Let’s take a trip down memory lane and ask whether loans or grants are the right approach to getting results for the community.
Last week, the UK social investment bank Big Society Capital published its lending numbers for 2015. The amount going in loans to UK charities and social enterprises is now ramping up fast: £68 million of the Bank’s own money, with twice as much again from co-funders, nearly £200 million in total.
Big Society Capital (BSC) has two aims: supporting finance intermediaries who serve the social investment market, and raising awareness of the whole sector. Its funds come from an arm-up-the-back grab by government on dormant bank accounts – up to £400 million, with a further £200 million directly from the UK’s big four banks over five years. Surpluses generated when loans are repaid mean BSC should become financially sustainable over the long term.
As its name suggests, BSC’s origins go back to David Cameron’s pre-2010 ‘hug a hoodie’ days. Big Society was the big idea back then. But the concept’s author, Steve Hilton, is now 5,000 miles away in San Francisco, and little of the ‘big society’ rhetoric remains (Hilton himself has turned author. More Human – Designing a World Where People Come First has had mixed reviews – some say “brilliant”, others “banal and humourless”.)
Publication of the BSC annual report, however, prompted a trip down memory lane for this author, a journey two decades long. For it was in 1995 that NatWest created the Local Investment Fund, putting in £1 million of its own money matched by the then Department for Employment, Transport and the Regions. Its aim was to provide up to £3 million in loans to social enterprises that had no access to mainstream finance. Plus ça change….
At the time there was much excitement at this new form of corporate community contribution. NatWest is arguably the grand-dad of social investment loans in the UK. When CCBriefing reported on the Local Investment Fund in 1997 we speculated that loans would grow, even if corporate donations were unlikely to disappear. That never happened. In time the Fund itself was renamed The Social Enterprise Loan Fund, eventually merging into the Big Issue Invest Group, the social investment arm of The Big Issue.
Another creation of those times was LBG, formed by six companies including NatWest who consciously rejected the ‘per cent’ approach of simply giving away a fraction of profits. Instead the aim was to invest for impact, and it created a measurement methodology that over 200 companies now use. LBG’s numbers are now even bigger than BSC’s – a global contribution of US $3.6 billion in 2015, benefiting millions of people across 130 countries.
The difference is that these are almost wholly direct corporate contributions, not repayable investments. But both LBG and BSC’s approaches focus on results – the impact achieved. In BSC’s case that’s improved social outcomes for vulnerable and disadvantaged groups, formalised into its ‘theory of change’.
What’s surprising from a 20 year perspective is how few companies have followed NatWest’s early example and added loans to grants in the portfolio of tools they use to make a difference in the communities where they operate. Also surprising is that it took government, not the private sector, to set up a sustainable investment model. Hopefully it won’t be another 20 years before we can say what works best.
Also published at Corporate Citizenship Briefing