Category Archives: Uncategorized

Social investment isn’t working. There was only £4.5m of unsecured lending to social enterprises in 2016. So said Steve Wyler, trustee of Access: the foundation for Social Investment at the launch of the Connect Fund in mid-June.

Social investment is working very well. Big Society Capital’s impact report tells us there was £306m of ‘risk’ investment in 2016: “versus £20m in 2012, an increase of 15x“.

Social entrepreneurs in Scotland aren’t interested in social investment. Laurence DeMarco from Senscot explains: “What we call social investment is based on an intentional misrepresentation – to which the English govt, is party; namely that the third sector can be sustained through loan finance – when everyone knows it can’t… Substantial social lenders are increasingly rejigging funds to get money out the door – but they’re still speaking to a market that doesn’t exist.”

Social entrepreneurs in Scotland are very interested in social investment. This Twitter thread from Alistair Davis of Social Investment Scotland includes the point that: “The Social Investment Scotland team have approved 10 loans in the last 6 wks worth £2.2m- doesn’t suggest a non-existent market.”

As a social entrepreneur considering whether social investment is for you or a government minister, Quango boss or grantmaking trust CEO considering whether (or in in what form) to provide more subsidy for the market, you might find all of this slightly confusing.

Is social investment failing dismally to provide charities and social enterprises with risk finance or is there 15 times as much risk finance available now as there was five years ago?

Is Scottish social investment a non-existent market based on a false premise or a distinctive, unusually successful part of the growing UK market?

As an interested, intelligent person not directly involved in these arguments, you’d be unlikely to imagine that answer to these questions might actually be ‘both’.

The truth is out there 

It may seem slightly bizarre that representatives of two organisations with a shared governance structure can have such different perspectives on the facts (as opposed to any analysis of those facts) about what’s happening in the social investment market.

They share an office and coffee-making facilities. If the Big Society Capital team think  there’s 68 times as much risk finance available as the Access team think there is, how come it’s never come up before?

The answer is that they’re talking about significantly different things. Access trustee, Steve Wyler’s £4.5m of unsecured lending in 2016 refers to unsecured loans made by (non-bank) social investor members of umbrella-organisation, Responsible Finance, to social enterprises.

Big Society Capital’s £306m refers to any social investment in 2016 that was not secured lending by banks. That (probably) includes Steve Wyler’s £4.5m but it also includes (amongst others): Community Shares, equity investments, quasi-equity investments, social impact bonds and investments made by banks, funds and individuals into ‘profit-with-purpose’ organisations^.

Which of these figures is ‘correct’ depends very much on what your priorities are. For Steve Wyler, the priority is relatively small (under £250k), unsecured loans for charities and social enterprises.

From his perspective: “If you are working in a poor community and you require a small scale loan and you can’t provide security, the social investment market just isn’t there for you.”

Even on that basis the £4.5m figure seems very low – there are several social investors that make small loans to charities and social enterprises but aren’t members of Responsible Finance – but Big Society Capital’s closest comparable figure to this (‘non-bank lending’) was £38m in 2015 and seems likely to be around £50m in 2016*.

Big Society Capital, on the other hand, have a wider perspective on what social investment is for. Explaining their approach, they note that: “Social investment is not a single market or product so we work closely with partners to develop solutions that provide different types of finance to meet the different investment needs of charities and social enterprises and investors. We have aimed to find the appropriate balance of supply and demand in each of the many sub-segments we target, to grow the market and not be the market.”

The additional £250m+ ‘risk’ finance beyond ‘non-bank lending’ is (mostly) not meeting the specific needs that Steve Wyler (and many others) believe should be a priority but that doesn’t mean it’s not supporting significant social impact in other ways.

Unfortunately, to give you a coherent broad snapshot** of what’s going on here, it would take at least two more blog posts:

(i) Looking at developments in the market for small, unsecured loans for charities and social enterprises since 2012 to see whether there’s more of these deals happening and what basis they’re happening on (size of loan, interest rates etc.).

(ii) Looking at developments in the market(s) for other kinds of risk finance which aren’t aimed at relatively small charities and social enterprises seeking relatively small amounts of money but are ‘social investment’ aimed at providing finance to support social impact

Given that I haven’t even got time to write that stuff (let alone expect you to read it) my short answer to the question of ‘who’s right?’ is ‘that depends on what you want to happen’.

And my answer to the question ‘what’s going on?’ is: ‘lots of new stuff has been going on in UK social investment since 2012 but, until now, most of it won’t have made it easier for your relatively small charity or social enterprise to get a relatively small unsecured loan.’

The potentially positive news is: ‘as a result of Access investments, many organisations will now have more chance of getting a a relatively small unsecured loan if they want one.’

Disagreeing to disagree 

Viewed from a distance but based on knowing several protagonists on either side, the disagreement between Senscot (and others) and Social Investment Scotland (and others) is not a primarily a disagreement about facts.

It’s an ideological dispute. On one side there is the view that attempting to create a market in ‘commercial’ social investment – where social investors aim to develop a viable business model for investing into charities and social enterprises – is not only practically flawed but morally wrong.

It won’t work (because charities and social enterprises won’t take the money) but also it shouldn’t work (because any charities or social enterprises that did take the money would not be able to pay it back without becoming profitable businesses and diluting their social aims in the process).

On the other side is the belief that, for at least some charities and social enterprises, the money is right and the change in business approach necessitated by taking on the money is also right. That, in some sectors at least, it makes sense for charities and social enterprises who’ve got a proven business model to take on investment so they can become bigger businesses, doing more of what they do in other areas.

Ironically, the Tweeted figures from Social Investment Scotland, when considered alongside the work of others such as Resilient Scotland, suggest that the Scottish social investment market is doing a pretty good job of providing the kind of finance (relatively small loans, often alongside grant funding) that Steve Wyler of Access would like to see more of compared to the the UK market as whole.

But that doesn’t mean the views expressed by Senscot are necessarily wrong. If your focus is supporting (social entrepreneurs running) small organisations with a turnover of under £250k per year (rather than seeking investment of £250k or less), operating in a single local community and just about breaking even with lots of volunteer activity and a few small grants every year, even Scottish-style social investment isn’t much use to you.

I think I’ll go and sit down over there – let me know when you’ve sorted it out between yourselves 

There’s nothing wrong (in the moral sense) with the fact that different organisations and groups of organisations have different perspectives on and priorities for the social investment market***.

One negative alternative, the position of many leading figures in English (some would say ‘London-based’) social investment market between 2010 and 2014, is to avoid discussing differing priorities and promote the idea that ‘social investment’ in whatever form is an inherently good thing that should be supported without question.

But, if we’re trying to make the market easier for charities and social enterprises to navigate, we do have some (collective) responsibility to provide a clear picture of what’s going on so that organisations and social entrepreneurs can understand the options available – and make their own, properly informed judgements about what’s right for them.

While there’s no suggestion that anyone is deliberately not doing that on an individual basis, when current contributions are taken together, the combined picture is a painting of a surrealist’s dog’s dinner.

Part of the solution is more independent data, with clear analysis to explain what that data refers to and clear independent information about products and support on offer. But alongside that, we all have an individual responsibility to be as clear as possible about what we mean.

^For the purposes of this blog, there is no need to know what all (or, in fact, any) of these financial instruments are – beyond the fact that they’re different kinds of investment to the ones Steve Wyler is talking about

*Big Society Capital have not yet published a breakdown of their 2016 market figures. The 2015 figure that is directly comparable to the £306m ‘risk’ finance figure for 2016 is £283m.

**Exploring the detail would need a research project.

***That’s before we even get on to the relationship with wider world of ‘impact investment’

Apologies for the lack of posts on Beanbags in recent months. I’m hoping to post some original material later in the week but, in the meantime, here’s some of my recent publications and blogs for other people:

Social Impact Bonds – An Overview of the Global Market for Commissioners and Policymakers: 

The report, supported by Centre for Public Impact, is here.

A related blog for Pioneers Post is here.

Subsidy blogs:  I’m writing a series of blogs for Access: The Foundation for Social Investment on subsidy in the UK social investment market. To be followed by a short report.

Blog one is here.

Blog two is here.

It would be great to hear what you make of the report or the blogs.

“Times have changed since social investment first began to be big news in the UK in the New Labour years…” my new blog post for Pioneers Post. 

This blog is part of the build up to an event I’m helping to organise at this year’s Marmalade festival in Oxford next week: Social Investment Now Everything’s Changed

The event will feature introductory provocations from Big Society Capital chief executive, Cliff Prior and Finance Innovation Lab’s Executive Director, Anna Laycock. Then we’ll work out what social investment should do to respond practically to (some of) the major national and global challenges that have arisen in recent years.

It’s free to attend and it would be great to see you there.

Happy New Year! At least, let’s hope it is.

2016 probably doesn’t need any further publicity but one recurring theme was that it was a pretty good year for the rip it up and start again brigade: not just in global politics but in the social sectors, too.

One of my particular favourites was the conveyor belt of swashbuckling business leaders explaining that current approaches to doing good were rubbish and that charity, government or both should be replaced by people more like them.

Suck it up

One of those change makers most prominently featured on the social investment circuit was Iqbal Wahhab, founder of restaurant chains Cinnamon Club and Roast.

He published a book, Charity Sucks, as part of Biteback Publications ‘provocations’ series and turned up at the Good Deals social investment conference in Birmingham in November to deliver the message in person as part of a conversation with Big Issue Invest Chairman, Nigel Kershaw.  He also joined Pioneers Post for one of their Black Cab Interviews.

Wahhab’s Good Deals contribution was entertaining but light on detail. The most telling moment came when he was asked a question from the floor about how businesses could solve the problem of meeting social needs in situations where the beneficiary couldn’t pay for the product or service being provided. He ignored it entirely and launched into an unrelated anecdote.

But the discussion was engaging enough to persuade me to buy and read the book, which was equally engaging but equally light on detail. Wahhab’s argument seems to be that some charities – including some that he’s been on the board of – have done some stuff he doesn’t think is very good, while growing numbers of businesses are trying to find ways to do social good as part of their regular business activities. And this shows that charity sucks because business does it better.

While it might be a bit much to expect a full plan to replace the entire charity sector in a short book written as a ‘provocation’, Wahhab fails to offer even a basic outline argument for how we might get from businesses following his example of giving all proceeds from a specified table in his restaurant to good causes and providing job opportunities, to the widespread provision of commercially unviable social goods by organisations aiming to deliver a profit for shareholders. There just some fairly anodyne stuff about shared value vs CSR, triple bottom lines and calls for charity donors and philanthropist to be more diligent.

While I’ve worked with many individual charities and charity leaders who I respect a lot, I’m open to the argument that the UK voluntary sector as a whole is currently in a bit of mess and (parts of it at least) could usefully spend 2017 considering what they’re for and what they’re trying to do. And while charitable registration encompasses a wide range of different organisations with an equally wide range of business models, I agree that many of the business models for service delivery charities (particularly local ones) are fundamentally broken.

If you liked foodbanks, you’ll love supermarkets 

The frustration with Wahhab’s contribution, though, is that he completely ducks the argument that he himself raises. How could business do the actual things that charities do and do them better?

Here’s a couple of possible examples that I’ve made up:

(a) Supermarkets are a far more efficient and sustainable vehicle for providing food for people who can’t afford food than foodbanks. Could large supermarket chains be given a universal service obligation so that anyone who would qualify for a referral to a food bank can get the food they need straight off the supermarket shelves instead? Like the US food stamps system but without the government money, just businesses doing it better.

(b) Property developers are keener on building homes than housing associations are and planning permission often depends on a requirement to build a specified percentage of ‘affordable homes’ and make Section 106 contributions to the local community. But why not cut out the social middle people and get these business people to ‘do it better’ by giving that direct responsibility for housing a set percentage of people on the local waiting list for social housing?

I’m not advocating either of these ideas but they’re examples of the kind of thing businesses would need to do if they were going to replace the actual life and death services UK charities provide.

Do charity critics like Wahhab actually want businesses to do that stuff? If not, how is that stuff going to get done? This isn’t an abstract intellectual discussion – it’s a discussion about if, how and where the least well off people in society get to have their dinner.

Government’s finished so I’m replacing it for $1 million  

Fortunately, not all socially motivated business leaders are limiting themselves to the relatively minor task of replacing charity. For ‘the French Bill Gates’, Alexandre Mars, it’s the state that needs replacing.

While the sub-editors of this Guardian interview with the tech entrepreneur turned philanthropist may have slightly amplified his hubris with the headline: ‘States don’t have the money to do good. Business does‘ it’s not an unfair reflection of the general tone of the article.

Mars has a made some money doing tech stuff and he’s putting some of that money into setting up Epic, a ‘philanthropy middleman’ which channels the donations of other wealthy people to charities. So far: “The foundation, which has staff in London, New York, Paris and Bangkok, has exceeded its 2016 target to raise $1m. As a result, each of the 20 charities it has selected will receive at least $50,000.”

And: “Next year, a further 10 charities have been selected for support (from 2,000 applications), including two more UK charities, sport-based not-for-profit Street League and east London employment project ThinkForward.”

That seems pretty good to me but it’s not immediately clear what it’s got to do with policymakers who ‘don’t have enough money‘ needing business to ‘step up‘.

A useful ‘size of Wales‘-style comparison figure for ongoing social spending in the UK is the budget of an average-sized secondary school. That’s around £4million per year.

The money Mars & co are providing to ‘change systems‘ in social good across the world this year* is enough to fund one of these UK schools for less than three months. The funding he’s putting into UK charities would fund that one school for just over a week.

It’s true that governments in the developing world are now struggling to provide the level of welfare provision that their citizens expect based on the levels of taxation that those citizens are willing or able to pay. It’s clear that business people could play a range of useful roles in solving that problem. It’s less clear that restricted donations of post-tax personal profits – whether by the French Bill Gates, or even the Bill Gates who is actually Bill Gates – is likely to be the most important of those roles.

Where spreadsheets have no aim 

And then, just when many of us working in and around social/impact investment thought 2016 had nothing else up its sleeve, came the exploding cherry on the cake of absurdity: Bono announcing that impact investment wasn’t working and he was turning up to sort it out.

Here’s the intro to the article in the New York Times:

“‘There is a lazy mindedness that we afford the do-gooders.’

That was Bono, the musician turned activist turned investor, lamenting the pitfalls of what has become an increasingly fashionable form of financing: social impact investing.”

By paragraph three the verdict is clear:

“Most of these efforts have had mixed results; either investors lost money, or the social impact was negligible or nonexistent.

It has become, as Bono told me, ‘a lot of bad deals done by good people.’“

The summary is that Bono, Jeff Skoll and a bloke who works in private equity and ‘resembles a Buddhist monk‘ apparently reckon no one involved in impact investing has ever thought of the idea of an impact fund being quite big and measuring the impact of its investments.

To some extent, as a social entrepreneur, I can see a delicious irony in some blokes rocking up and telling impact investors that everything they’ve been doing for years is a load of sh!t – and they should listen to the real businessmen (and rock star) who know how to do things properly and have finally cleared the space in their diaries to tell us.

But however delicious that irony is, the aftertaste is rank.

Anger and stupidity 

We enter 2017 in a moment brimming over with both anger and stupidity – and we need to find ways to channel the anger effectively and avoid the stupidity.

We shouldn’t accept the status quo but nor should we blithely accept *something else*, whatever it happens to be. Alternatives to the status quo, even alternatives proposed by clever business people and Bono, need to be challenged as strongly as the structures and models they’re seeking to replace because social change worth having is complicated and difficult.

*Value of $1million in £ at time of writing around £817,000

For the few of us still bothering to take an interest in the impact measurement industry’s geostationary orbit of planet earth, there’s been a couple of divertingly divergent interventions from top academics at London School of Economics recently.

First up, my friend Julia Morley, from the Department of Accounting, incurred the wrath of impact consultants’ umbrella body, Social Value UK, with her research blaming “an elite group of social investors” for providing “the main impetus for the adoption of social impact reporting” which “may create dysfunctional incentives for social enterprises” as a result.

Perhaps unsurprisingly, Social Value UK offered a storming social media media rebuttal:

Julia’s full paper, Elite networks and the rise of impact reporting in the UK social sector, merits further reading but I’m respectfully sceptical about parts of her abridged argument, albeit for different reasons to Social Value UK.

Who cares?

For me, the idea that social investors are forcing charities and social enterprises to adopt impact measurement over-estimates both the extent to which most social investors are interested in impact measurement and the extent to which most charities and social enterprises care what social investors think.

Maybe we’re seeing more organisations using the word ‘social impact’ on their website and/or calling their annual report ‘Impact Report’ but, as last year’s Oranges & Lemons report illustrated, there’s not much actual impact measurement being demanded by social investors. And, for most charities and social enterprises, social investment remains an obscure siding in the wider market for finance where nothing of practical relevance is on offer.

Impact measurement is a fundamentally important component of social impact bonds (SIBs – see previous) because it’s baked into the business model. Irrespective of our view on whether SIBs provide good value for money, the value proposition makes sense. The organisation (and investors) need to measure impact so that they get paid, the government needs to measure impact so that it knows whether the contract has succeeded on its own terms.

In terms of conventional social investment into organisations, it’s not clear how impact measurement creates value for anyone other impact measurement consultants. Organisations don’t get a cheaper loan for measuring their impact – and that’s understandable because (in general) social investors don’t get a better deal from wholesale investors for proving impact. It’s often claimed that public sector commissioners are more likely to buy from organisations who can demonstrate their impact but, SIBs aside, I’m not aware of any published evidence that this is true.

What’s the point?

I should make clear that I’m not putting this forward as an argument against the social value of impact measurement. I don’t believe it’s acceptable for charities and social enterprises to have no way of determining whether what they do is/remains socially useful – and the reporting systems advocated by impact measurers are one way of doing that. So there be may good reasons why government, grant-funders or others should (continue to) pay for measurement – but (SIBs aside) the commercial drivers for most organisations and investors to fund measurement themselves are (still) not obvious.

Fortunately, as Dan Gregory noted yesterday, some of Julia Morley’s LSE colleagues have some ideas:

There’s a shorter version here.

As Dan suggests, it’s genuinely wonderful to encounter people so optimistic that their response to the fact: “there has been a rise in the tools available for measuring the social impact of business – to the tune of more than 150 impact assessment methods” is: “In an effort to move impact assessment forward, we propose a holistic, transparent platform – called the External Rate of Return (ERR).”

The full situation seems to be that with people primarily on social change failing to do much social impact measurement but creating loads of complicated, highly contested measurement systems that no one uses – so the answer is to create an impact measurement system based on a complicated, highly contested financial measure Internal Rate of Return (IRR) and attempt to get businesses who are not primarily motivated by social change to use it.

As if that wasn’t fantastical enough, the added twist is that the model requires interested members of the general public to turn up a website and vote on the impact data that companies are providing.

On what possible basis would this actually happen? 

If you are not an impact measurer yourself, you probably don’t need to be told that there’s no logical reason why a statistically significant number of members of the general public would turn up to a website and express an opinion on a company’s impact data.

As with many of the specifically social-focused impact measurement approaches, the creators of ERR are apparently focused on creating a theoretical model that would work really well in the event that large numbers of stakeholders on all sides of the equation were interested in it, while seemingly ignoring the question of why those stakeholders might be interested (or not).

While the impact measurement industry is unremitting in its demands, not just for funding but also for changes in the law, there’s ongoing confusion about what problems it’s solving and who it’s solving them for.

As someone who spends plenty of time talking to people doing something or other related to popular financial instrument, the Social Impact Bond (SIB), I’ve long since come to terms with the fact that almost everyone involved has as little idea of what’s going on across ‘the market’ as everyone else.

A prize specimen of confusiana is that the only defining characteristic of a SIB – in the sense that it applies to all SIBs but does not apply to other payment-by-results contracts – is that the people involved in funding and delivering the contracts choose to describe the contract as a SIB.

Usually, though, the disagreements around SIBs are blurry, nerdy ones about things like counterfactuals and special purpose vehicles. How refreshing then, in recent weeks, to see two social investment leaders taking completely opposite positions on a relatively simple point of contention within our world leading SIB debate.

The disagreement is a prime example of the knotty challenges faced by supporters of SIBs (and outcomes contracting more generally) even if, unlike (for examples) the National Audit Office  or Toby Lowe and Kathy Evans, we accept the arguments for these mechanisms on their own terms.

First up: in his the second part of his interview with me for this blog, Big Society Capital boss, Cliff Prior, called for SIBs to become more rigorous in proving their impact. He explained that: “We are doing all we can to get SIBs to be larger and repeat. The evidence that we’ve got from SIBs to date is pretty positive on the social impact but it’s not big enough, and it doesn’t have a sufficient control to compare what would have happened otherwise, with normal service, to convince the Treasury.”

He then added: “… what we need to do next is design the next step of that methodology bigger, more focussed, and with a proper control, so that, in two or three years’ time, we can go to the Treasury saying, ‘Look, this is now convincing evidence of where it works.’ 

The alternative view came from Clearly So CEO, Rod Schwartz who, in his reliably provocative Third Sector column, criticised public sector commissioners on the basis that: “They tend, for example, in many of the SIB structures, to cap investor returns or share out only a portion of the savings.”

Before asking: “Why not be more generous and encourage far greater investment? There is also bureaucratic resistance to the new and a preoccupation with precise monitoring, which can be very costly to implement—on many occasions, this undermines the process and creates deadweight loss.”

And (my bolding): “Might there not be opportunities for considering less costly and maybe somewhat less rigorous oversight? I sometimes feel our search for the perfect is undermining the good.”

BSC in correct shocker

BSC are rarely accused of being right but Prior is right about this – at least in terms of understanding the problem.

Schwartz is advancing a completely legitimate hypothetical position – that, in theory, he believes it would be better if the state spent more via SIBs/PbR and offered contracts that gave investors bigger returns – but it’s not entirely clear what it’s got to do with the actual state of ‘the market’ for SIBs in the UK at the moment.

The situation currently is that:

(a) there are plenty of social organisations who would like to be paid to deliver services via a SIB or another form of outcomes contract (and intermediaries that want to help them)

(b) there are large pots of subsidy from Big Lottery Fund (winding down soon) and Central Government (new phase launched recently) to cover development costs plus an average of 20% (and some cases far more than) of the cost of SIB contracts

(c) there are several investment funds dedicated to investing in SIBs or other PbR contracts delivered by social organisations – and other philanthropic investors who are keen to back SIBs i.e. plenty of investment

What there is not is large numbers of councils and CCGs seeking to fund there services via SIBs – even with Big Lottery or Central Government offering to pay 20%+ of the bill.

Whether or not we agree with Schwartz’s view that public sector commissioners should be setting up more SIBs, there are clearly practical reasons why most of them aren’t.

The biggest of these is that – even in instances where they work on their own terms – most SIBs in the UK don’t offer short term savings to the public sector agency that is actually paying for them.

Proxy abstainers

That hasn’t mattered so much until now because most of the completed or currently ongoing SIBs commissioned in the UK (22* out of 32) have been commissioned by central government departments.

For them, the logic just about works. It’s possible for the Department of Work & Pensions to theoretically bank the savings generated by improving a teenager’s ‘long-term employability’ with a SIB-backed intervention that gets them to pay more attention in school and get better exam results.

The current rounds of subsidy are focused on getting councils, CCGs and other local agencies to pay up.  Many councils, in particular, are currently strapped for cash to preserve vulnerable residents’ basic existences and dignity. They’re not in the market for some proxies for something really good that broadly-related statistics suggest might happen in the future.

If a council is looking to commission an alternative to a service it currently delivers, a SIB-funded option is only a viable option if it: (a) demonstrably provides a better service for the same money than an alternative option or (b) direct and specifically causes another service that the council is paying for to cost less in the near future.

More expensive and worse

At the current levels of rigour, very few councils are choosing to commission SIBs (at least partly because) they’re not confident they can achieve either (a) or (b) – even with 20% (and in some cases far more) subsidy on the table.

In suggesting the way forward is less rigour and bigger payouts to investors, Schwartz is effectively offering a plan to ramp up sales of a heavily-subsidised product that most customers already don’t want while making it more expensive and worse.

That may be the best way to bring in more investors but the UK SIB ‘market’ doesn’t currently need more investors, it needs more customers. Not for the first time in UK social investment, an honourably intentioned investor-focused approach misses almost all the practical points.

Things can only get subsidised 

Fortunately, there are some councils (and other agencies) who are interested in SIBs. Big Lottery’s Commissioning Better Outcomes fund is due to allocate its remaining funds over the next few months so anywhere between 10 and 30 SIBs could be launched in the UK over the next year.

All the indications from ‘the market’ though are that – even if the actual figure is at the higher end of that estimate – there is likely to be 10s of £millions worth of investment, available to invest into SIBs, with nowhere to go for the foreseeable future.

New SIB/outcomes models that offer a clearer demonstration of their value may or may not change that situation. Models that offer higher returns and less evidence probably won’t.