The internet is now a prime driver for economic growth and is continuing to shape how enterprises reach out to partners, funders and their customer/client base. Access to it makes it the conditioning and mediating framework for a discourse about enterprise, from the smallest community business to the very largest corporation.
A recent 2012 study by the Boston Consulting Group – The Internet Economy in the G-20, the $4.2 Trillion Growth Opportunity declared that…
The (internet) contribution to GDP will rise 5.7% in the EU and 5.3% in the G-20. Growth rates will be more that twice as fast – an average annual rate of 18% – in developing markets, some of which are banking on a digital future with big investment in in broadband infrastructure. Overall, the internet economy of the G-20 will nearly double between 2010 and 2016, when it will employ 32 million more people than it does today…
Enterprises – social, community or corporate in governance – ignore web connectivity at their peril. Alongside this bow wave of expansion for connected business comes a shift in perception in what it is that the governance, education, data management, capital and talent needs of our communities of interest are, in order to respond to this internet fuelled growth.
This is a collaborative concept delivered from a number of key internet players in the current EU marketplace. The creators of web based services such as Spotify, Atomico, Seedcamp and Tech City UK amongst others. If the thought of thinking about uber-Geeks and technology puts you off, persist with this article because the thought leaders in their manifesto do have some challenging and innovative ideas that would, if achieved, condition your internet driven social business for decades to come.
Here at SEEM we are always interested in disruptive models of economic creation, good governance, enterprise support and delivery. There are two elements of the manifesto which strike a chime with us and we’ll comment on them below.
Education and Skills:
The manifesto highlights a European Commission study that found across 27 EU countries some 20% of secondary level learners had never or rarely used a computer in their studies. The EU was also critical of teacher training in the IT arena. Our manifesto authors place stress on making teachers digitally confident and with increased competence to rise to the challenge of a digital society.
Teach every child, they state, the principles, processes and the passion for entrepreneurial endeavour from the earliest age. (The web offers a range of free creative, analytical and publishing tools in the Open Source context, that could, for example, transform educative processes around IT if fully adopted).
The final elements of the education manifesto are key to radical economic growth and could, if adopted using the social business framework, transform our sector.
Encourage university students to start a business before they graduate, as well as preparing tertiary level students for a radically different market place. For the social business sector, this chimes well with our debates at SEEM about how to foster the concept of social business creation and support as a life aim in business schools and on IT and commerce based courses.
The authors of the manifesto argue, in a similar vein, that the very largest corporation should open up their training departments to the general public, thereby increasing the critical mass of skills in a community as a necessary condition of creating new, web driven enterprises of every governance hue.
Access to Capital:
Capital is king or queen in starting a new business whatever its philosophical approach to the community marketplace. Revision to tax breaks and increasing the ease with which companies can access finance are mainstays of this part of the manifesto.
Interestingly, the manifesto puts a focus on buying more goods and service from small business. Although not made explicit in the manifesto this is the localism and SME support arguments writ large in EU lettering. It is difficult and complex for small businesses to bid for government contracts in the UK, despite recent moves to make procurement a more open process, but encouraging local purchasing initiatives would be one way to encourage the take up of provision from smaller entities, we think.
The final innovation we recognise in the manifesto is the argument for the creation of a new business form. The E-Corp. This new cross border entity would be creatable on-line and up and running in 24 hours. (A little over optimistic we think…), but the concept holds good. Why should innovative businesses committed to social impact locally not also have the opportunity trade internationally and generate surpluses from outside their local economy to deploy in their own?
This takes the Keynesian notion of ‘leakage ‘ from an economy and reverses its polarity – their leakage can become our social value. Brilliant!
Generated by key thinkers in the EU technology sector, this manifesto none the less offers some innovative and interesting ideas about how to condition change for economic growth across the EU. Changes which are pertinent to start-ups and social innovation across the piece in the UK, whatever profile your business has. See the web site here…
The SEEM Team – thinking about social business start-ups
Ethical business with a social dimension…
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Bruce Davis, Managing director of Abundance Generation, recently gave a short talk on the democratisation of finance. Davis argues that traditional sources of finance are dis-empowering, and that we should exercise our right to change and deal with alternative providers of finance that offer more control and flexibility.
(Abundance Generation is a crowd-funding tool, which allows people to invest in UK renewable energy projects – from as little as £5, using debentures as the financial mechanism of choice to secure a long-term commitment from both the project and the investor.)
See the Davis proposition explained here…
Not all viewers will agree with his position on traditional banks, but his emphatic, if slightly downbeat message, does contain some consistent and widely felt concerns.
His principle point is that we all, highlighted in a recent Mining the SEEM article, suffer from financial cognitive dissonance. Younger people, Davis argues, now understand the power of the web to link reflection on finance and action via a web connected keyboard.
We would argue the same for the emerging Social Finance market. New modes of lending and support, available from non-traditional sources, where key information, data and contact is web based.
A key difference to those publishing and marketing in the social finance sector is that there is much screen space and column inches devoted to the philosophy of the lender, always. The core values and social concerns of the proposition are the key message, always available before control issues are highlighted or the rate card is displayed.
Davis sees alternative finance as a cultural issue. Trust, emphatic support of social and ethical principles are always first for him. This is the default presentation mode for the social finance sector, we would argue.
Mainstream banks are now beginning to make changing accounts and money ‘mobility’ an easier option. Perhaps there is a paradigm shift in mainstream fiscal supply starting to emerge. What do you think?
The SEEM Team – thinking about ethical investment and renewable energy
Ethical business with a social dimension…
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McKinsey & Co began a programme of research in 2011 entitled the Cities Special Initiative. One result of which is a report How To Make a City Great. The short video below offers the company heads a chance to explain their thinking on the project and developing cities around the globe in general.
McKinsey, despite their reputation for defense of naked capitalism and overwhelming shareholder benefit, have a strong record in fostering participatory public sector projects. This report nicely captures some of the philosophy around community and public sector engagement, as well as clearly recognising that pure economic growth in the city or city region does not always automatically deliver social justice or environmentally friendly development. It is refreshing to hear it.
We have recently published an article arguing that the social business sector, or the general economy, may be entering a new social business modality…a revolution in approach, if you will. Read more about community economics here.
It is doubly refreshing to see scions of corporate advance taking a collaborative, community engagement and environmentally concerned tack in this report. The report offers a number of key concepts that cities around the globe embrace, in order to become more economically and socially successful than their peers.
Achieve smart growth
Do more with less
Win support for change
Making a great city anywhere…
Achieving smart growth is based on four key principles, adopting a strategic approach to development, planning for change with the environment a key part of that change, and delivering work that insists on opportunity for all.
Cities do more with less when they manage project expenses with real vigour and rigour. When partnerships are fully explored with realistic outcomes and humanity in their engagements. They make accountability for the project investment paramount and finally, embrace new technology in data, communication, marketing and collaboration.
Cities, the report argues, do best in winning support for change when they build projects and sub-projects around a personal vision, affording charismatic ambassadors for the work to lead from the front. Building teams that are committed and skilled in their areas of expertise, whilst still making all accountable are key drivers to success. And finally, although we have heard this many times in the past in a variety of settings – strive to forge stakeholder consensus, listening, reflecting and empathetically working together to achieve city wide advance.
The report offers some great examples of how fresh thinking can triumph. The city of Toledo, whilst only ranking 182nd in a Forbes list of Best Places for Business in the US, still managed to attract $6 million of Chinese industrial manufacturing investment recently, by sending their committed and persistent city mayor to China three times.
Conversely, the Chinese city of Chengdu, regardless of the rigidity and conservatism of regional government in the country, has a dynamic mayor who has changed the department of Migrant Control, a large issue for Chinese cities, into a department of Migrant Integration – with a clear mandate to increase uptake of education, health resources and community resources – adding to the expanding city’s human capital and enterprise creation.
These issues of quality of life for residents and for economic growth really matter. Urbanisation is not diminishing, it is increasing. By 2030, 5 billion people, 60% of the world’s population will live in cities. 1 billion live in slums, so that not only is affordable housing a key priority, but economic growth – ethical, environmentally careful and socially inclusive – are also compound elements of a great city.
We think the ‘talking heads’ at McKinsey are, in the short film above, describing a city based on the principles of social business. They are just not saying so. The global examples offered in the report text are wholly contingent with the idea of enterprise creation, albeit with social equity and quality of life as an admixture of success.
Also interestingly, if we take the key thematic lines of the report about doing more with less, accountability and good, practical team work across development agendas, we think there is a template for rural communities emerging, who could use these key philosophies to enhance non-urban employment, communications and technological access too.
Which community would not want that, urban or ex-urban?
The SEEM Team – thinking about good ideas
Ethical business with a social dimension…
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We strive for a fairer world, with a more balanced wealth and reward distribution, coupled to a stronger feeling of community response and renewal from the econo-political systems that govern our lives.
This life is a complex and often contradictory experience, with cognitive dissonance – the ability to hold two competing and conflicting beliefs at the same time, particularly evident in our view of economics, trade and banking.
We accept outrageous levels of pay and reward for the minority as a way of perpetuating the systems and processes which provide the rewards for the few. Or do we? Is it rather that we co-operate with a dissonant system of reward and effort in order to preserve our own interests, whilst still feeling uncomfortable about the less well off, the least effective and the disenfranchised communities across the globe?
From the individual view point this might appear rational. From the viewpoint of mainstream commercial and financial mega-corporations this might appear rational. But is there another paradigm emerging in modern economic structures that will gradually change the foci of these denizens of the corporate depths?
SEEM’s meta-view when looking at the financial and social landscape is well stated on our main website…
We think there is another way of doing business that takes a more balanced and blended approach to profits, people and the planet…
This article argues that the new model emerging, which others have called Community Economics and which we have explored in individual elemental form in recent Mining the SEEM journal posts, is a critical driver of perhaps monumental change in the financial world.
Arguably, as powerful a shape shifter as the emergence ofManchester Liberalism in the nineteenth century, or the infamousQuants of the late twentieth century.
Ben Hughes, recently writing for the Community Development Finance Association (CDFA), highlighted the work done by the CDFA and the Community Development Foundation (CDF) in mapping a new Community Economics (CE) framework for the UK. His article also nicely defined the CE concept in the context of this article…
Community Economics is a model that harnesses the skills, knowledge and capability present in all communities; it has the potential to bridge the gap between rich and poor that current, free market economics create, and that we know is failing an increasing percentage of the population denied access to the finance needed to create jobs, opportunity and capability.
The CDFA work goes on to detail some significant structural changes that are under way or which are needed.
Recognising that the local supply chain and enterprise drivers are the bedrock of durable economic change and effectiveness. Community finance, social business and patient capital investors are key lenses through which to view this focal change.
Work towards the establishment of Community Banks, in which CDFIs, credit unions and social investment finance intermediaries play a pivotal role. Importantly, the CDFA stress, oversight and regulation will be driven by the FCA.
(Not a trace of irony here though. We would argue that the constituent players in a Community Bank infrastructure, wholly committed to ethical business, social value and community outcome would truly need only ‘light touch’ regulation, unlike the historic performance of their mainstream predecessors).
Make double and triple bottom line accounting and accountability the norm, not the exception.
Banks are going to release their spatial lending data. Use it to plug gaps in the community ‘capital deserts’ so identified. Exact a Community Investment levy of 25% on bank profits and ensure that investment in areas of high social need becomes a priority.
Develop a nationally recognised score card for banks, tilted towards their social investment performance.
(But couple this to a national advertising and media campaign to make communities both aware of its significance, but also make its value part of the social norm and conceptual thinking for bank mainstream customers…and bankers, we would argue).
Ben Hughes argues that much of this structural development is already extant, which if properly capitalised and managed could transform the CDFI landscape.
To summarise to this point. There is arguably a philosophical change in the economic, enterprise and banking landscape. This is, by the above analysis, realised in two ways.
First, the naked, free market capitalism of the nineteenth century has now been subject to a prolonged critique, which over time has seen the emergence of Social Finance organisations with powerful ethical and community drivers and, most importantly, the emergence of a new form of investment and investor, responding to the community critique.
Second, the complete disconnect between banking, investment and communities has itself been under attack. The activities of the Quants, essentially gambling with others money, the loss of which only realised inflows of more public money, is itself discredited.
The Social Finance movement, the concept of Community Banks et al, are all about re-aligning capital, markets and communities. Where the economic activity takes place and what the human effect will be really matter. In a system where machine trading with capital takes place, this local impact is totally irrelevant, whilst at the same time being the most transformative outcome to be expected, we would argue. (Cognitive dissonance at play…).
There is a third change in the twenty first century which is intimately aligned to the two structural tensions detailed above. It is also connected to the delivery of the Community Economics model. Without a delivery ‘vehicle’, the practical application of theory, then concepts remain just that. Interesting, but none the less, useless as a mechanism to increase human capital and self reliance.
The last part of this article delineates this third conceptual change and stresses the importance of its emergence to social finance. The arrival of the Social Entrepreneur.
Elizabeth Chell, in her book The Entrepreneurial Personality – a social construction, charts the emergence of the entrepreneur from the start of the Industrial Revolution and the claim and counter-claim of mainstream economic theory over the centuries.
Chell cites the contribution to economic theory of the economist Israel Kirzner (born 1930) a member of the Austrian economic school. For Kirzner the entrepreneur is critical to the market. He or she is always alert to ‘profit opportunities’. Kirzner, in his theory of the entrepreneur is also aware of the importance of ‘vision’. Seeing an opportunity extant in front of you is one thing, imagining the effect of the opportunity after investment and development is, Kirchner argues, a completely different skill set.
Kirzner’s concepts build upon the theories of Joseph Schumpeter (1883 – 1950). For Schumpeter the entrepreneur’s role is to ‘…disturb the economic status quo through innovations’. Arguably, Schumpeter was conceptualising about entrepreneurs still deeply embedded in mainstream economic activity. Profit and return on investment for the welfare of the few.
Chell goes on to examine the work of sociologist Anthony Giddens (b.1938) and the Evolutionary Economist Ulrich Witt (b.1946) – exploring the argument around structure and agency and how the entrepreneur fits a contemporary economic model. Giddens argues that the structure and a means of delivery adopted by the entrepreneur depend on the social norms of his or her day. Witt argues that creation of enterprise by an individual depends upon imagination, force of argument and a conceptual belief by others.
It is in this evolved and evolving complex socio-economic structure that the social entrepreneur inhabits in the twenty first century. To return to Kirzner. He has a dictum ‘…the entrepreneurial function is to notice what people have overlooked’. Nothing could be truer with regard to the final player in our own argument.
Creating a World Without Poverty – Social Business and the Future of Capitalism is a book by Muhammad Yunus (b.1940). In it Yunus argues that ‘...unfettered markets in their current form are not meant to solve social problems and instead may actually exacerbate poverty, disease, pollution, corruption, crime and inequality’.
Whilst recognising the important contribution made by large charities to resolve some of these issues, Yunus argues that the solution, a permanent solution to them, does not lie in the hands of charitable endeavour. In third sector settings demand always outstrips supply.
Yunus also argues that Corporate Social Responsibility (CSR) is a good thing. However, the unscrupulous capitalist can still turn CSR to profit by adopting the word, but not the spirit, of a belief in social action and outcome, he argues.
He proffers a solution, a hybrid if you will, which combines the key concepts of a profit maximising business (PMB) with the passionate commitment of the social entrepreneur. For Yunus the Social Entrepreneur is driven by egalitarian, social and ethical drivers – to achieve community change by using the PMB processes for social ends.
A social business, her argues, which donates surpluses to useful charitable ends is to be welcomed, but for Yunus it is the Social Entrepreneur, using technology, new investment models and innovative conceptual thinking that will sustain the social business model.
We would liken it to something we might call the SEEM ‘Knowing Watchmaker paradigm’. I need a watch which is accurate, reliable, fully functioning and comfortable to wear. I need it to get to my next social business meeting on time…but it does not have to be a Faberge timepiece!
Deploying our Knowing Watchmaker paradigm as a metaphor for business structure, it is interesting in all this debate about structural change, social business and community outcome, the old Left, rearguard arguments of the destruction of capitalism and levelling all have completely disappeared. They have been replaced by observation, data and philosophical change that put community and charismatic social leadership to the fore.
Our Knowing Watchmaker can, in an imperfect global economy, as a social entrepreneur still recognise an opportunity to sell his masterful timepieces at a ‘luxury’ rate. In this imperfect world there will continue to be individuals or corporations who wish to spend their surpluses on luxury items.
This neither diminishes capitalism, nor does it redact his technical expertise, long in the acquiring – but where our Knowing Watchmaker differs is that his or her hypothetical workshop is a social business, (…created with professional support from SEEM of course), where the profits are certainly deployed to restock and energise the business with R & D, but the majority surplus is dedicated to the community that both makes up his or her workforce or from which they and their families emerge.
This is still the market at play, striving for equilibrium, but where the failing ‘invisible hand‘ of Adam Smith has become the contemporary guiding hand of social conscience.
If we are rapidly approaching a new Giddens/Witt economic nodality, which we would argue is evident, then having Knowing Watchmakers in the economy is both vital and their proliferation evidence that we have reached a tipping point with capitalism.
In a key section in his book (Where will social business come from?) Yunus extols the energy of youth as being a key motivator in extending the social business franchise across the globe….
…young people fresh out of college or business school may choose to launch social businesses rather than traditional PMBs, motivated by the idealism of youth and the excitement of having an opportunity to change the world.
We couldn’t agree more. If you know a budding social entrepreneur help them verbalise and form their delivery – invest in them. Their time has come. Long live the Knowing Watchmaker…
The SEEM Team – working with interesting ideas.
Useful reading:
Elizabeth Chell, The Entrepreneurial Personality – A Social Construction: publ. Routledge, 2008
Muhammad Yunus, Creating a World Without Poverty – Social Business and the Future of Capitalism: publ. Public Affairs, 2007
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
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‘.
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
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.
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.
Overcoming perceptions of enterprise ‘drag’ in communities
Nick Clegg, Deputy Prime Minister and the the Department for Communities and Local Government (DCLG) have just released a new report Ethnic Minority Businesses and Access to Finance, which following talks with the British Bankers’ Association, commits mainstream banks to a series of policy initiatives to support enterprise in ethnic minority communities.
…the government has agreed with the British Bankers’ Association that the banking industry will commit to a series of measures to improve access to finance for ethnic minority business groups. This includes collecting data through independent research, for the first time, on the experiences of ethnic minority businesses seeking finance.
The Ethnic Minority Businesses and Access to Finance report was published on the 30th July 2013 by the Communities Minister, Don Foster – with the analysis in the report indicating that there is already much good work underway to enhance enterprise funding in these target communities, but that there is also still much to be done.
The report tells us that business in ethnic minority communities carry a quintuple burden to accessing finance…
shortage of collateral
low credit scoring
minimal formal savings
an unestablished financial track record
the difficulty of language barriers
Whilst some of these drag factors can be attributed to any sector where social finance is deployed, for example, language and culture can be additional burdens on enterprise creation in a dynamic, culturally mixed and enterprise leaning community.
The report does recognise interestingly, whilst there is no apparent discrimination or prejudice in play within mainstream financial cultures, the report states, there is strong evidence that ethnic minority entrepreneurs perceive this to be the case and that access to mainstream financial advice and guidance is, in itself, seen as an intimidating process.
The report suggests that banks and mainstream lenders must make a continued commitment to overcome these mis-perceptions.
Finally, the report outlines the role that Local Enterprise Partnerships (LEPs) can play in supporting the policy roll-out, and the particular relevance that Community Development Financial Institutions (CDFI) and alternative sources of finance can play in supporting ethnic minority community enterprise.
Promoting these alternative finance schemes is a strong part of the report action plan, which coupled with our sector knowledge of local communities and awareness and sensitivity to cultural norms, can only endorse the role that Social Finance can play.
On balance the report is well considered and broad in its scope and to be welcomed. The elephant in the corner, despite the passion and commitment of the Social Finance sector, is how committed mainstream banks will be regarding pressure to lend and fund business projects. Their track record to date, even towards core SME support, is not one of sparkling achievement.
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.
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…
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.
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.
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.
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.
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.
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.
Below you can see a short video about the recent winner of the Charity Bank Most Innovative use of Loan Finance Award. Reviive is not only a winner, but also exists from the act of two charities coming together with common aims, to create a new Community Interest Company.
Reviive provides apprenticeships and placements for beneficiaries of the organisation, as well as working to generate profits to the two charities who provide the nucleus of the initiative.
A great exemplar of how charitable endeavour, through the use of Social Finance, can be the route to a grounded, effective and successful supplier of goods and services. In this case recycled and re-homed furniture.
Mary Locke, a Charity Bank impact assessment specialist, describes social loans as ‘…the grease that helps the wheel to turn’, but that it is not the wheel itself. The Social Finance borrowers do the work. A wonderfully distinct separation for the charitable sector.
Mary makes the point that in the not for profit sector, unlike in the private sector, it is effectiveness in supporting beneficiaries and the broad range of ‘social mission’ objectives that the loan finance should be assessed against for effectiveness.
The Charity Bank loan to Reviive was £50,000. Social Finance achieving great outputs!
The second part of Lord Young’s report on business, delivered as business advisor to the Prime MInister, focuses on the importance of the micro-business in the UK. A key plank to the development of enterprise and sustainability, whether in the social sector or not, is the long term growth of organisations with less than ten members.
Growing Your Business – a report on growing micro-businesses offers insights into the importance of the sector, and how, as community populations flex and employment rates fluctuate, it is the micro-business that inexorably feeds the enterprise seed-bed activity of the nation.
The report, publish in May 2013, does contain some reference to the social economy, although not significantly, however the index of resources and the layout of strategies for growth are highly applicable to any ambitious social business organisation.
The report focuses on three key strategic areas for enterprise growth…
Confidence – in the small enterprise embracing the belief that they can make it happen. Particularly important in a groundbreaking Social Business.
Capability – Mapping and deploying your key skills, as well as recognising the ones you do not have, is a key factor in growth. The report clearly evidences that asking for external help is a key indicator of business ambition, but also a key factor in growth and sustainability.
Coherence – a belief that support for micro-business, particularly in the social sector, is ‘…designed and marketed in way they understand, trust and can find…’.
SEEM can play a key part in this role, disseminating good practice, articulating the needs of the sector in a language understood across the piece, as well as working with members and partners to stimulate social finance initiatives and growth across all elements of the sector.
Lord Young covers several key areas on marketing issues in this regard. Do the government articulate or disseminate loans and finance information for any sector widely and effectively?
Is public sector procurement significantly focused on a one stop shop approach, and are procurement processes properly understood, both in the social sector, as well as by the public sector when looking back at us?
This ‘single market’ response to all forms of procurement is of particular importance to the social sector, we would argue. Small or ‘social’ does not necessarily mean unprofessional or ineffective. Do local authorities and other major procuring organisations in the public sector still, even in the summer of 2013, fully appreciate the latent delivery capability of the micro-social sector?
The ‘using what we have better’ section of the report is particularly telling in this regard. Exploit your Social Business potential to the full. Talk to SEEM.
The internet is now a prime driver for economic growth and is continuing to shape how enterprises reach out to partners, funders and their customer/client base. Access to it makes it the conditioning and mediating framework for a discourse about enterprise, from the smallest community business to the very largest corporation. 
