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  • 1. The Social Investment Bank 10 May 2007 Toby Eccles Its organisation and role in driving development of the third sector
  • 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.
    • 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
    Process pre consultation
  • 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.
    • 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 it’s gone it’s 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
    Standard funding options
  • 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 Third Sector 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
    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