Last month, we launched the Solutions Collective, a series of roundtable events which aim to make the conversation on social lending more inclusive. The first session on 24 February focused on the role of guarantees in making social lending more accessible. The Solutions Collective is an invaluable opportunity for us to listen to our partners and colleagues in the social lending space. The feedback will inform our social lending strategy going forward, helping to make more capital available which meets the needs of social enterprises and charities.
We have set ourselves two significant targets by 2025:
Diversity: 50% of social loans to be to be taken from underrepresented groups
Reach: 50% of social loans to be available in the most overlooked communities in the UK
These goals challenge both ourselves and our market system to increase the diversity and reach of social lending. To make this happen we will need concessionary capital using levers such as guarantees, tax reliefs and other government backed schemes. It may sound complex but understanding how these different levers work is essential to developing the market: who they affect and most importantly the role they can play in making available capital best suit market demand. This is why the power of a collective is so important.
The role of Government Guarantees
James Burrows, Senior Investment Director at Big Society Capital, led the first session which focused on the use of government guarantees. A particular focus was on our work with the British Business Bank, trying to secure long term usage of guarantees to increase access to social finance. The discussion really came alive when Rob Benfield, Director of Enterprise, Social Investment Business took over to explain how guarantees work in the structure of the Recovery Loan Fund.
Two heads are better than one
The Solutions Collective is open to any individual or organisation that has an active interest in the area we are exploring. Our first session saw representation from fund managers, sector membership bodies, representatives from The Adebowale Commission on Social Investment and individual consultants and researchers who are interested in building capacity and/or improving the range of borrowing products available. What was clear was that regardless of our starting interest, our shared goal was to better understand how we can shape and influence systems and networks to improve access to finance. It is always the case that ‘two heads are better than one’ and in this case many more than two.
As someone who is not an investment professional, I learned lots: from the fact that government guarantees have been a long established 30 + years lever in supporting SMEs to access affordable finance, to recognising the importance of where the guarantee actually interacts in the investment process. Simply put, it guarantees a proportion of any losses that the investor might face, therefore enabling them to take more risk with their lending. This helps to make lending to social enterprises and charities possible, as some investors may not have the risk appetite to invest. The guarantee is almost unseen by the frontline investee but certainly not unfelt.
James says of our work at Big Society Capital "Our work relies on the insights and inputs from others, and it was fantastic to have the forum like this for two-way sharing and learning. We really appreciated the open dialogue, and it was a chance for productive challenge and collectively shaping of our work on Guarantees in such a timely manner."
In order for this to be time well spent we are committed to sharing key takeaways and any resulting updates and progress. We will do this is a series of Insights Papers the first of which you can find below.
Future topics include the use of tax reliefs and catalytic capital, as well as suggestions to explore the role of non-government guarantees. You can register your interest for future sessions and suggest discussion material to inform our social lending work here.
We need to collectively find solutions to the gaps that exist in demand and supply. It won’t be easy but together I am confident we will make progress and that is progress in itself.