As Homeless Link become the fifth and latest Growth Fund to launch, we consider how the provision of small scale finance has changed since the Growth Fund’s launch in 2015.
I was pleased to attend the launch of Homeless Link’s Social Investment Fund yesterday which not only marked the fifth Growth Fund that has been launched to date but a key milestone for Homeless Link on its social investment journey.
Rick Henderson, CEO of Homeless Link, opening the launch event.
Mark McPherson, Director of Strategy, Partnership and Innovation, told Homeless Link’s story that began with a healthy scepticism on social investment’s role but led to two years of education and consultation events for its members to explore its potential.The social investment fund marks the start of a new chapter with a focus on continuing to learn and providing small loans to its members to help maximise their social impact to address homelessness.
It’s also about two years since Access – The Foundation for Social Investment was launched and the Growth Fund, which Access manages, opened for applications. This makes yesterday’s event at Homeless Link a good inflection point to consider how the landscape has shifted to enable charities and social enterprises to better access small scale finance.
With the benefit of our transparency deal level data, we can now get a sense of, and track over time, the number of small loans (under £150,000) being made to charities and social enterprises. Whilst recognising we have an incomplete picture, in 2015 there were 120 reported small loans (excluding Key Fund as the data was unavailable for 2015) and 173 in 2016. A broad range of investors made these loans from investor such as CAF Venturesome to social banks like Charity Bank and charitable foundations including Esmee Fairbairn. The hope is that the investor base will continue to diversify giving greater choice and access to charities and social enterprises which we’ll hopefully see reflected in the number of loans made each year.
The Growth Fund is a key route to diversifying and increasing capacity in the market which Big Society Capital has committed at least £22.5 million alongside £22.5 million in grant from the Big Lottery Fund. It’s great to see that there are now five live Growth Funds looking to deploy £23 million over the next three to four years with many others moving through the pipeline to launch. It is expected that the Growth Fund will establish new investors offering a different route for organisations to access social investment including membership bodies like Homeless Link. Once the Growth Fund is fully deployed, there will be over £45 million available in blended small loans and grants to charities and social enterprises, and we’ll hopefully see some innovation in product design using the grant elements to take more risk.
In addition to Homeless Link’s Social Investment Fund, the live funds include Resonance’s Health and Wellbeing Challenge Fund, First Ark’s Invest for Impact Fund, Key Fund’s Northern Impact Fund and Big Issue Invest’s Impact Loans England.
So far the Growth Fund has supported organisations like Legacy School Sport that promotes healthy, active lifestyles in schools with a £48,000 blended grant and loan from Key Fund, and Mentis Tree CIC that provides low cost psychological therapies to improve mental wellbeing with a £25,000 loan from Big Issue Invest. Up to the end of March 2017, the live funds have deployed £1.35 million to 22 front line organisations. Further information can be found here.
The Growth Fund isn’t the only game in town for charities and social enterprises with other funders increasingly showing an interest in providing small loans. Most notably in 2016 was ASDA Community Capital, a partnership between Social Investment Scotland (SIS) and ASDA, that uses the proceeds of the plastic bag tax to provide small loans to social enterprises in Scotland and sits alongside the ASDA Supplier Development Academy for social enterprises to support product development and an opportunity to pitch to ASDA. An early success story is Heroes Drink Company, a spirit producing social enterprise, that donates a portion of its profits to the Armed Forces. It went through the Academy and received a £100,000 investment from ASDA Community Capital and additional investment from SIS directly. Its Heroes Vodka is now available in 350 ASDA stores nationwide.
Another growing source of small scale investment is from individual investors that are putting Social Investment Tax Relief (SITR) to use. FareShare South West is one social enterprise that received £70,000 investment from individual investors using SITR to scale its distribution of fit-for-purpose food going to waste to local organisations working with vulnerable people to ensure they have nutritious food. Individuals are also increasingly using crowdfunding platforms to identify and invest in SITR-eligible social projects which we are supporting the growth of by working with three crowdfunding platforms through its £10 million Crowd Match Fund. Southville Community Development Association was one of the first to receive investment from the Crowd Match Fund to support additional, quality nursery care places for children in Bristol.
While there is clearly increased availability of investment, there remains an unanswered question whether the investment products on offer are always what smaller organisations need or want. Earlier this year, Flip Finance published some research on quasi-equity products, finding that only 1-2% of all investments fitted this description. The report finds that investors perceive these products as complicated and extensive, and potential investees are often unaware or are confused by such products. This continues to be an area that probably needs more consideration from a range of stakeholders.
In a similar spirit, these new funding sources only go some way to address the non-financial challenges that small charities face when exploring and taking on social investment. The Institute for Voluntary Action Research (IVAR) undertook research in this area and found that organisations continued to face barriers including hard to understand information, lack of available capacity building and a challenging application process among other challenges.
As the pool of investors providing these smaller loans continues to grows, so too will the evidence base and data on what works, which will help the market overcome these challenges and develop a better solution for organisations. This includes the comprehensive evaluation of the Growth Fund which will follow the progress of the underlying funds and a range of investees over a longer period that hasn’t been done for this segment of the market before.
In addition, there are tools and support available to smaller charities and social enterprises now, including initiatives we are working on with other partners such as Good Finance, an online platform to help organisations navigate the complex world of social investment, and Get Informed which offers practical support to help board members understand the opportunities and risk of social investment. There also continues to be investment readiness capacity building support available through programmes such as Big Potential for a short time and the newly launched Reach Fund.
What’s clear to me is that there’s been lots of activity to increase the provision and support around taking on small scale investment in recent years. As a result, I’m confident that the gap we identified and sought to address with partners in 2015 is gradually closing. I’m excited to see how we shift the dial even further in the next two years to serve this segment of the market and ultimately help the charities and social enterprises maximise their social impact.