To justify the use of precious grant to blend with social investment we have to be confident that blended finance programmes are doing things which social investment on its own (without grant subsidy) cannot do. This has always been the logic behind the Growth Fund; it was designed to fill a gap in the supply of small scale unsecured loans to the sector.
From our management information provided by social investors delivering the programme we can see that this gap has been filled. Our dashboard shows that, since 2016, the programme has enabled 580 investments to be made, with an average size of just over £60k and totalling nearly £40m.
But the Growth Fund wasn’t just about smaller investments. The programme was also designed to ensure that social investment was reaching organisations who would not otherwise be able to access social investment in order to help them grow their enterprise activity. Comparing the “who” and the “where” are just as important to us as comparing the “what”.
We asked our learning partners, the Curiosity Society (CS), to dig into the data about who was receiving investment across the wider social investment market, to understand the differences. Using the deal level data up to the end of 2019 compiled by Big Society Capital and publically filled accounts of borrowers, the CS team compared the Growth Fund to the rest of the social investment market across four dimensions:
- Investees’ median turnover
- Investees’ median net assets
- Proportion of investment by IMD decile
- Proportion of deals by IMD decile
Their conclusion was clear. Growth Fund has typically invested in smaller, more financially fragile organisations, in areas of higher deprivation, than the rest of the social investment market.
And it is doing so at scale: looking at the broader data in BSC’s market sizing, the Growth Fund alone has reached over 500 organisations and now constitutes around 20% of all social investment deals done each year.
Who is borrowing?
To date, Growth Fund has supported organisations with half the turnover and one tenth of the net assets typical of the social investment market. That gap is getting wider. In 2019, the most recent year for which we have data, it was one fifth of the turnover and one fifteenth of the net assets typical of the social investment market
The below graph shows the median turnover of investees over the last four years. The social investment market excluding the Growth Fund is in red. As can be seen the median turnover of investee organisations has grown quite significantly over that time.
The Growth Fund is illustrated by both the green and pink lines. Green shows the median turnover as reported in the public accounts for the investee organisations; pink shows the median turnover as reported in the management information from the social investors. (We have some theories to explain the discrepancy – see below.) Whichever dataset we use it is clear that the median turnover of Growth Fund investees has remained stable.
When we look at median net assets of borrowers we see a similar trend. Growth Fund investees’ net assets are consistently lower than the market and have stayed relatively stable. The rest of the social investment market has invested in organisations with higher net assets and this trend is becoming more pronounced.
Where are they?
To December 2019, a quarter of Growth Fund investment has been into the most deprived 10% of neighbourhoods: four times as high as the wider social investment market.
The following two graphs show the distribution of Growth Fund investments and the rest of the social investment market against the indices of deprivation. IMD decile 1 means the 10% most deprived places in England. IMD decile 2 means the places which rank between 11% and 20% most deprived, and so on.
The first shows this distribution by value of investment, the second by number of deals.
Blended finance through the Growth Fund has enabled capital to flow to organisations working in and employing people in the most deprived communities in England to a much greater extent than other forms of capital.
Making grant available through blended structures to social investors so that they can offer loans to organisations based in more deprived communities, with lower turnovers and fewer assets, and help them to build their trading income and resilience is working.
Next year most of the Growth Funds will come to an end as the last of the funds make their final loans. This data shows us that ensuring the ongoing flow of grant is critical to ensure that charities and social enterprises continue to have access to the finance they need.
Some notes on methodology:
- We are exploring with the social investors why we see the discrepancy between investor reported data and public accounts in the turnover and net assets data sets. There may be some tendencies for investors to exclude certain items when analysing finances to help manage risk, or potentially excluding other entities if there is a group structure, from the one which has actually taken on the loan. There may also be timing differences, with investors looking at accounts before they are filed, or investors may be using management accounts rather than statutory accounts which for various reasons will present information differently. There are also a few errors in the investor reported data which we are resolving.
- CS only included the deals where details were available (for example, ignoring cases where investors did not disclose who got the investment, or where public accounts data weren’t available). That left around 400 deals for Growth Fund and around 750 for the social investment market
- CS had to edit the data to control for risks like double-counting (for example, because Big Society Capital’s deal-level data originally includes Growth Fund too, or because some data is reported as two tranches of the same deal, and some as two deals to the same organisation)
- The location data is based on the post code of the office of the investee organisation. Therefore there is a significant assumption that this is where impact is being delivered. This is more likely to be the case for smaller organisations than for larger ones.