I was pleased to see the first report from the Social Investment Intelligence Network (SIIN). The SIIN is a new initiative aimed at gathering and sharing more up to date intelligence about the demand for social investment from charities and social enterprises. It brings together a group of sector leaders from around the country to provide their informed perspectives on the development of the social investment market and how it could work better for them.
The SIIN is funded by Access via the Connect Fund.
Four things particularly struck me from the report:
Firstly, there was a strong perception that the lack of availability of unsecured finance was the biggest problem in the market. I’m surprised that this is still considered such a barrier. There is no question that this gap has been a major problem for a number of years but more recently things have begun to change.
Since 2015 under the Growth Fund, Access’s blended finance programme which is delivered in partnership with the Big Lottery Fund and Big Society Capital, 12 new funds have opened offering more than £36m in small scale (sub £150k) unsecured loans to charities and social enterprises. Over 100 loans have been made to charities and social enterprises around England and a handful of further funds will open this year. This is in addition to the number of unsecured loan funds financed by others, including SASC’s Third Sector Loan Fund, which offer larger deals. Good Finance has also helped significantly improve navigation through the market.
So why the perception, and what more do organisations like Access and our partners need to do in order to raise awareness of the availability of unsecured finance? Some of these funds are themselves relatively new and a lag in perception should be expected. But I wonder whether there is a more fundamental question about how the range of social investment products which are available is communicated?
The report also suggests that members of the SIIN have experienced the criteria of funds narrowing. I would really like to understand this more clearly and hope the SIIN can pick this up in the next report.
Secondly, cost of capital was not considered to be a major issue, even when standard interest rates of 6-8% were compared to base rates. Given the markets in which charities and social enterprises are operating, affordability of finance is more a question of the margins on revenue models than the cost of capital. As I’ve written about before in Third Sector, for a small loan over 3-5 years, the difference in monthly repayments between a few percentage points of interest is marginal.
Thirdly, there is some important granular feedback about experiences of engaging with social investors; both positive and negative. Some of the variations in experience seem to relate to how well the individual at the social investor knows the sector.
However, more worrying is feedback from one panellist who explained how her organisation’s experience of dealing with investors seemed to change based on whether she or a male co-director were leading on the negotiations. “Race and gender and age were all perceived as part of the problem”, the report states, and while it might be expected that social investment would “be better” than other sectors at overcoming these “typical societal barriers”, it doesn’t seem to always be the case.
All of us in the sector have to do more to address issues of diversity and inclusion. Another Connect Fund grant is specifically taking forward the work begun at the Gathering in early 2017 to improve diversity in the social investment sector itself. Three times a year we bring together all of the social investors who are running loan funds funded by the Growth Fund and this was the main discussion at our most recent meeting in January, with social investors sharing practice with each other and with colleagues from Big Lottery Fund and BSC. We will continue to support our growth fund partners on issues around diversity and inclusion.
Continual intelligence from the SIIN on this issue would be an important part of the picture.
Finally, feedback on experiences of “investment readiness” and thoughts on how this sort of capacity building can be better enhanced, is timely for us at Access as we set up our new enterprise development programmes. Suggestions focus on making the model of delivering support more flexible, including backfilling the time of senior staff to undertake more of the development work directly rather than always bringing in third party consultants. This chimes well with our thinking set out in our strategy, and the recent report from Social Investment Business, looking at learning from the portfolio of investment readiness programmes they have run over the last six years.
Again I would welcome further views from the SIIN on these programmes as they continue to evolve.
The SIIN promises to play an important role in the social investment market. I will be looking out for the next reports and will read them with interest. I hope the network will continue to stimulate debate and we can create the feedback loops which better link demand and supply within social investment.