It was originally suggested ten years ago by Labour – a bank to invest in social ventures to get them off the ground. Now it’s been repackaged as the Big Society Bank (BSB), part of David Cameron’s Big Society plan. One of its goals are to encourage public sector workers to set up social enterprises to provide services to the public sector.
New Philanthropy Capital, an organisation that works with funders and charities helping them to increase the impact they have, undertook a piece of research to look at what the potential role of the BSB might be. It’s one of three reports commissioned to look into the options for this going forward, presented at an event in April.
The report, Understanding the Demand and Supply of Social Finance, calls for the BSB to be clear about the role it is looking to play – it can either help social enterprises and charities access capital, in order to increase their social impact, or invest for financial returns – it can’t do both.
The report looks at the three areas of social finance, financial inclusion and social housing.
Their proposals focus on the BSB taking on the role of investing in the investors – the social finance intermediaries who provide finance to the social enterprises, charities and businesses with a social purpose.
Social housing as a potential area they suggest is outside of the scope of the BSB. The needs of the sector are too big for the amount of money available through BSB to have any sort of impact. The other two areas, they are more positive about.
When discussing social finance the report suggests a number of gaps the BSB can fill – commerical loans/investments, soft loans/investments, capital for intermediaries, capital to fund intermediary overheads, building the capacity of the sector and developing new products.
In terms of financial exclusion the report focuses on a role for the BSB in making the third sector lenders, in particular credit unions, self-sustainable. Their proposal centres on the merger of the 271 existing unsustainable credit unions, to create larger more efficient credit unions and by the creation of a Central Service Organisation to minimise costs across the credit union network.
The report also suggests that the BSB should play a role influencing the legal, regulatory and tax environment and calling for greater transparency in the market.
Reading through this report two questions come to mind. Firstly, in regards to the credit unions, I wonder if any of the authors have had any experience of working in a local credit union?
I don’t know what your experience is, but the idea of giving money to three local credit unions so they can merge doesn’t sound as if it’s going to be quite as simple as the report suggests.
Those that set up local credit unions, in my experience, tend to incredibly passionate people completely committed to the needs of local people. It takes a lot of work, from a lot of people, to establish a credit union – even an unsustainable one.
I’ve worked in a credit union, and at other times in advisory role with other credit unions, that are looking to merge. It’s a difficult option for many credit unions to consider – after all the work they have put in, the thought of the credit union losing its identity as it is subsumed into others can be a scary one. Fears are voiced about how such a large credit union could possibly meet the specific needs of their clients, in the way they have been able to, of losing their local feel. Concerns are felt about who will survive the cut as roles are consolidated.
There are many good reasons to merge unsustainable credit unions; it could be a very positive move, creating the opportunity for credit unions to reach more potential customers and to do it in a sustainable way. It makes logical sense.
But what is really needed to make this a success is good leadership to bring those involved through a process that, however much we would like it to be professional and logical, will be an emotional one for many. I am interested in seeing whether the £100,000 or so per merger is going to be enough to address these issues.
The second question that has been bothering me as I read the NPC’s report is whether the BSB playing the role of investor in investors is really the best approach to create the greatest impact.
I think we have become incredibly good at creating industries and new layers of bureaucracy, without really asking whether they are actually needed.
Do we really need to create a new organisation – the Big Society Bank – with new salaries to pay, marketing costs and overheads. Surely we can be more creative and use what is already in existence, one of the larger social finance organisations, to take on as part of the what they do the BSB.
It would mean some people wouldn’t get new jobs, marketing companies wouldn’t win a new contract, utility companies would lose out … but instead more of the money would go to the organisations that actually need it, that are actually creating a social impact in their communities.
I’ve seen this approach of creating new industries and new layers of bureaucracy in other areas of the social enterprise and non-profit sector. With the introduction of social impact measurement models we now have training and opportunities for people to turn themselves in social impact measurement consultants. The social impact measurement industry just didn’t exist five years ago.
This isn’t necessarily a bad thing, help with implementing social impact measurement models, can be very helpful. More investment into social ventures is always welcome. My point is just that if our first response is to create a new industry, or a new intermediary, or a new organisation then maybe we don’t ask the hard questions about whether using existing structures would be a more efficient way to provide the services, so that as much money as possible gets into the hands of the social enterprises and non-profits on the ground actually doing the work.
Having left the UK over a year ago, and now working in Africa, I think I have developed a different perspective on this. I used to be the one who would step into these new industries and position myself as a consultant offering help navigating these new arenas.
This worked in the UK, and other developed countries, mainly I think, because the money was there to sustain these new industries. I, as an independent consultant, did fairly well to be honest.
Investment and funding is more scarce here in Africa, and the need is greater. I think I just don’t feel comfortable seeing such industries – such as the social impact measurement consultant industry – developed here in the same way as I saw in the UK.
Here the odds are greater – we need to be ensuring that as much money as possible gets into the hands of those that are changing the lives of the people in our communities. We need to be more critical of the approaches used in the developing countries, and really test them to see if there’s not a better way to do it here in Africa.
Back to the Big Society Bank. Credit unions are great, and anything we can do to help them become sustainable is a good thing – but lets not be naive about what happens when we work with real, live people. Investment into social ventures – I would just love to see 100% of the money actually in the hands of the social ventures, but maybe I’m the one that’s naive and it just doesn’t work that way.