Big Society? Don’t bank on it

I saw Sir Ronald Cohen on Channel 4 news a couple of weeks ago talking about the launch of Big Society Capital (BSC), of which he is the chairman. There was something about the interview that didn’t ring quite true. Not that Cohen said anything especially controversial or problematic – it was the concept of the fund that just seemed like a mistake to me.

As a former employee of a third sector recycling organisation, Avon FoE, which fell victim to cash flow problems, my yardstick for measuring the potential of the fund is whether it could have helped organisations like mine, or others that I think are performing socially useful roles, to grow and thrive. And my strong suspicion is that it wouldn’t.

The vulnerable vanguard

There is a strong tradition of third sector involvement in recycling and reuse. Before local authorities were driven to start providing residents with these services, it was groundbreaking not for profits that led the way. Wherever local authority service provision remains at a low level, the not for profit sector has found a way to contribute – these days most notably through community composting, textiles banks and furniture and wood reuse projects.

But the story isn’t one of unalloyed success. Many charitable providers run on a shoestring, and are vulnerable. The recent furore over the proposals for a pan London textile contract arose from genuine concern about charities losing an important income stream. Meanwhile, the travails of ReZolve Kernow were brought about by changes in how Government funds training. One of the most vulnerable points in an organisation’s lifecycle is when it tries to expand. For NfPs that are short of capital and have tenuous cashflow, taking on new work can be a big risk.

It’s at times like these that investment could really help. Often the sums involved will be relatively small, but can make a big difference when a charity’s directors – who can be liable for its debts if they don’t take proper account of the interests of creditors – take a view on whether month by month it remains a going concern.

Iffy SIFIs

So could BSC, with £400m from dormant bank accounts and half as much again from the big banks, be a lifeline for charities and social enterprises looking to expand their contribution? Well, it certainly won’t be directly. BSC only invests in Social Investment Financial Intermediaries (SIFIs), not in front line charities, and expects to achieve a financial was well as a social return. It will therefore expect a healthy rate of return on the money it lends – which the intermediaries will clearly need to exceed through the interest they charge on loans. While the focus on social enterprise is positive, the question arises as to how the money available from BSC will be on any more favourable terms than regular investment.

Clearly, BSC funding won’t be a panacea. For environmental social enterprises that have a viable business model and just need some seed funding, it may well be that a SIFI will be interested. WyeCycle in Kent, a social enterprise that runs a furniture re-use and community composting scheme, calculated in 2006 that just £25k of capital would be required to start a community composting scheme capable of processing 300tpa of green, food and card waste. There are community composters up and down the country that are able to combine a thriving business with additional social benefits such as reintroducing former offenders into work – and a sudden new pool of SIFI money could help more to start up.

But some social enterprises that are making a big contribution to society have benefits that are less readily translated into a financial return. I read recently about a scheme supporting women who are trying to escape from domestic abuse; the Just For Women Centre in the village of Stanley, County Durham.  It seems like a phenomenally useful enterprise, which has helped around 250 women who have suffered from domestic violence, abuse, bereavement or depression since opening in January 2011. Its income is largely derived from selling recycled rugs, cushions and jewellery made by the women who attend, but that isn’t proving to be enough and the centre is facing closure.  It isn’t easy to see how the valuable social benefits it achieves can be monetised – indeed, there may initially be a cost arising from the women’s increased awareness of the services they can access to help rebuild their lives.  However, the longer term social benefits are massive – but I don’t see how an interest-bearing loan from a SIFI would help it maintain or expand its provision.

And that’s my concern about the BSC in a nutshell. Its model will undoubtedly work for some social enterprise activities – the less risky, larger and more mainstream – but many of these could be supported by more traditional sources of finance. If the BSC’s approach to achieving social aims becomes the norm, it may be harmful to those equally socially useful, smaller and locally based groups whose benefits are real and tangible, but not financial, and which rely on grant funding and donations to survive. For them, the BSC is certainly not something to bank on.