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£30 million loan fund paves way to attracting game-changing commercial finance for charities and social enterprises
Charities and social enterprises are set to benefit from an innovative new £30 million fund launched today, which paves the way to attract game-changing levels of commercial finance to grow the sector.
The Third Sector Investment Fund is pioneering a model designed to encourage banks and other mainstream institutions to invest in funds which finance charities and social enterprises. Santander has committed £13.5 million, believed to be the biggest single investment by a mainstream UK financial institution into a third party fund lending to social ventures.
The fund enables financial institutions to invest on a commercial basis, which in turn makes more money available for charities and social enterprises to borrow, providing finance they need to grow, deliver better services and create jobs.
It is the UK’s largest fund investing in a wide range of charities and social enterprises across all social sectors, and will make loans of £250,000 to £3 million, both secured and unsecured. It is due to announce its first investments in the next few weeks.
Chancellor George Osborne said: "With social investment, we’ve got a great idea that uses the power of finance to tackle some of the most difficult social problems. It is one of our priorities as a government, and an area in which Britain leads the world.
“Investment into social enterprises can play an important role in our long-term economic plan as well as in addressing the toughest social issues. I congratulate Santander, Big Society Capital and the Social Investment Business in developing the Third Sector Investment Fund, managed by Social and Sustainable Capital, and would hope to see other High Street banks following their lead."
Fund manager Social and Sustainable Capital (SASC) has developed a model, which recognises that different investors have different priorities regarding social impact, financial return and risk. The fund has also attracted £15 million from Big Society Capital, its biggest investment to date, and a £1.5 million repayable grant from the Social Investment Business alongside Santander’s commercial investment.
Nathan Bostock, CEO Santander UK, said: “Santander’s investment will help social ventures grow, provide services to more people and boost their local economies. We believe that supporting positive social change can be a commercial endeavour.
“Banks need to look at alternative ways to support all sectors of the UK economy. The Third Sector Investment Fund follows other innovations in financing smaller enterprise, which Santander has made, such as our Breakthrough programme to support high growth enterprises and the launch of the Santander $100 million Venture Capital fund to develop the Fin-Tech sector.”
Investment is needed to maximise the potential of the social economy
The Third Sector Investment Fund’s emphasis on risk, return and impact responds to a key recommendation in the report by the Taskforce on Social Investment, set up by Prime
Minister David Cameron under the UK’s presidency of the G8, which set out actions with the potential to unleash up to $1 trillion of new private investment to tackle social problems.
UK charities and social enterprises employ nearly 3 million people and contribute more than £55 billion to the economy.2. Access to finance is the single largest barrier to their growth and sustainability, according to a recent survey, preventing them from realising their full potential to improve the services they offer and create new jobs. The shortfall in finance is put at between £300 million and £1 billion a year.
Nick O’Donohoe, CEO of Big Society Capital, said: “This fund is ground-breaking for social investment. It shows that, with creativity and commitment, banks such as Santander can find a way to meet both their commercial requirements and do more to support charities and social enterprises. This is an important milestone in unlocking finance from mainstream financial institutions and exactly the sort of thing we want to use our investments to enable.”
Rob Wilson, Minister for Civil Society, said: “We know that access to finance is one of the biggest barriers for growth for charities and social enterprises and this innovative fund will help to tackle that. This Government has championed the social investment sector, recognising the impact it has in resolving some of most complex societal problems, and the involvement of a major UK financial institution highlights that the market is beginning to move into the mainstream.”
The Third Sector Investment Fund recognises that different types of investors have different priorities: philanthropists, who want their money to have maximum impact on the causes they care about, may expect little or no financial return; socially motivated investors seek both a social and financial return; and mainstream financial institutions want to support positive social change while achieving security of investment and an appropriate riskadjusted rate of return.
Jonathan Jenkins, CEO of the Social Investment Business, said: “Our £1.5 million investment has catalysed a fund 20 times that size, creating the UK’s biggest fund offering straightforward loans to help charities and social enterprises make even more impact. This is a radical way for philanthropists to make their money work much harder to create change.”
Ben Rick, Managing Director of SASC, said: “Charities and social enterprises providing solutions to our social challenges need access to finance to enable them to do their work. We have raised £30 million in this fund by catering for investors with different priorities on risk, financial return and social impact. The fund absorbs this complexity so that frontline organisations get what they need – simple, straightforward loans.”
The Third Sector Investment Fund will run for 10 years and finance activities which allow social ventures to scale up, increase the impact they make, and generate income to repay their loan with interest, for example by providing the investment they need to expand and compete with commercial organisations to take on new contracts to deliver public services.
SASC, which is authorised and regulated by the Financial Conduct Authority and is itself a social enterprise, will identify suitable organisations for the Third Sector Investment Fund to invest in, and make secured and unsecured loans, charging interest of 6%-12%. It will monitor the financial performance of the investment and the impact it makes. It is already open for business and considering its first investments.
SASC and the Social Investment Business now plan to develop similar funds, working with philanthropic funders such as trusts and foundations, corporate CSR programmes, and wealthy individuals, who are interested in using their money as catalytic capital to stimulate multiples of investment for the causes they care about.