Many happy returns?

It’s now nearly a year since the prime minister, David Cameron, signalled a move away from “the stop-start, hand-to-mouth way the sector’s been funded” as he launched social investment wholesale finance institution, Big Society Capital (BSC).

It’s a year in which many charities and social enterprises have successfully moved from ‘stop-start’ to ‘stop’, while others have solved the hand-to-mouth problem by virtue of the fact that they can no longer get anything into their hands in the first place. Happy Birthday.

But this grim reality doesn’t really tell us anything much about whether BSC is being successful. As Civil Society‘s Vibeka Mair pointed out last week in this thoughtful overview of the current points of departure within the sector: “Big Society Capital’s remit is not to fund the charity and social enterprise sector, it is to grow the social investment market – this is very different.

As regular readers may have observed, I didn’t support the creation of BSC primarily because I didn’t (and don’t) believe that a strong social or commercial case for a specialist social investment market in the UK had (or has subsequently) been made.

Social enterprises and charities (and for-profit social businesses, too) do need investment but there is not currently any clear evidence that their financial needs coalesce under the banner ‘social investment’ in a way that can usefully be supported by a single institution or a distinct market of product and services.

Rather than setting up BSC, I would have preferred the government to:

(i) devote some extra resources (on a regional basis) to supporting the development and growth of social ventures that might have a high social impact but are never likely to be viable to the extent that they can take on fully repayable finance

and (ii) devote some resources to providing the capital for a social element to a state-backed business bank – that would provide repayable finance for businesses (including charities and social enterprises) that could realistically hope to repay it but couldn’t get finance on the high street.

This didn’t happen and BSC was launched. Since then, it’s been mostly trying to stimulate a market of intermediaries to deliver a version of (ii) while hoping that the demand for (i) will just go away*. Unsurprisingly, it’s struggling to generate trust and affection amongst charities and social enterprises.

Now one year on, Scotland-based blogger, Leslie Huckfield is arguing that BSC should be wound up and the money should be allocated elsewhere. Following a run through the current discourse within the sector he explains: “It is proposed that £400mn Dormant and Unclaimed Bank and Building Society Accounts, together with a further £200mn investment under the Merlin Agreement from four major banks – previously allocated to Big Society Capital and its intermediaries for development of a Social Investment Market – should now be reallocated to regional Social Enterprise Networks for their decision on spending priorities.

It’s not likely to happen, or even to be seriously considered, but either way, the suggestion that BSC should be dismantled at this stage is wrong. This is particularly well illustrated by the fact that none of the suggestions in Huckfield’s ‘Alternative Strategy to Support Social Enterprises’ – his mostly sensible ideas for replacement activities – either need or would significantly benefit from ditching BSC now that it’s in place.

Huckfield argues for a future for social enterprise development based on the options:

A) ‘Supporting Social Enterprise Regional/Local Networks’

B) ‘Public Social Partnerships And Change Funds’ – involving social enterprises working with public sector commissioners to develop new approaches to service delivery

and

C) ‘Social Enterprise Markets Programme and Social Enterprise Infrastructure Support Fund’

Option A is not primarily a social investment issue. The government could (and should) ensure the re-launch/continued existence of social enterprise networks in the English regions by putting up around £1million a year (about £6,000 per local council) to enable each regional body to have £100,000 or so of core funding to exist and provide a focal point for social enterprises and social entrepreneurs in their area.

Options B and C are both initiatives where BSC in its current form could easily play a significant and useful role. The organisation is not run by bad or stupid people, it’s run by socially committed, intelligent people currently operating under constraints that prevent from making a serious attempt to fulfill its stated aims. Partly due to the £200million investment from Merlin banks, it is not allowed to lose money.

Last year’s Big Lottery-backed report, Investment Readiness in the UK noted that charities and social enterprises looking for repayable investment: “predominantly seek risk capital on sub-commercial terms of between the £10,000 and £100,000 range.” and that “if what is on offer from investors is larger asset-backed capital on near commercial terms, there is a market failure“.

The problem with BSC isn’t that they’re specifically uninterested in the activities that Huckfield suggests: investing organisations based outside London by making large investments in regional organisations, or investing in public service innovation or social enterprise infrastructure. The problem is the terms. The kind of investments most charities and social enterprises want – even those who actually have a preference for repayable investment over grants – are the kind of investments that make public or charitable money work harder but ultimately don’t get repaid at a profit once you factor in the costs of the deal.

If we are going to have a (socially useful) social investment market in the UK it will need to find ways of supporting intermediaries to support social ventures that aren’t fully commercial propositions. BSC chief executive, Nick O’Donohoe’s starting point: “We’re not interested in grants or soft loans” is unsustainable if he genuinely wants his organisation to gain the confidence of the social sectors.

BSC don’t necessarily need to make grants themselves but, at the very least, they need to develop partnerships with intermediaries who will provide grants as part of their investment packages. And they need to be able to make investments soft enough for intermediaries to respond to the demand that’s actually there while also covering their costs.

There’s no logical basis for an organisation making a £600million intervention in a £165million market to dismiss any possible approach on the basis that it will lead to ‘market distortion‘. The social investment market in the UK is currently around 80% distortion, 20% market. BSC itself is the biggest single distorting factor and grant dependent intermediaries are the second biggest.

In a tweet quoted on Les Huckfield’s blog, Jonathan Jenkins of Social Investment Business quite reasonably asks Huckfield to offer an alternative to BSC that would meet the conditions of being sustainable.  It may be that if BSC is to modify its approach to grants and soft loans, part of the trade-off could be that a portion of its resources could be used for potentially more profitable investments in intermediaries investing in ‘for-profit’ businesses that generate a measurable social return – genuine ‘for-profits’ rather than the current fudge.

While worth considering, this suggestion is (a) controversial within the social sectors and (b) clearly not magic bullet solution that would miraculously generated huge profits to cross-subsidize losses from investments in less commercial ventures. It might be part of the way forward but there’s no easy way to square the circle.

Ultimately, large scale social investment that’s specialist enough to need specialist social investors will only work if someone, somewhere is prepared to lose (at least some) money. As the biggest player in the market, one way or another and with the government’s active support, BSC has to develop a model that allows it to do that.

*I’m not ignoring Social Impact Bonds but they – whether you support them or not – are another distinct category on their own.

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14 Comments

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14 responses to “Many happy returns?

  1. David, Interesting to see how closely BSC criteria resemble the P-CED business model. The exception to this being the asset lock where we suggested irrevocable investment into community development funds. Both methods require oversight, perhaps only an adherence check at HMRC in the case of the latter. The worst case scenario for both is that we stimulate a local economy, creating jobs without returning further social investment

    As I’ve related in the past, proposals for social investment funds have featured in all we’ve shared in our papers and proposals and the experience of leveraging a community microfinance bank in Russia led to the suggestion of linking the social business model with a CDFI in what we saw as a complementary partnership. This was 10 years ago with a proposal to defuse a potential conflict situation.

    http://www.p-ced.com/1/node/32 :

    What seems to have developed is a divide between social innovation which develops business models and social investment strategies investing thwir own funds and in some cases risking their lives in the cause while the comfortably salaried and risk averse dictate policy.

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  2. Two immediate responses, especially on the comments about ‘Huckfield’ and BSC
    “Options B and C are both initiatives where BSC in its current form could easily play a significant and useful role. The organisation is not run by bad or stupid people…”
    Doubtless that BSC is not run by bad or stupid people (and I’m not aware of that having been stated, or even implied, by any of its critics or doubters?). But it is populated by people that have ‘bought into’ an essentially unproven and questionable model, that is set within a dubious operating environment. A model, moreover, that many, many ‘socially committed, intelligent people currently operating under constraints’ pointed out from the outset was unproven and questionable.
    In these constrained – and deteriorating – circumstances, the great variety of players in the ‘third sector’ need to ever-more ask themselves to what extent are they achieving ‘social good’ – rather than merely alleviating or even making deliverable and legitimising much of the unacceptable productions of the present UK Government?
    Those players have ‘bought into’ working with some of these productions need to be ready and willing to stand back review and re-evaluate. Just because BSC is there, is big and has the support of the Government (and bear in mind the nature of the present Government) is no adequate justification for that arguing it must be accepted and worked with. For many, many, ‘socially committed, intelligent people currently operating under constraints’ it remains a flawed and suspect contraption.
    (An interesting aside on the ‘alleviating and legitimising aspects: There was a mannered airing of differences at the Poverty Assembly in Scotland last week between those who saw the ‘Food Banks’ approach as something to be respected and even admired – and others who saw it a demonstration of failure and the need for a rejection of and action on the forces creating the seeming ‘need’ for Food Banks.)
    “… Social Impact Bonds ,but they – whether you support them or not – are another distinct category on their own.”
    But SIBs are not ‘another distinct category on their own’ – and that needs to be reiterated time and again. They are a postulation, a pilot (experiment if you prefer) that has been oddly and often opaquely raised and then promoted, including from some equally odd (and at times self-interested) quarters. They have been little, if at all, tested and provan. Yet we find that the UK Coalition Govt has created a whole promotional/implementation team at the heart of the Cabinet Office. The recent tome of a report emanating from that quarter displayed an ‘interesting’ list of contributors and participants – not a single one could be described as anything nearing a front-line social entrepreneur or service delivered, still less a community or voluntary sector local activist or representative.
    With BSC and SIBs it’s not sufficient for their proponents to ask ‘well what would you do?’ The proponents ought to have measured, evaluated and provan benefits and outcomes to offer in the first place – otherwise why the directing and even redeployment of funding and resources from other strategies, models and vehicles?
    WE need to be alert to Vibeka Mair’s telling observation, “Big Society Capital’s remit is not to fund the charity and social enterprise sector, it is to grow the social investment market – this is very different.“ But how many of those who have ‘bought into’ BSC know what this ‘very different’ is or is going to be?

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    • Edward, You’l find Nick Hurd on the Guardian Social Enterprise pages this morning, singing the praises of BSC and a done deal on social enterprise incubators with the usual corporate suspects.

      In the project I mention above we took a stand over the running of an incubator and blocked the project rather than allow it to be hijacked by vested financial interests

      As you so rightly say, the BSC approach is unproven, yet it is promoted to us constantly because of the leverage these groups have on journalism.

      Further on in my colleague’s notes, you’ll find reference to Unicef being wilfully blind to the problems of children being neglected in institutions, of USAID refusing assistance, in spite of a funding program.

      Sourcing an incubator,and social investment fund, or as we described it, a social enterprise development centre was a major part of our efforts and strategy plans in Ukraine. Our proposed centre in Kharkiv ended up in Donetsk as part a project in which The Brititsh Council, PwC and Erste Bank are major partners. Others incluse the John Smith Fellowship Trust and BITC.

      Unicef and the British Council both sponsor hubs in the Guardian

      We tried to defend our work by applying to be partners and, to be ignored. In the end, raising the issue with my MP I learned that we were disregarded because the criteria for partnership selection included the abiilty to make a financial contribution,

      When powerful interests are able to buy into media and development initiatives, we are clearly going to deprived of frontline social enterprise experience and proven ,

      Read the words of a man battling for social justice and his life:

      http://www.p-ced.com/1/projects/ukraine

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  3. Beanbags admin

    The sense in which Social Impact Bonds are a distinct category on their own is that they’re vehicles that enable charities and social enterprises to be paid upfront for delivery, rather than taken on investments which have to be repaid.

    Scepticism about them is completely justified but they’re not directly relevant to the debates about the start-up and growth finance needs of charities and social enterprises.

    My position isn’t that BSC in its present form, based on its current business model should be accepted and worked with, it’s that – as a recipient of £400million of essentially public money – it should be challenged to operate more effectively.

    I completely agree that we shouldn’t be in the position we’re now in but we are. And we’re not going to move the discussion forward by just asking people we disagree with us to give the money back and go away.

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  4. I think that this is an age old conundrum David. Do you work with what’s there and try to influence it, or do you try something completely different? My problem is that BSC is so full of people (including intermediaries) who see social investment in such a different light it is hard to have that conversation. They are talking a different language.

    I tweeted to Jonathan Jenkins earlier this week that the SE Mark could maybe help to talk to social enterprises who are asset locked etc. The retort was that the Mark was narrowing the market – which further emphasises Vibeka’s point that they see their job as to extend the social investment market not to support social enterprise – they just don’t seem to be interested in this ideologically.

    I had an interesting connversation with a French colleague and I think we could learn a lot from them. They have encouraged their equivalent of workplace pensions schemes to invest 10% in the social sector and there are criteria around definition (a Solidarity Mark). This has created a huge pot of resources but now the criteria are under pressure to open up as there is not the demand – or a percieved demand as for financial advisors its seen as too messy – leading to 2-3 key players benefiting but not many others. The pressure to open up is also leading to questions about whether corporates should be included. It also raises the question of whether the demand fits the supply in the same way as BSC.

    What is interesting though is the range of products that are available to the social enterprise sector in France – including soft loans and longer term patient capital – something that it would be worth studying? How we fund this is another question, but your point about cross-subsidy is a good one. This is how many social enterprises operate afterall?

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    • Beanbags admin

      Hi Lucy,

      Thanks for this. Really interesting about what’s going on in France – definitely something that we in the UK should find out more about.
      I think you’re right that some people involved in social investment are talking a different language to many people running social enterprises.

      I agree that we can’t get away from the fact that ‘building a social investment market’ is a different goal to ‘supporting social enterprises’ or ‘delivering positive social change’ – while respecting that most people who are trying to build a social investment genuinely believe the first goal will have a positive effect on the other two.

      It’s unlikely that those of us who see social investment – whether operating through a bespoke market or as part of range of different ones – as a tool to deliver social change rather than an end in itself will ever be able to agree entirely with social investment evangelists on terminology.

      I don’t think that prevents us finding common ground. The danger would be – as some in the social enterprise movement appear to be suggesting – that we decide that ensuring that Big Society Capital and, by extension, the present government’s vision of social investment are not successful would itself deliver positive social change. I don’t think it would.

      My position is that if, in five years time, Big Society Capital is considered a success because – irrespective of its nominal aims – its practical impact has been to make it easier for people delivering positive social change to get the finance they need on viable terms then I’ll regard that as a good result. We may or may not be able to do some things to make that more likely but I think if I we can do, we should.

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      • In the birthday spirit – and in a spirit o mutual respect and ‘working together’ – can I put in a plea for care over language please? I for one am no social enterprise ‘evangelist’. Indeed I find the term faintly pejorative. I support and promote social enterprise (and other approaches) on the basis of empiricism and outcomes – nothing to do with faith or belief.

        Secondly, I know of no-one among the sceptics of BS who argues or suggests that we work towards ‘ensuring’ that BS and the present Govt’s vision are not successful. Whilst noting that the term ‘appear to be suggesting’ is used in this context – it remains an unpalatable implication. The sceptics I am acquainted with, argue that the model and the vision are ill thought-out, lacked consensus from the outset, are cast alongside other significant socio-economic policies and strategies that ensure that they will be almost impossible to realise. Sceptics, arguably, do not have to ‘work towards ensuring’ failure as it seems an integral element in the whole piece – indeed it is that likely failure that is a major concern of the sceptics.

        Incidentally we do not have ‘five years’ to wait around to find out if the BS adventure is to be deemed a success. The BS-sponsoring UK Coalition Government’s deeds and words this very week have ratcheted up the likelyhood of an early worsening of socio-economic pain and disorder. Experiments with BS, in terms of immediacy and impact, pale into insignificance alongside that.

        It may then, unfortunately, turn out that those individuals labelled as ‘evangelists’ turn out to be the prescient pragmatists.

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  5. Sandy

    “Option A is not primarily a social investment issue. The government could (and should) ensure the re-launch/continued existence of social enterprise networks in the English regions by putting up around £1million a year (about £6,000 per local council) to enable each regional body to have £100,000 or so of core funding to exist and provide a focal point for social enterprises and social entrepreneurs in their area.”

    I am relatively new to Social Enterprise and I am employed in Wales using ERDF monies but with my limited experience Option A to me sounds like a godsend a onestop shop! we have so many different agencies here that are not working collabrotively that the social enterprise’s are failing a focal point and good practical help is what is needed and option A seems to identify this.

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    • Sandy, Writing not far from Wales this morning I describe our experience of locking horns with USAID and local government over corruption in the creation of a one-stop shop and blocked our own project to preserve integrity.

      It was the previous network of support agencies however, who put most effort in keeping others from the table, as is so often thw case with publicly funded bodies. A year ago Nick Hurd invited those doing things the new way to challenge him. So be it. .

      http://www.p-ced.com/1/node/77

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      • Sandy

        If we do not work together how can we grow if the previous support agencies put in the most effort to keep others from the table then they should have been challenged and shamed! I would welcome working with all the support agencies for the good of social enterprise and what it stood for, I can only Imagine how hard that would be but I am willing to put in the effort if the opportunity presented itself

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  6. Beanbags admin

    Hi Edward,

    Though from a Christian background, I’m no longer religious myself but I’m a bit concerned for the standing of our religious communities if ‘evangelist’ is now regarded as an inherently perjorative term.

    In this instance, evangelist – which I’m using above with reference to supporters of (Big Society Capital’s version of) social investment rather than social enterprise – is intended to mean someone whose enthusiastic about an idea, and wants to tell other people about it and convert them to it.

    But social investment is currently based more on faith and belief than empiricism and outcomes, and I’m happy that the full meaning of the word used conveys the sentiments I’m trying to express.

    “Secondly, I know of no-one among the sceptics of BS who argues or suggests that we work towards ‘ensuring’ that BS and the present Govt’s vision are not successful. Whilst noting that the term ‘appear to be suggesting’ is used in this context – it remains an unpalatable implication.”

    I think you might reading something more complicated into what I’m saying than what’s intended. The government’s vision is to promote the development of a social investment market through Big Society Capital.

    Leslie Huckfield – whose blog post my original post is partly a response to – is arguing that the government should withdraw the £600million investment in Big Society Capital and spend the money on supporting (a very different vision of) social investment in other ways. A successful campaign for that to happen would ensure that Big Society Capital and the current government’s vision of social investment are unsuccessful.

    I’m not accusing people who want that to happen of being dishonest or underhand – it’s perfectly legitimate position to hold and one that I respect – but I think it’s the wrong approach.

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  7. I don’t think I’d be the only person to advise careful use of ‘evangelist’ to describe others in business or public policy matters, unless in a close and clear context. The term carries connotations of religiosity and/or ‘single minded fervour’ about it, and use of it outside of those contexts will be taken by some individuals to be ‘faintly pejorative’.

    I’m a but bemused when You make the sweeping assertion that:

    “But social *investment* is currently based more on faith and belief than empiricism and outcomes”

    If you intend that assertion to apply to social *enterprise* then we must part and agree to disagree.
    (And I wonder how many public sector commissioning and procurement agents have that understanding if it is to apply to social *enterprise* – especially in the contentious and contested arena of what were local NHS services in England?)

    I suggest that much of what you posted does underlines how Big Society and Big Society Capital is indeed much about faith and belief. Events of the past week (Philpotts tragedy and stereo-typing and welfare recipients etc) imply that the present UK Coalition Government’s ‘vision’ is also as much matter of prejudice and idealogy as much as faith and belief.

    On your comments on the position of Leslie Huckfield,; from what I have read by and of him he does indeed argue for a redeployment of Government funding. He does so openly and in a reasoned, and mostly evidence-based way. He is not ‘working to ensure the failure of Big Society Capital and the UK Coalition Government’s vision’. Notwithstanding your less ‘complicated’ intentions, that language carries an implicitly negative tone – hence my earlier plea for more care on the language used. You have, of course, gone on to clarify that you were not accusinng anyone of being dishonest or underhand.

    Incidentally, the UK Coalition Government’s aim to develop a social investment market could, arguably, be achieved in ways other than through BSG; indeed many observers might have seen BS BSC as a missed opportunity on social investment and the incoming UK Coalition Government. A more consensus-seeking and genuinely inclusive approach at the outset by the UK Coalition Governmnet could well have (and could still) contrive a model of BSC that would secure more extensive support and buy-in (and of course even more transparency and accountability).

    I think we have run around the full course on this and, as I said, agree to disagree. I will leave matters at that.

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  8. Beanbags admin

    Hi Edward,

    This: “A more consensus-seeking and genuinely inclusive approach at the outset by the UK Coalition Governmnet could well have (and could still) contrive a model of BSC that would secure more extensive support and buy-in (and of course even more transparency and accountability).”

    is the the central point I’m attempting to make in both the original post and the follow-up comments.

    As is this: “I suggest that much of what you posted does underlines how Big Society and Big Society Capital is indeed much about faith and belief.”

    I accept that choice of words: ‘ensuring that’ doesn’t convey the point I’m trying to make effectively. The intended meaning is to flag up the danger of thinking that successfully campaigning for Big Society Capital to close (or give its money back) and for the government’s policy on social investment to change would in themselves deliver positive social change.

    I am myself campaigning for the government’s policies on social investment to change but the intention is to warn of that campaign become the end in itself rather than the means to an end.

    Agree with most of comments re: Leslie Huckfield but – probably boringly – point out that I do believe the suggestion that Big Society Capital should give its money back is negative (in a perfectly open and honest way), while I think his suggestions that I agree with (more or less all the rest of them) are positive.

    In terms of evangelist, it’s not really for me to say how other people should interpret it but unlike ‘ensuring that’ in the note above, I’m happy that it does convey my meaning accurately. People are obviously entitled to think the point’s wrong.

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  9. Pingback: Social investors can lend to anyone they like as long as they don’t need the money | Beanbags and Bullsh!t

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