The Social Investment Bank

1
The Social Investment Bank
Its organisation and role in driving development
of the third sector

• 10 May 2007
• Toby Eccles

2
The Commission

• Independent commission set up at the initiative
  of the Scarman Trust
• Chaired by Sir Ronald Cohen, we drew together
  experts in the third sector, third sector
  finance, banking, consumer issues and journalism
• Observers from three government departments
• Independently funded by charitable foundations
• Focus on maximising social benefit of dormant
  funds

3
Process pre consultation

• Commissioned the Young Foundation to analyse need
  across the UK
• Initial consultation with voluntary and community
  sector, funders, government and academics
• Considered how best for the Third Sector to use
  the opportunity of Unclaimed Assets
• Published initial findings and ideas as a
  consultation paper in early July 2006

4
Consultation

• Formal consultation ran from publication through
  to 1 December, and included
• Consultation meetings in each of the four nations
• Web based consultation form for those not able to
  attend meetings (over 60 responses)
• Questionnaires on investment needs distributed
  through third sector networks to local
  organisations (over 1,000 responses)
• Additional questionnaires provided to local
  authorities to assess commissioning and potential
  revenue growth
• Met main social investors to assess scale of
  social investment market and appropriate
  financing products
• Worked with financial and legal experts to model
  the finances of the social investment bank and
  consider its governance and legal structure
• We drew together evidence, ideas and submissions
  for March report

5
Third sector and its role

• The benefits of economic growth have been
  unevenly distributed and the costs
  disproportionately borne by particular groups.
• As in other western countries, there are now, in
  the words of the Power Inquiry
• permanently marginalised groups in society in
  permanent poverty, with low educational
  attainment, poor working and living conditions
  and a multiplicity of other conditions associated
  with life on very low incomes.
• The role of the third sector in combating
  disadvantage and building a more cohesive society
  is vital.
• Its ability to respond to need and pioneer new
  approaches beyond the reach of both the public
  and private sectors is almost universally
  acknowledged.

6
Third sector finance

• The third sector is undermined by financial
  fragility.

7
Third sector finance

• It appears that funding is chronically insecure
  and often focused on revenue for current projects
  rather than investment in organisational capacity
  or infrastructure.
• Many organisations are dependent on short-term
  funding from multiple sources that this provides
  little margin for growth and development.
• Most contracting organisations have contracts
  that pay less than the cost of provision.
• The Commission recommends that unclaimed assets
  be used for investment in the third sector to
  develop new products or services, or to invest in
  systems, technology, infrastructure, management
  or other capacity.
• Evidence suggests that better invested
  organisations are in a better position to
  negotiate effectively and advocate for those that
  use their services.

8
Standard funding options

• Endowment unlikely to have a significant impact
• Low flow of funds into sector in comparison to
  need
• No long term structural impact
• Wasted opportunity
• Spend the capital over a shorter period of time
• Potential for the pressure to spend resulting in
  poor funding decisions
• When its gone its gone, again it lacks legacy
  or long term impact
• potential to create further perverse incentives
• In both instances more of the same funding,
  liable to reinforce present poor funding practice

9
Third sector investment

• If the third sector is to continue to grow and
  meet its potential it urgently needs greater
  investment and professional support.
• Suitable capital should become available for
  organisations at all stages of development, from
  charities with no trading revenue, to social
  enterprises that reinvest some or all of their
  profits in achieving their mission and to
  commercial businesses with a social purpose.
• To maximise overall investment, private finance
  should be leveraged where available.
• An independent Social Investment Bank is
  necessary to achieve this goal.

10
Role of the SIB
Government
Banks
Private Sector
Social Investment Bank
National and regional intermediaries

• CDFIs
• Venturesome
• Charity Bank
• CAF bank

• Credit Unions
• Princes Trust
• Bridges
• Futurebuilders
• Social Investment Scotland

• Ulster CIT
• Big Invest
• Triodos
• Unity Bank

Third Sector
Social investment will be greatly increased by
the SIB if private sector capital is brought to
the market by intelligently blending it with
incentives and expertise.
11
Activities of a Social Investment Bank

• The Social Investment Bank would undertake four
  initial activities that should attract
  significant additional finance into the sector
• Capitalise present financial intermediaries and
  fill gaps in the marketplace
• Develop the provision of advice, support and
  higher -risk investment so as to accelerate the
  growth of demand for repayable finance
• Develop programmes of sustained investment in
  specific markets such as community regeneration
  and financial inclusion
• Support existing and new intermediaries in their
  efforts to raise private capital.

12
Modelling the Social Investment Bank

• We have modelled a possible range of activities
  for the Social Investment Bank for the first five
  years in our report.
• The model suggests that with a capital base of
  250 million and 20 million per year for a
  further four years, over 800 million additional
  capital could be leveraged into the sector and
  the SIB would be sustainable.
• This scale would be sufficient for the Social
  Investment Bank to attract high-quality
  professionals and to become a repository of
  experience in social investment in the UK.
• It would also be sufficient to have credibility
  in the financial markets.

13
Example Opportunities

• Development of stable income streams
• Investments made through present intermediaries
• Technical support and equity investment
• Repayments made as percentage of new revenue
  stream
• Transfer of land and buildings to community
  organisations from local government
• Support new/present intermediary to package
  advice, development grants, financial
  structuring, and support in finding partners
• Investment in social enterprises
• Could capitalise specialist intermediary to fill
  this gap
• Potential for debt capital to be raised on top of
  the equity

14
Type of organisation

• The Social Investment Bank should be small,
  adaptable, innovative, and able to take risks. It
  should bring together the best of the financial
  and social sectors. It should act as a
  wholesaler of capital working through existing
  and new financial intermediaries, assisting their
  development and encouraging their growth.
• The Social Investment Bank should be an
  independent institution answerable to the third
  sector, with a governance framework that is
  effective, representative and compliant with best
  practice.

15
Potential impact of Social Investment Bank

• Develop the overall social investment market
• Leverage in commercial or other capital where
  possible
• Maximising impact
• Connecting social market with commercial finance
• Enable the development of an enterprising,
  entrepreneurial social sector