Social investment market needs to expand faster, Big Society Capital says

Social lender's market update admits its previous report last month may have underestimated potential demand

Big Society Capital
Big Society Capital

The social investment market may need to grow even faster than previously thought if it is to meet demand from charities and social enterprises, according to the social lender Big Society Capital.

In a market update, published today, the lender said there were "several reasons" that a report it published in September "may be an underestimate of potential demand".

The First Billion: a forecast of social investment demand, a report published last month by Boston Consulting Group and commissioned by BSC, said it expects annual demand in the social investment sector to reach £750m by 2015, and £1bn by 2016, growing at about 38 per cent a year.

But the market update said the earlier report did not cover every sector where there is a need for social finance, and assumed that charities and social enterprises were "adequately capitalised" in 2012. BSC was established largely because the sector is considered to be significantly undercapitalised.

The update also said there were problems growing the market to meet demand. It said the type of capital available was mostly secured lending, whereas charities wanted lenders to take more risk. In addition, it said existing social lenders only planned to grow at 20 per cent a year.

The social lender also announced four areas where it wants to support the development of new social investment organisations.

The update asked for proposals for new funds, or other new investment models, that will provide funding for social sector organisations working in four fields: payment-by-results and other types of outcomes-based finance; health and social care; affordable housing; and community-owned assets, where local people take over assets such as shops and sports clubs.

BSC said that although it was concentrating on these four areas, it was still interested in new social investment ideas in other fields.

Matt Robinson, director of strategy at BSC, said it had already created one payment-by-results fund, but felt this was an area that was growing so fast that it required more finance. "We see this as one of the main ways that state purchasing is going to flow to anyone," he said. "In areas like criminal justice, children and young people, and employment, there’s a clear direction of travel."

He said that in all the other three areas, there were clearly market failures that his organisation could help address.

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