Big Society Capital (BSC) believes forthcoming reforms to probation services have the potential to expand the role of social sector organisations in the criminal justice sector. There are details about the reforms that remain uncertain, including the final payment mechanism itself. But as long as the eventual market both incentivizes lower reoffending, and ensures appropriate transfer of risk and reward down the supply-chain, social sector organisations will be well placed to do more, and in turn there will be greater demand for social investment.
We expect the formal competition process for the new probation services to begin in the next couple of weeks. We set out below the main options for social sector organisations looking for social investment to support their participation in this competition.
Prime and sub-contractors looking for social investment
BSC recognises that social sector organisations bidding for probation service contracts may have a range of external financing requirements, ranging from outcome risk finance for payment-by-results elements of the contracts, through to more straightforward working capital for cash-flow management. We also recognise both prime contractors (tier 1) and sub-contractors (tier 2 and possibly even tier 3) may have external financing needs.
In most cases, BSC recommends contacting the growing range of social investment companies that may advise on and/or provide suitable financial products for the probation service market. These include:
• The Social Impact Bond Fund – run by Bridges Ventures – particularly for outcomes finance
• The Loan Fund – which the Social Investment Business Group are now accepting expressions of interest for, with the goal to begin investing in late 2013
• The FSE Group – who are developing a facility to provide loans to the social sector by late 2013.
• CAF Venturesome – who offer unsecured loans and other products
• Key Fund – who offer a range of unsecured loans for organisations in the North and North Midlands
• Big Issue Invest – who offer a range of loan and equity-like products
• Charity Bank – who also offer a range of secured and some unsecured loan products • Social Finance – who provide advice on how to structure bids and raise social investment
• Impact Ventures UK – run by LGT Venture Philanthropy in association with Berenberg, who offer a range of loan and equity and equity-like products