Social investment market needs 'comprehensive structural reform', warns Commission

The Social Investment market in the UK stayed “fundamentally the same” between 2011 and 2019 and is in need of “comprehensive structural reform”, according to the independent Commission on Social Investment.

Its report, based on evidence compiled over two years, found that “the needs of social enterprises have been deprioritised over the past decade”.

Based on evidence from 300 social enterprises, the report found that regions and UK nations “have been underserved by social investment”.

Among groups missing out are Black-led social enterprises, the Commission warns.

“Social investment continues to have a serious problem with inclusion and equity particularly, although not exclusively, in relation to race,” said the Commission.

A key barrier is the structure of the social investment market and institutions within the market such as Big Social Capital.

These structures fail to offer “patient, concessionary capital” and “flexibility” around lending.

Being called for is a governmental social investment strategy “to provide renewed clarity and purpose to the social investment market”.

A £400m Frontiers Fund should be set up and given to a “reformed” Big Society Capital to “provide enterprise centric finance to social enterprises”, said the Commission.

In addition, an extra £100 m investment should be made to Access – The Foundation for Social Investment to bolster blended finance options, involving grants and loans.

Other measures include a “Flexible Capital Taskforce” to work with charitable foundations to increase investment in social enterprises “and unlock £380m of new capital by 2030”.

There also needs to be a £50m social investment fund to tackle inequality and better support Black-led organisations.

The creation of a loan guarantee scheme to provide security to investors as well as regular investment for place-led social enterprise infrastructure is also called for.

“We need the social investment market to get back on track by putting the needs of social enterprises at the centre of everything it does,” said Commission on Social Investment chair Lord Victor Adebowale.

“This means finding flexible sources of capital which can accelerate the growth of social enterprises and provide workable investment to disadvantaged organisations, such as Black-led social enterprises.

“It means reforming the institutions of the market so that they are all completely focused on the needs of social enterprises.”

'Enterprise-centric' finance

Access chief executive Seb Elsworth said the Commission’s report was a “substantive, thoughtful and timely contribution”.

“The call for more 'enterprise-centric' finance for social enterprises is key to delivering the outcomes we all want to see,” he said.

“The good news is that we know how this can be done. As the report says, blended finance and smart use of subsidies are now proven modes to achieving this. This approach has transformed the supply of small-scale lending over the last five years and, by combining loans and grants together in a blended package, finance is flowing to the places which need it the most.”

He added: “The creation of a black-led social investment intermediary would be a positive step forward and would build on work already underway across the social investment sector.”

Big Issue Invest, UnLtd and Shift, which have partnered to create the £25m Growth Impact Fund, say the Commission’s findings “echo our own evidence that social investment does a poor job of reaching those it seeks to serve - social entrepreneurs”.

The report also “demonstrates that institutional racism and other discrimination remain a critical problem,” they add.

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