The other side of financial innovation
Can financial innovation help solve society’s ills?
You’d be forgiven for saying no and moving on. After all, reckless financial speculation has torpedoed our public finances and left the most vulnerable in society clinging to the wreckage.
But the right kind of financial innovation still has a role to play: it can provide the money innovative social enterprises need to expand, the liquidity and the leverage that charities need to tap into commercial finance.
In short, it can help the social sector do more and do better.
Big Society Finance Fund
That's why today is a big day for us.
This evening, NESTA is launching the Big Society Finance Fund, an experimental project investing money into some of the most promising social finance projects, each of which we hope can change the UK modestly but for the better.
We're also publishing two pieces of research looking at the need for social finance and people's willingness to invest in it.
The Fund itself is our practical contribution to the problem: working with our partners Panahpur and UnLtd, we've spent the last six months working to identify some of the most interesting and promising social finance projects in the UK, and helped them put together an investable proposition.
The results can be found in our deal-book, which sets out twenty social finance projects that we'd be proud to invest in, from ethical investment clubs to community bonds.
We're also putting our money where our mouth is - we've invested £1.2m in four of our favourites:
- Fair Finance - to provide accessible, affordable and responsible financial services to the financially excluded - our investment has helped Fair Finance to unlock £2m of commercial bank finance
- Finance South East and Resonance - to invest in social enterprises that will deliver substantial growth and appropriate profit to meet investor requirements
- Impact Assets - an offshoot of the US's Calvert Social Investment Foundation, a fund designed to drive capital to maximum environmental, social and financial investment impact
- Charity Bank - to support large charities and social enterprises to scale up and deliver their mission more effectively
We hope the fund will help channel finance into the social sector as we wait for the Big Society Bank to begin operations. We also feel that, once the BSB begins operations, the deal-book will offer a great basis to begin investing.
The research also has important messages in the run-up to the formation of the Big Society Bank. We've worked with New Philanthropy Capital to look at the need for finance in the social sector, and with Fair Banking and Ipsos MORI to understand investors' willingness to put their savings into it.
These reports confirm that there is real demand for capital in the UK social sector but what's needed is soft capital - patient, high risk and likely to yield lower financial returns.
They also show that there is significant interest among investors, especially those with over £100,000 to invest, for putting some of their savings into social finance products.
This suggests we can be cautiously optimistic about the prospects for developing a UK social investment market, and about a vision of the Big Society Bank that seeks to develop it.
We hope the Big Society Finance Fund is a step in the right direction and a chance to put financial innovation to good use for a change.