Tag Archives: business model

Mobilising private capital – the Canadian experience

Impact Investment, Private Sector Partnerships, SME Support, Social Finance, , , , , ,

Sometimes looking over the wall at what your neighbours are doing to the landscape of their garden can give you ideas for your own. In this short article we have looked across the Atlantic Ocean to see how, in the last couple of years, the Canadian Social Finance sector has responded to community and governmental demand for increased active social investment from the private sector.

Encouraging social investment: Canada
Encouraging social investment: Canada

Towards the end of 2010 the Canadian Task Force on Social Finance issued a major report – Mobilising Private Capital for Public Good. The Premier of Ontario, Dalton McGuinty, defined the work as being to ‘…help social enterprise and social purpose business adopt social innovation business models; and develop recommendations to enhance public and private sector support for social finance to unleash its full potential in Ontario‘.

Download a pdf copy of the report here…

The report offered seven recommendations to the burgeoning Canadian sector…

1. The public and private foundations should aim to invest at least 10% of their capital in ‘mission-related’ investments by 2020. They should report annually on their progress.

2. The country should establish an Impact Investment Fund, supporting existing activity and encouraging increases in scale and new fund creation for the sector. Regions with no fund should be encouraged to create one.

3. New bonds and legislative change should occur, to foster and incentive flows of private capital tot he social finance sector.

4. Pension funds should deploy their assets into social investment, with government ensuring that the pension funds are mandated to do so, and to offer pension Funds incentives to balance and mitigate any additional risk.

5. Policy and regulation should change to support social revenue generating activities in the charity and not for profit sectors.

6.Tax incentives for social investing should be exploited, encouraging capital to be channeled to social enterprises offering maximum social and environmental impact with their activities.

7. Business development programmes, training and business support initiatives from central government should be tailored to specifically engage with social businesses and not just ‘mainstream’ SME organisations.

Whilst it can be argued, looking at the Canadian shopping list, much work of a similar nature has been started in the UK. However, the push towards incentivising pension funds, delivering mainstream flexed business support directly to the social sector and the adoption of a very broad and generous tax incentive led attitude to social impact investing would add new dimensions of transformation to the UK sector.

The report, Mobilising Private Capital for Public Good, develops the recommendations above and offers examples and capital forecasts for their deployment. Interestingly, the outputs recommended were assessed in a follow-up report one year after publication.

After a year - what happened? Canada
After a year – what happened? Canada

This action and output summary, Measuring Progress During Year One, shows that some 50 million Canadian Dollars (CnD) of new mission investment had been generated by the private sector. New government and private fund partnerships had created 284 million CnD of additional impact related investment, with some 215 billion CnD of assets under management by pension funds who are now signatories to the UN backed Principles for Responsible Investment.

Download a pdf copy of the report here…

The follow up report highlights some achievements and illustrates how the Canadian debate is starting to have a transformational effect of the country’s social impact investment landscape. In the final analysis there is still huge opportunity in this dynamic economy to take the social investment message forward.

In concluding the report illustrates a late 2011 survey on SME take up of government backed services for the SME sector. Only 5% of the SME survey clearly identified themselves as having social outcome considerations. 93% of the survey cohort expressed ‘ambiguity and  confusion’ over social investment issues. With 2% of the government services used by those surveyed explicitly excluding non-profits and the social sector.

Canada has a long and successful history of not for profit and social impact development. These reports show that even with history, public opinion and buckets of radical thinking there is still much to be done.

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Ethical business with a social dimension...
Ethical business with a social dimension…

You can visit the home page of SEEM here…

Best to Invest
– a primer for investors

Social Business News, Social Finance, , , ,
Best to Invest - a report on Social Finance in the UK
Social Finance explained by NPC – clarity and analysis

Published by New Philanthropy Capital (NPC) this month, Best to Invest is a detailed analysis of the Social Finance market, illustrating how investor readiness, sector awareness, governance frameworks and emerging opportunity in the sector have a conditioning effect on present delivery and outcome.

The detailed contents offer insights for both funders and investees when looking at the Social Finance sector. NPC describe the market as being…

…structured around three main players: investors, which include government, trusts and foundations, individuals and corporates; intermediaries, for example Big Issue Invest, Social Finance and Charity Bank; and investees—mainly charities and social enterprises. Investors supply capital to investees either directly or via intermediaries. The investment may take a different form depending on the needs of the investee, the preferences of the investor and the products on offer by the intermediaries.

You can download a full copy of this report, Best to Invest, in pdf format here…

Best to Invest offers the following four barriers to making social investments in the present market context…

  • The social investment market is not yet mature – opportunity costs to entry can be high, with opportunities to invest only now beginning to widely emerge.
  • Good financial returns on endowments need to continue – organisations created in perpetuity need to maintain their levels of income to sustain grant giving as a continued and effective model. Divergence entails risk.
  • Social investments are often complex instruments – governance is often created in different forms for each investment, whilst organisations may lack core skills and advice professionals in tangential sectors are not yet fully up to speed with sector delivery. (Complexity is well illustrated in our recent journal entry Social Impact Bonds – impactful or not…read more here).
  • Regulatory and legal context for investment is also changing – which can be a deterrent to trustees and others, who may perceive a lack of investment advice relevant to the project being considered.

NPC tell us there are two kinds of social investors, those who invest for financial return and those who invest for social return.

In the first case there appears to be evidence that the finance first investor is the one who is looking to diversify their portfolio, to include a social element to their market approach. They will, however, still be looking for a near market rate return on their capital.

The second category of investors, those most interested in social impact, NPC tells us, are often willing to sacrifice their return in order to receive stronger social aims delivery, or to make this sacrifice so that the investment basket which may include more mainstream investors, thereby making  a more viable social return.

Perhaps this is the future of Social Finance, where the pool of capital is drawn from a mixed swathe of well-motivated investors, each with their own expectation on return? (Although, clearly, this would not diminish any of the complexity arguments in the NPC analysis).

On balance the NPC report makes a strong case for an energised Social Finance market. One which is growing, but which contains elements of delivery, governance and risk that are not for everyone.

Social investment is an attractive proposition for funders. Alongside grants, it can help them achieve their mission by enabling charities and social enterprises to scale up their work, develop new activities, and become more sustainable by developing a reliable income stream.

It can also help funders to maximise their social impact by aligning their investment values with their grant-making values. Social investment makes funders’ money work harder: funders can recycle their repaid funds into new investments, meaning that the same money can create social impact several times over.

If you are interested in the Social Finance sector, or developing a taste for investment in the market, then Best to Invest could be the sector primer you have been waiting for.

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Ethical business with a social dimension...
Ethical business with a social dimension…

Visit the SEEM main home page here…

 

Credit Unions
– supporting communities in the next decade…

Credit Unions, Social Finance, , , ,

The Archbishop of Canterbury, Justin Welby, has recently publicly committed the Church of England to the development of the Credit Union network. The church has a ten year plan to develop community credit unions and to make knowledge of their services more widely available.

Expanding credit unions - A DWP report
How to grow credit unions – a feasibility study (DWP)

It is possible that the Church is basing its current development narrative on a feasibility report, published last month by the Department of Work and Pensions, as part of the DWP Credit Union Expansion Project.

The report found the current context of credit union activity populates a community finance landscape with the following characteristics…

    1.4 million have no transactional bank account at present 

    4 million people incur bank charges 

    up to 7 million people use sources of high cost credit

    more than 60% of the 4,500 people consulted for the report said they would use a credit union, if one was available to them…

You can download a copy of the DWP report in pdf format here…

The report also contains findings that the 80% of 95 credit unions consulted agreed that fundamental change was needed in their organisation and there was recognition that they could, and should, offer more modern financial services.

It is recognised in the report that traditional mainstream banking has created, according to British Bankers Association data, some 4 million basic bank accounts since 2003. This number is unlikely to increase in the future now, unless the mainstream banks are compelled by legislation.

The report offers a narrative about change and growth in credit unions at some length. Capacity to deliver and scalability are the key issues, with the DWP positing an argument that a central umbrella body should be responsible for the tactical growth of credit unions and the creation of a sustainable financial structure.

There  are weaknesses in this position. A new umbrella body co-ordinating needed change and ‘managing the money’ runs the risk of becoming another mainstream player in the national financial market. Modern products can quickly develop into yet another High Street portfolio of interest bearing and charge inducing proto-bank accounts.

Is the Church of England the right organisation to carry forward such a programme? Even at this early stage of the discussion there is evidence of conflict between stated social and community aims and the embrace of profit drivers in the sector market place.

Are church communities ideally placed, even at Diocesan level, to push forward a comprehensive marketing plan, embracing the web and new media to facilitate this transformative experience for the credit union sector? How will the injection of faith interests affect the credit union landscape and the make up of any proposed new services?

Credit unions presently rely on grants in aid from a variety of sources, and are not perceived by mainstream financial institutions as sustainable. Is there a Social Finance initiative to be created to help credit unions play an important role in services their customers?

Affordable credit, simple bank accounts with the creation of mechanisms that allow customers to ‘micro-save’ regularly for their bills, with specific local knowledge deployed by branches to enable a bill payments service for customers too – these are some of the additional, innovative services that could be deployed to give the sector additional vitality. All concepts embraced by the DWP report.

Maintaining the local option would be acceptable to the existing network, even though the notion of being a ‘poor person’ lender was seen as a negative, the existing credit unions do have customers who are and make loans to, higher income members of the union network. This cohort of users could be expanded.

Should credit unions, building on this user group, be marketed perhaps as the national key ‘social lender’ of choice, with the Social Finance sector imaginatively supporting local or regional networks of credit unions in line with the DWP report.

Much change is on the way, both from the church, social finance sector and central government we suspect. Our sector will have its role to play we are sure.

If you have a view on this topic let us know. Contact SEEM here.

Ethical business with a social dimension...
Ethical business with a social dimension…

You can see more of the work of SEEM here…

 

 

 

 

Social Impact Bond – impactful or not?

Social Business News, Social Finance, Social Impact Bond, , , , , ,

The Social Impact Bond is a topical, a la mode form of payment by results (PbR) device, to enable social organisations to deliver services in the public sector.

This short article draws on detail a paper by the Charities Aid Foundation (CAF), Funding Good Outcomes, from the Autumn of 2012 and from a more recent article by Caroline Fiennes, in an issue of Philanthropy Impact Magazine, What the First Social Impact Bond Won’t Tell Us.

An arguement for Social Investment form CAF
Funding Good Outcomes from CAF

The CAF paper makes a good case for PbR, and how with support the social sector can engage with commissioning bodies and, with its focus on outcomes, use the sector’s sensibility and sensitivity to change in a community of interest to achieve potentially profound results.

PbR based on outcomes presents a real opportunity for not for profit organisations to win public service delivery contracts. As the focus is shifted away from the exact nature of the service towards the outcomes produced, there is more room for innovation and greater freedom for not for profits to demonstrate effectiveness in their approach.

You can download a pdf copy of the CAF paper here…

The CAF paper looks at several examples of new, or newish, PbR programmes, from The Work Programme, The Youth Contract and the Peterborough Pilot. The paper does recognise the singular and distinctive flaw in some PbR provision for the social sector. Risk, and the inherent pressure of working capital needs as the service is rolled out to accommodate the strictures of the commissioned work.

CAF cite examples where PbR has driven sector players to extinction as a result of this pressure. They call upon the social finance sector to look at alternative methods of capital deployment to accommodate these new service delivery models.

They cite the need for Social Finance to lend to PbR contractors, in order to help sustain the emerging contract.

They call for options which see the commissioning body contracting with the Social Finance intermediary – with the Social Investment Financial Intermediary (SIFI) mitigating risk by calling upon a spread of external social investors to support the contract delivery.

Thay call for SIFI’s to act as underwriters of the contract, providing payment guarantees to well monitored and managed programmes of work. The interesting example they use is the Goldman Sachs model, where a $10 million dollar Social Impact Bond was funded to transform outcomes at Rikers Island Prison in New York.

So, even within the development of new Social Finance modalities, there is the opportunity to be subtle and agile in approaches to contract structure, whatever the scale of the investment, this author would argue.

See the Fiennes article here...
Philanthropy Impact Magazine – Summer 2013

In the article by Caroline Fiennes, What the First Social Impact Bond Won’t Tell Us, the author looks at the prison system too. This time in Peterborough in the UK.

Fiennes presents an argument, that even with elaborate arrangements in place and the agreement to deliver, the analysis of performance to assess the PbR outcomes can still be a flawed and inherently mis-leading process.

The Peterborough Pilot formal agreement sets out processes to repay investors when the agreed outcomes are reached. So far so good. However, Fiennes argues that assessing the level of re-offending by a target group of prisoners, which the contract uses to trigger repayments, is essentially based on flawed statistical assumptions.

You can download a copy of the magazine in pdf format here…

The control group in Peterborough and the individuals receiving the ‘treatment’ are correlated by using a system called Propensity Score Matching. In this case the PSM is of a particularly elaborate kind. Using ten ‘control’ prisoners for each ‘treatment’ prisoner.

Fiennes argues that this methodology…

only ever looks at indicators which are observable, such as age, background and criminal history. Yet is often unobservable factors – such as attitude or resilience – that drive behaviour.

Secondly, the data used is stored on the Police National Computer, which itself is of a very basic nature…where it cannot distinguish whether somebody had problems or a history of heroin use, which obviously would influence their behaviour and the care they need.

The Fiennes paper also argues that it is going to be difficult, even with a ‘successful’ contract outcome, to assess the comparative strengths of the Bond programme, when set against, for example, the good an enlightened and responsive prison governor might achieve, even without the Bond.

Professor Sheila Bird of Cambridge University opines that all of these problems could have been averted, if the the first Social Investment Bond in the UK had been tested against a known intervention with a conventional funding mechanism.

So even having succumbed to the lure of the new, there is much complex reflection needed to justify these new finance tools and to successfully measure their outcomes appropriately.

This does not, we would argue, negate their importance or cease to offer SIFI’s and commissioning bodies examples of financing social outcome, even in areas and communities where the scale of investment and the outcome expected is of more modest proportions.

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Ethical business with a social dimension...
Ethical business with a social dimension…

See more of SEEM on the main home page here…

80,000 hours – how will you spend it?

Enterprise Start-ups, Social Business News, Social Finance, , , , , , ,

80,000 Hours is a website that features a team of Oxford graduates/undergraduates as they develop choices, of career, of lifestyle and direction of travel towards the social economy, or not.

The number of hours represent the average spent by professionals in the course of their working lives. Being committed to social business and enterprise, that not only fosters ethical, equal and fraternal business activity, should be a clear and distinct choice mapped against the drivers of our sector.

This short film, below, offers the 80,000 Hours view of students and graduates and how a commitment to the social economy has changed their life. In the 80k Hours model, pursuit of social outcome and a triple bottom line for your start-up are not two mutually exclusive ambitions.

In the East Midlands should the option to develop a Social Business model, regardless of sector start-up choice, be a readily available and well informed choice? We think so. Oxford cannot be the only centre of academe where social mores and ethical sustainability of enterprise will resonate.

The choice of Social Business as a paradigm for success should be an obvious career pathway in mainstream post-academic life. But these choices are not without conflict. The 80k Hours philosophy has, so far, been intimately linked to the Earning to Give model.You can see another short film and an explicatory narrative about Earning to Give on these 80k Hours web pages.

High paying careers in traditional business sectors, where wealth creation is shared with good causes, may seem an ideal solution to well educated graduates. However, if the core giving is funding by non-ethical, non-inclusive, non-sustainable activity, like arguments about carbon- offset, where is the real benefit to be found?

You can see a well argued case for and against the Earning to Give model on the LessWrong community blog here…

Rather the whole embrace of the Social Business sector, where values, community support and sustainability are embedded in the delivery of surplus generation – we would argue, should be the best model.

Lets start a movement to encourage tertiary education institutions, undergraduates and graduates in our region, to actively consider Social Business frameworks as an imaginative, viable and wholly satisfying career choice. Delivering the third sector on steroids in fact, across the next two generations of enterprise activity.

This project may even be fundable?