How Social Investment Can Benefit Charities and Communities

WHEN it comes to funding, charities and trustees need to re-think the way they access finance to stimulate growth in the North East, as LUCY ARMSTRONG, a non-executive director of the North East Social Investment Company (NESIC) explains.

With fewer grants available, changes in commissioning and greater competition for public sector contracts, charities are having to explore new ways in which to generate funds and achieve their objectives.

To a private sector company needing to achieve its business plan goals, the solution would be clear; raise capital – and borrowing would be high on the list.

In fact, borrowing money is not in itself an innovative way to raise funds – it's always been available to charities – but historically they have steered away from it, relying instead on peripatetic grants and donations.

The funding climate, in the wake of the Brexit vote, remains uncertain, however, pressure on public sector budgets could offer real opportunities for charities and social enterprises in the North East to provide an engine for growth in the region.

The Third Sector can provide innovative ways of delivering crucial services to society. It generates economic benefits, creates employment and makes profit, but it also delivers social impact and outcomes.

And, while delivering social impact, charities and social enterprises are also established on a sound entrepreneurial foundation, where staff are rewarded and profits are generated to plough back into the business.

This marriage of economic and social benefits is already being hailed as an exciting solution to some of the challenges being faced by the contraction of funding from local authorities.

Key to this is social investment, which is simply a repayable loan given to a charity or social enterprise, formed to benefit the community in some way.

Of course, social investment isn’t appropriate for every organisation but, as a business model, there is no doubt that it works.

Trustees need to think like business people. They need to ask themselves if borrowing money will enable their organisation to do its job better, safeguard its future and enable it to meet its aims and objectives.

And, if the answer is yes, then they absolutely should think about borrowing.

The North East Social Investment Company was set up to provide an innovative, regional, strategic solution to developing the market for social investment. It was originally established with funds from Northern Rock Foundation, Big Society Capital, Esmee Fairbairn and the Joseph Rowntree Trust. The Community Foundation have now taken over the role of Northern Rock Foundation

We appointed Northstar Ventures to manage the first fund, the North East Social Investment Fund, which invests in voluntary and community organisations and social enterprises in the region and can help organisations achieve their goals. They have already made a number of really exciting innovative investments.

The changing roles of trustees

AS the funding climate changes, charities and their trustees need to re-think the way they access finance. As LUCY ARMSTRONG, a Non-Executive Director of the North East Social Investment Company (NESIC) explains, the third sector needs to follow the lead of the private sector.

 The late US President John F Kennedy said: “Change is the law of life. And those who look only to the past or present are certain to miss the future.”

 And, for charities and social enterprises across the UK, that has never been more prescient.

 With fewer grants available, changes in commissioning and greater competition for public sector contracts, charities are having to explore new ways in which to generate revenue and achieve their objectives.

 To a private sector company needing to achieve its business plan gaols, the solution would be clear; raise  capital – and borrowing would be high on the list.

 In fact, borrowing money is not in itself an innovative way to raise funds – it's always been available to    charities – but historically they have steered away from it, relying instead on peripatetic grants and donations.

 Lucy Armstrong is a Non-Executive Director of the North East Social Investment Company, which was set up to help stimulate the market for social investment in the North East, in order to create social change and help create a climate in which it can thrive.

“Many trustees are risk averse and have a cultural aversion to the concept of bank borrowing and paying interest.,” she said.

“Often, they feel that taking commercial loans is a risk and is outside their remit as a responsible trustee.                                                           

“But you are not personally responsible if you and your fellow trustees have taken the decision responsibly.

“The world has changed. Trustees have a duty to their organisation to be financially literate and that means they need to consider all the options available to them -including repayable capital, such as loans.”

There are myriad types of loan: overdraft facilities, term loans, revolving credit facilities and, of course, social investment loans.

 Social investment is simply a repayable loan given to a charity or social enterprise, formed to benefit the community in some way.

“Of course, social investment isn’t appropriate for every organisation but, as a business model, there is no doubt that it works,” said Lucy, “and trustees certainly need to consider it.”

Help is available for trustees keen to navigate the minefields of funding and decide which solutions would best meet their needs.

A number of organisations, such as Big Potential, Numbers for Good and the Fresh Ideas Fund, are able to train trustees in issues around finance and borrowing money and to teach them the skills they need to be confident in their decision making.

“Trustees need to think like business leaders. They need to ask themselves if borrowing money will enable their organisation to do its job better, safeguard its future and enable it to meet its aims and objectives.

“And, if the answer is yes, then they absolutely should think about borrowing.”

 For further information about North East Social Investment Fund please visit www.northstarventures.co.uk

Shining a spotlight on social investment in the North East

North of the border, in Scotland, communities have been transformed through social investment. Alastair Davis, chief executive of Social Investment Scotland is now calling on the North East to follow its neighbour’s lead.

Throughout the region, charities and community organisations are crying out for financial help – yet, often, the problem isn’t lack of available funding; it is knowing where to find it.

Banks can be reluctant to offer loans to social enterprises for many reasons and equally, the enterprises themselves can be risk averse, relying on peripatetic grants and donations.

This is where social investment funding comes in. Social investment funds provided by organisations, such as Social Investment Scotland, have helped to fill this void to support growth in charities, community organisations and social enterprises.

Indeed, SIS is the largest investor of its type in Scotland and is a social enterprise in its own right, operating in partnership with a range of organisations who also have an interest in this field.

North East Social Investment Company (NESIC) has been set up to help stimulate the market for social investment in the North East, in order to create social change and help create a climate in which it can thrive. Its first fund, the £9 million North East Social Investment Fund, is run on behalf of NESIC, by Northstar Ventures and it has already made its first two investments

Alastair Davis is a board member of NESIC he said “There is still a lack of awareness within the North East about what social investment is and who it benefits,” he said. “It is simply a repayable loan given to a charity or social enterprise, formed to benefit the community in some way.

“In my view, there are two key groups of people we need to reach. The first is the social enterprises themselves and the second is business leaders and those in control of local authority budgets.

“Council-run community services, such as childcare and the care for the elderly, are vulnerable in the wake of Government funding cuts.

“Yet if the people who provided care in the home, for example, were to form their own social enterprise then those services could not only continue, but the impact on the public purse would be significantly reduced.

“And existing enterprises have proved that the quality of service can improve when the staff stop being employees and become stakeholders with a vested interest in the success of their organisation.

“To really maximise the benefits of social investment, however, there needs to be communication within the eco-system of the North East: between local government, the private sector and third sector.”

“NESIC has a real opportunity to raise the profile of social investment, so that social enterprises and local authorities are aware that there is a source of funding which will directly benefit local communities.

“Of course, social investment isn’t appropriate for every organisation but there is an increasing desire among the financial communities to provide funding and, as a business model, there is no doubt that social investment works.

“It is a new way of funding vital community services and interests, using private rather than public money so everyone benefits and NESIC plays a pivotal role in the process.

“Anyone wanting to either find out about social investment or to apply for it should contact North East Social Investment Fund at www.northstarventures.co.uk and, if it turns out to be the right way forward the Fund managers will be at their side at every step of the way.

“I have seen at first hand that social investment works. It has worked and continues to work in Scotland and it will work in the North East.”