Flipping the coin: What Government could do to increase demand for social investment in charities

September 10, 2013 at 12:46

Last week we responded to the consultation on a tax relief for social investment last week – the Government’s latest initiative to increase the supply of investment. As well as raising a number of concerns with various aspects of the relief, we also included some ideas for how the Government could stimulate greater demand for social investment, by more effectively engaging charities in their efforts. Here’s what we put forward:

Positioning is key: First and foremost, we urged the Government to see social investment not as a solution to the charity sector’s funding challenges, but instead to recognise that it has a genuinely transformational potential for a relatively small segment of our sector. Once this is understood, it should target its efforts at identifying the characteristics of these organisations and meeting their specific needs.

Support at all stages: Big Society Capital has £400m of public money to channel through social investment intermediaries, yet the Social Incubator Fund and Investment and Contract Readiness Fund (ICRF) – two key sources of support for charities interested in pursuing social investment – have received only £20m combined. We know that the ICRF, at least, has experienced very high demand in recent months and most of its £10m has now been allocated – so we called on the Government to expand this valuable source of support, and to ensure that support is available for charities interested in social investment, whatever their size. However, we would caveat this strongly to highlight that this should not come at the expense of other existing forms of support to charities, such as grants.

Look at the numbers: Social Banks (dominated by Charity Bank, Triodos, Unity Trust Bank, Co-op) accounted for 82% of social investment in 2011/12, but 99.8% of this was secured lending. Meanwhile future demand for social investment is predicted to be dominated by unsecured lending (58% of all demand by 2015, £435m), but in 2011/12 this accounted for only 5.2% (£10.5m) of all social investment. We urged the Government to open dialogue with the four main social banks to explore options for increasing their level of unsecured lending.

Increase awareness and understanding: In our latest Managing in the ‘New Normal’ survey earlier this year, 79% of charities had not even considered social investment, and a similar proportion hadn’t considered any form of repayable finance. We asked the Government to provide funding for a training programme to better inform charities of the options available to them through social investment, and how to go about accessing these.

Better research, more effective policies: There is a lack of research into the ways in which different forms of social investment (e.g. unsecured loan, secured loan, quasi-equity, bond, social impact bond etc) can effectively meet the specific needs of charities in different circumstances. We called on the Government to carry out further research in this area and use this to inform their future policies.

We’re keen to hear others’ views on this subject, so whatever your interest – charity, investor, intermediary or other – please do get in touch and let us know your thoughts: policy@cfg.org.uk.

Read CFG’s full response to the consultation here, and a letter we wrote to George Osborne highlighting our views.