 gave P-CED the opportunity to research and source an experimental initiative for USAID with 3 key components

    – A community development bank to provide financing to would-be entrepreneurs to create their own business, without need for material collateral because almost no one had that collateral aside from mafia, who just took what they wanted;
    – Emergency food relief
    – Assistance to children in or out of orphanages.

    ‘Tomsk was the recommended location for the new bank, and was subsequently awarded a USAID regional initiative — Russia/US Regional Initiative in Tomskaya Oblast — with the banking model included. Orphan assistance and emergency food relief were recommended, and included, along with the community bank model — Tomsk Microfinance Bank. TMB became self-sustaining in two years and provided for the creation of more than 10,000 small businesses in Tomsk region within five years.’

    It was also described in the 2004 business plan which warned of the impending economic crisis and consequent risk of uprisings from an earlier concept paper on an alternative to traditional capitalism.

    “The 1996 paper was well-received by the White House, which in practical terms translated to a certain amount of political capital. In turn, some of that capital was leveraged in 1999 with a proposal to the White House to create a project abroad in Russia along P-CED’s ideas. The core component of the project was a community microfinance bank designed so as to require no material collateral for micro loans. The proposal was matched with a suitable USAID project which was already funded and ready to place inside Russia. Tomsk, the proposed project target in Siberia, was awarded a project which included the microfinance bank as well as 35 other community development/social relief programs. The bank was initially funded with US$6 million over four years through the end of 2004; the amount has since increased to US$10 million based on the phenomenal success of the microfinance program. As of April 2003, thousands of loans had been made to create new microenterprises. On-time loan repayment rate exceeded 98%; business survival rate exceeded 99%. 90% of loan beneficiaries have been women particularly exposed to poverty or near-poverty existence. ”


    I struggle to find words which could describe how resistant social investment advocates have been to this work, which has frequently been deleted when introduced to social enterprise media.


  2. Beanbags admin

    Well, I think the development of the UK social investment sector has been based around close interaction with government – focused on the particular circumstances in the UK. That has both pros and cons.

    I find that people taking an interest in what you’re doing is a bit like bad decisions by football referees – it evens itself out over time. I’m often frustrated when people who I think ought to be interested in what I’m doing, aren’t. But I’m also often really pleased when people who I’d never expect to be interested in what I’m doing, are.


  3. jeffmowatt

    As you say David it’s a pleasure when an unexpected interest is shown. My concern however is with those who position themselves to keep others out of the picture and build their own reputations and incomes on what they’ve been introduced to. This is simply dishonesty. and hardly a “social” form of engagement.

    A lesson learned overseas was that we needed to protect our efforts with copyright to ensure that the usual suspects didn’t pervert and dilute the social impact. Is there a difference in law between those who protect the revenue of the media industry and the social innovator wanting to determine the outcome of his creative property? Only the cost of lawyers which the latter is unable to afford. We saw the unbridled influence of corporations recently when a Sheffield student was extradited to the US to face charges.

    In Ukraine, we’d twice blocked copyright violation by commercial predators. Just over a year ago, we’d found it necessary to contact PwC, pointing out that their partnership with USAID and The British Council’s social enterprise development initiative in Ukraine was a breach of our 2007 copyright, which USAID and BC had both been made aware of and acknowledged at the time.

    PwC may write reams about business ethics, but what they bought into was an airbrush job on the extremely serious issue of children subjected to abuse and neglect. This is the “ethics lite” approach to social innovation I’ve referred to in the past, which steers around the more difficult and risky social issues to gain social credence. .

    Then there’s the like of Atos Origin, who have no qualms when it comes to pushing a social supplier aside and now try to claim the territory of “values led” business. It’s a crock, they know it but again can simply stonewall those who call them to account:


    This I suspect is what Paul Beresford writing in the Guardian meant by the “feral overclass” which is the greatest threat to our society.


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