Social investment 'helps improve financial performance', analysis concludes

Social investment helps improve the financial performance of charities and social enterprises, an analysis of the £142n Futurebuilders England Fund has found. 

The government-backed social investment fund provided loan finance to more than 400 social sector organisations in England between 2004 and 2010 to help them win and deliver public service contracts. 

The Social Investment Business has been running the fund since 2008 and today, alongside its Social Economy Data Lab with support from the Department for Digital, Culture, Media and Sport, has published findings from the fund’s portfolio.

The research looks at three key messages: patience, flexibility, and investing where most in need.

The average loan length was 13.9 years, with longer loan terms corresponding to higher returns, and adaptability in financial and non-financial offers helped support investees through difficult times.

More than 40 per cent of investment went into projects in the 20 per cent most deprived areas in the country, says the report.

In addition, there were six lessons presented in the findings that cover areas such as employment, financial performance and financial returns, and subsidy, risk, and affordability.

FBE investees employed an average of 15.6 per cent more people three years post investment – creating 1,500 jobs where data was available.

Other key financial metrics, including turnover, net assets, cash, all increased for three to four years after receiving investment, researchers found.

Of the £116.6m issues in repayable investment, total payments of £98m have been received. 

But investment offers using blends of grants have helped provide a substantial subsidy for investees, the report says, and subsidies have helped absorb risk which has helped keep default rates at 17 per cent in 2019.  

Nick Temple, chief executive at the SIB, said: “We believe Futurebuilders has been a success, and provides a useful model to guide the future of repayable finance for the social economy.

"If we want to build stronger, more resilient organisations that help create fairer local economies, improve and increase employment, and shape connected community spaces, then social investment should play a substantial and significant role in the recovery.”

The report also notes that Covid-19 has exposed the need for a fresh approach to how investment is made, citing “a growing body of evidence showing how this pandemic has impacted people and places in different ways.”

Coastal areas, post-industrial towns and the more deprived parts of inner cities have been hit hardest economically, while marginalised groups, especially BAME communities and those with disabilities, have been most affected by the health impacts of the virus.

The report calls for pre- and post-investment support in the social economy to help these communities “bounce back” by providing good employment and secure incomes to local people, bringing local assets into community ownership to ensure they meet the needs of the people that use them, or by offering accessible services to marginal or hard-to-reach groups.

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