Big Society Capital is an independent financial institution with a social mission, set up to help charities and social enterprises find the right kind of repayable finance they need to do more of their fantastic work.
We are both a market champion for social investment, helping to build a system that makes it easier for organisations to access social finance, and a wholesale investor.
There are two big headlines for 2016.
The first is that BSC has more money: the Reclaim Fund has now passed through the first £300m from Dormant Accounts, alongside the full £200m committed by the high street banks. This is some months earlier than originally expected, and came towards the end of the year. We have fully deployed the additional funds in our positive social screened treasury facility until it is used for social investment.
The second headline is that the amount of money reaching the frontline has more than doubled – and with the match funding attracted in from co-investors, it has jumped by 140%.
There is an inevitable lag between BSC receiving funds as a wholesaler, committing them to intermediary investors, and finally arriving at the front line of social organisations. In the past, the lag time has been a major worry. Now drawdown is catching up. That’s excellent news: it means more social benefit, and stronger charities and social enterprises. There is still more to go on this, more work to do right along the spectrum from helping charities and social enterprises make informed decisions on whether social investment is right for them, getting guidance on which social investors might be most relevant, to making the contracts and legals as straightforward as we can to make closing a deal less onerous.
Alongside the drawdown, we committed another £79m of BSC funds matched by £227m of co-investment. This is a much higher proportion from external investors than ever before. The match ratios for signed up funds have moved from £12 for every £10 of BSC money, right up to £16 for every £10. For funds drawn down to the front line, it’s reached £23 for every £10.
We’ve seen a general increase in co-investors coming into social investment, but particularly into social housing – this is the area where financial institutions are already interested, and where the scale of investment fits their preferences. It’s much harder to find co-investors for work in areas like innovation. Foundations, local and national government, and individuals putting their money into social bank deposits, are all vital contributors to some of the most important areas of social investment, and we would like to take this chance to thank you as the pioneers who are opening up a better social finance system for the future.
The new commitments include some very powerful new approaches, building a more diverse range of social investment tools and opportunities.
The Bridges Evergreen Fund is the sector’s first “holding company” model – long term funds for larger scale, more established social ventures, loans which do not have to be repaid on a short cycle. Right at the other end, Bethnal Green Ventures and Mustard Seed work with early stage ventures, accelerating their development. Access – The Foundation for Social Investment have committed to their first set of funds, providing the smaller loans which so many social sector organisations have been calling for.
BSC has made commitments into three crowdfunding platforms, offering match funds to stimulate public engagement in personal social investment. UK crowdfunding is already massive in both donations and business lending: these new commitments aim to fill in the gap with social investment. And two new models support communities: the Pure Bridge Loan Fund allows community groups to own solar farms, creating income streams to support community activities, and the Community Led Housing Fund helps people develop affordable housing that’s needed and wanted in their locality.
These additions run alongside BSC support to intermediaries such as social banks and advisers, and of course there is a great deal of social investment activity developing without BSC funds, for example with Triodos and funds like CAF Venturesome. We have also identified what we think are the key building blocks of a successful intermediary, and will pilot some support work with organisations next year.
It all adds up to a growing range of options for organisations considering social investment. So how do you choose what is right for you? In partnership with several other leading social agencies in this field, we are developing goodfinance.org.uk to provide the entry level information you may need to find your way to relevant investors. It’s in beta right now, and will develop extensively during 2017.
So what comes next?
Some things we can predict with confidence as they are well on their way to commitment. There will be several more Access funds in 2017, opening up the geographic and specialist range of coverage to enable charities and social enterprises to find opportunities for smaller loans. BSC has committed alongside JRF to establish the Fair by Design program which aims to tackle the poverty premium: the extra costs people on low incomes face in areas such as household goods, utilities and communications. We also expect to support the Housing First model which allows homeless people to go directly into long term housing with support, rather than starting in hostel accommodation – a change in approach which has strong international evidence behind it for changing people’s lives for the long term.
But 2017 is likely to be a volatile, largely unpredictable year, with the big surprises of 2016 playing out in all kinds of ways. Despite the randomness of recent events, there are some strong underlying trends. The public at large is ever more interested in where their money goes. Institutional finance is waking up to this and we are seeing more and more developments which might bring funds into social impact: it won’t be perfect, and they will be on a journey, but we believe there will be benefits. Government may have less capacity given the burden of Brexit work, but again there are some important initiatives, from specific programmes like the Life Chances Fund to broader interest in important areas such as inclusive finance and retail social investment.
At BSC, we will be working with the intermediary investors, with co-investors, foundations and grant makers, with government, institutions and innovators, to seize the opportunities in these developments to tackle some of the most pressing social challenges. Social investment is a tool, a means not an end. It’s rare that one tool can solve a complex problem. But in partnerships and collaborations, the tool we have to offer can sometimes turn the key to change. That’s our job.