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PART 3: SOCIAL FINANCE FINDINGS

• Sketchy public data contradicts conversations. It is difficult to correlate what people say about overhead ratios or growth with the data that is publicly available.
• Projected data reliant on hearsay. No-one interviewed shared a business plan!
• CDFI data not analysed in detail. We think that more detailed analysis of CDFI data would highlight opportunities at regional and local level.
• Loans revolve, so modelling availability of credit to organisations is difficult. This is a nice problem to have: in reality capital is more available to investees than the model shows. The model cannot adequately account for or predict the revolving element of loans, it just shows increases in portfolio size.

For further explanations of the different markets see Appendix A, A.1.

We have also included explanation of the different deal sizes on offer in Appendix A, A.5.

3.3 Opportunities for building the market

Social finance is still an underdeveloped market. Some have begun talking about social investment as an 'asset class' recently.¹ However, most commentators admit, at least privately, that if we are talking about social-purpose organisations like community interest companies (CICs), charities and social enterprises, achieving an asset class which is recognised by mainstream investors is still some way off.

The social finance market is still at an early stage, and so building a social finance market is much more than just providing a certain type of capital. The elements highlighted below need development. They all take time and money, but may not offer financial returns. A more detailed discussion of the elements is in Appendix A.

Below are some specific actions required:

• Stimulating demand for finance - particularly regionally and in sectors that have not been targeted by SIB or another fund.
• Capacity-building to help investees become investment ready - financial/investment literacy and ability to operationally scale-up or replicate.
• Processing demand and supply - finding good staff able simultaneously to understand social impact and structure financeable investments is a challenge. If the market is stimulated too much, there may be a shortage of processing capacity among existing intermediaries. Supporting intermediaries so that they can expand processing capacity should remove this potential bottleneck.
• Development of financial products which appeal to investors as well as investees, i.e. are simple and have risk/reward properly allocated. There needs to be clear identification of where the product lies on the risk spectrum.
• Improving the environment for investment: legal structures; tax incentives; regulatory issues. There also seems to be considerable debate about the fiduciary responsibilities of institutional investors and trusts and foundations, and whether a looser interpretation of such responsibilities would free up more capital for social investment.
• Investor stimulation, including:
  • development of vehicles to make retail investment easier;
  • encouragement and education of retail investors;
  • development of market to spread risk;
  • encouragement of trusts and foundations to participate more willingly; and
  • persuasion of high street banks to participate in bankable deals.

3.4 Overall findings

• Impact measurement needs to become more sophisticated. Looking at the impact of the interventions being supported and the impact of using social investment, is leverage increased? Is funding recycled?

Demand for social finance is growing. Experience from the BSB pilot indicates demand, as do the latest figures from Community Development Finance Association (CDFA) and almost any other intermediary. But the market is still in its early stages, and so this growth has, in many areas, been fuelled by subsidised finance. It is not clear to NPC that subsidy can be avoided in future: there are still too many market segments in need of seed capital and capacity-building.

Opportunities for the BSB to earn attractive financial returns will be limited, without crowding out private investors – although there are exceptions (see bullets below). The following areas will need support from somewhere in the next few years:

• Hard or commercial capital to lend on to/invest in investees. This could be an opportunity for the BSB to recoup financial returns by taking advantage of failures or illiquidity in commercial markets, for instance in the venture capital market at the moment. Where this happens, options are attractive – although in the venture capital instance, the BSB would have to wait five to ten years to reap the returns. Being an investor itself (through intermediaries) would help to share investment risks where other investors are looking for scarce investment partners. But the BSB should avoid crowding out commercial investors. There may currently be opportunities of over £50 million in this type of activity, more spread over several years.
• Semi-commercial, high-risk capital for onward investment. The reduction in SIB's funds under management will leave a substantial gap in the market, and could stall momentum. The BSB has the potential to step into this market, but improve on SIB: free from the tyranny of spending all funds annually ('annuality') it could operate as a more disciplined investor. The BSB could also offer this type of financing to sectors not previously covered by SIB funds. This could be a fruitful line to pursue, and could absorb upwards of £50 million per annum. But the BSB should take care to respond to genuine demand, rather than top-down distortion.
• Capital investment in intermediaries. Capital will be needed to support other capital or liquidity (e.g. deposits) coming into the intermediary. Returns would be uncertain and extremely slow in coming. There could be £20 million to £50 million needed by intermediaries for these types of support. NPC believes this is important, despite the poor returns, because without sound and growing intermediaries, the development of the market will falter.
• Capital investment in intermediaries to reach sustainability. Intermediaries in the arena where investments offer insufficient returns to cover the full costs of developing and running a portfolio will need continued patient capital investment and/or subsidy in the form of grants to allow them to develop. In some cases this will be, bluntly, to subsidise revenue as the cost of processing deals with investees with low investment readiness is high. NPC has not been able to get to the bottom of the sector's aggregate operating deficit, but it would be measured in millions, or even tens of millions of pounds. BSB could contribute about £10 million. No financial returns can be expected on this support but it could achieve social impact. For each investment, the BSB must satisfy itself on the genuine costs of running the intermediary - it should be careful not to subsidise failing business models.
• Capacity-building of investees. Most intermediaries report that a lot of time and effort is required to help investees to become investment ready, and this carries costs which have been borne through some kind of subsidy. Given SIB's experience in making grants to support its lending activity, the need here could be upwards of £50 million, although NPC has not investigated the demand in detail. Without this investment, it will take longer for the investee market to broaden and take on investments. The BSB will need to distinguish between grants needed to build capacity of the investee, and grants needed to make a loan or other investment work. On the latter, this should be provided by other funders. The BSB cannot expect a return from this capacity-building exercise unless a business model is developed to pay for it. Would investees be willing to pay for this, when the alternative is traditional fundraising? Will investors be willing to pay, if they cannot recoup the cost in financial returns? NPC has yet to see a convincing model for covering the costs.
• Capacity-building (2): broadening of investor market. Investors are seeking more co-investors to share risk than are currently available among the very limited investor base. So if the BSB were to be available as a co-investor to deals developed by intermediaries, this could liberate more willing but cautious capital from investors such as trusts and foundations. Some deals will have commercial returns, others will be sub-market. The amount required to liberate capital is hard to quantify, but a first guesstimate might be £50 million for starters. This funding is needed to encourage more investors into the market, so would be quite a high priority. More generally, NPC believes more work needs to be undertaken to stimulate the investor market, but this would require technical input in terms of tax, legal, regulatory and investment expertise and NPC has not quantified the cost of such work.
• Development of new products. There is demand for investment in the development of new products, such as the Social Impact Bond. The BSB's participation in this would be very welcome. For instance Bridges Ventures emphasised the enormous value of seed funding by government in its first fund in establishing the social venture capital market, and believes it could be useful again. These activities are best suited to grants; at best the capital is likely to be patient and risky - development, piloting and getting a new product to market can take several years. However, with time, the product itself may yield attractive returns. BSB may find opportunities amounting to £20 million or more in the pipeline. The potential social returns on this type of investment may be exciting: not only are the deals themselves attractive, but it may spark a new market attracting new players.

The BSB should avoid:

• Investing at levels where there is plenty of capital available (e.g. bank deposits).
• Crowding out the market for other investors, mainly commercial, by offering subsidy where it is not required or setting up new entities where they are already in existence and ready to help.
• Falling into the annuality trap SIB fell into (having to spend its annual allocation of funding in this financial year).
• Sticking with products that do not work, or backing poorly-performing institutions.

The BSB could invest via intermediaries. NPC does not believe it should set up a new entity to process deals, as this could cannibalise existing intermediaries' processing capability and deal flow.

Other key points

Structural issues

Complicated products such as hybrid quasi-equity instruments for CICs and charities are not always successful. They seem to be neither fish nor fowl: in the absence of a commercial exit, investors are not achieving good commercial returns. And at the same time, investees have to give investors too much cash, which squeezes growth. But these are early days still for this market. Some deals have been successful, so it may be worth pursuing further to test what genuinely works and what does not.

More generally a review of structural impediments – tax, regulations, legal structures – would be very beneficial.

Transparency

NPC would encourage the BSB to be clear and transparent about its funds, how they are invested, what they achieve, and what they cost to run. NPC found this information exceedingly difficult to obtain for the government funds managed by SIB. SIB was open verbally, and tried to answer queries, but there were no published audited figures that clearly showed portfolio outstanding, arrears or loss rates, costs of managing the funds, and so forth. NPC believes such information should be audited and available for public record, and not reliant on personal conversations. Nor should it be necessary to run a Freedom of Information request to obtain such information.

Product and market development

There is more work to be done to develop the market, and developing new products is a long and financially unrewarding process. But once a new product is established, its market can offer commercial returns in some cases.

Appendix A, A.5 discusses what is required of both market and product development in more detail.

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PART 4: FINANCIAL EXCLUSION FINDINGS

4.1 Background: explaining the market, and an overview of investment options

4.1.1 Market structure

A state in which all people have access to appropriate, desired financial products and services in order to manage their money effectively. It is achieved by financial literacy and financial capability on the part of the consumer and access on the part of financial product, services and advice suppliers. Definition of financial inclusion, TRANSACT.

The main players

A wide range of players have worked to address financial exclusion in the past ten years and more. The players fall into two groups: those dealing with the 'supply side' and those addressing the 'demand side'. The supply side is about financial products available to financially excluded people, e.g. basic bank accounts; insurance. The demand side relates to the skills and knowledge of financially excluded people, and their ability to make sensible financial choices. Our focus is on the availability of finance to financially excluded people, so we focus on the supply side.

The two main problems on the supply side of financial exclusion are a shortage of appropriate banking products and a shortage of affordable short-term loans. Retail banks are the main providers of banking products – such as bank accounts and savings products - and third sector lenders are the main providers of affordable credit. We are concerned mainly with the availability of credit to financially excluded people via third sector lenders. Credit unions and personal finance Community Development Finance Institutions (CDFIs) are the principal third sector lenders - they have very different models (see Figure 2).

The UK credit union movement dates back to the 1970s. It grew substantially from the late 1980s and, with local authority help, credit unions expanded throughout the country. By 1987 there were only 108, this number ballooned to about 600 by 1997. Most of these were in low-income neighbourhoods. Since then, a combination of credit merger and failures means the number of credit unions has fallen to 444. Many rely on government grants to cover revenue costs, but most of their capital to on-lend is provided by deposits.

Personal finance CDFIs have mostly been set up in the past ten to 15 years in the UK. They form part of the CDFI movement that benefited from start-up investment from the government - the £42 million Phoenix Fund - since then receiving funding from various government agencies, including Regional Development Agencies. They have seen a steep growth in their loan portfolio since 2005, supported by the £10 million received from the Department for Work and Pensions' Growth Fund. Their growth has therefore been largely reliant on government funding, much of which now looks at risk.

Personal finance CDFIs, unlike credit unions, operate as 'wholesale banks'. This means that they take capital provided by an institutional investor and then lend it on. The people to whom CDFIs lend pay interest on the loans, so covering some of the costs to the CDFI (of lending) and the interest back to the lender. Historically, CDFIs have relied almost exclusively on 'soft capital' (on sub-commercial rates) or grants to lend on – money which has largely been provided by government and charitable funders. In short, the model is reliant upon subsidised capital from institutional investors.

From an investor perspective, the four most significant differences between credit unions and personal finance Community Development Finance Institutions (CDFIs) are scale, services, customers and sustainability.

• Scale: the credit union sector is much larger than the personal lending CDFI sector. Credit unions are by far the biggest provider of affordable loans in the UK; there are 444 credit unions operating here at the time of writing, between them making £460 million of loans in 2009. Some CDFIs also do personal lending to financially excluded people, however there are only 13 of these, making about £7.6 million of loans in 2010.4 Credit unions not only provide more loans, but they also cover more of the country - they are well-represented in every English region, in Wales, Scotland and Northern Ireland. Personal lending CDFIs are found in five English regions - the North West, North East, West Midlands, South East and London - and in Wales, but only in small numbers.
• Services: Credit unions are vehicles for savings as well as loans, whilst CDFIs only provide loans. In addition to making loans, CDFIs provide advisory services to support financially excluded clients both to manage their money better and to access appropriate financial products.
• Customers: Unlike CDFIs, community credit unions serving low-income people (86 per cent of credit unions) look to attract people with middle incomes as savers. In addition, employee-based credit unions (14 per cent of credit unions) provide loans and savings. Employees in these credit unions are not, for the most part, financially excluded. CDFIS, on the other hand, serve only low-income, financially excluded people.²
• Sustainability: credit unions have the potential to become entirely self-funding in the long term. They take deposits from savers and lend these on to borrowers, and are therefore able to source their capital primarily from the public. In addition, credit unions have a route-map to sustainability, which includes integrating with the Post Office network.³ CDFIs, on the other hand, have always relied on government grants. Key people in the sector feel that government grants will be reduced in the coming years, and it is likely that CDFIs will struggle to secure capital to make loans.

When calculating demand for capital in the short term, we have included both credit unions and personal finance CDFIs, as our research suggests that both have a role to play here. However, when calculating how much capacity-building investment is required, we focus on credit unions because they have the potential to achieve sustainability, and are more likely to be able to grow to meet unmet demand for affordable credit.

Progress over the past ten years

Here we provide a high-level story of the past ten years in financial inclusion; more detailed accounts have been written elsewhere. It shows that, with the right investment, significant reductions in financial exclusion can be achieved, but that more still needs to be done.

Substantial progress has been made towards addressing financial exclusion over the past decade. In 2004, the Financial Inclusion Task Force was set up to help address the problem of financial exclusion. With a budget of £250 million and support from government, the banking industry and the consumer sector, it has helped bring about a huge reduction in the number of people excluded from mainstream banking. It set out with the target of reducing the number of people without access to a transactional bank account by half. This target was achieved in just five years - reducing this number from 3.75 million people in 2002 to 1.75 million by 2007.⁴

The commentators we spoke with felt that, with regard to exclusion from banking, most of the main 'supply side' issues had been addressed, due mainly to the introduction of basic bank accounts (though there is still work to be done, in particular on improving the functionality of accounts). They saw the main challenge now as addressing 'demand side' issues, such as a lack of knowledge of which banking products to use, and how. The Task Force has begun to improve the 'financial capability' of financially excluded people by funding 500 financial advisors nationwide for this group. However, its funding ends in March, and more still needs to be done.

The amount of loans to financially excluded people has grown thanks to the £100 million Growth Fund provided by the Financial Inclusion Task Force. This funding allowed credit unions and CDFIs to make 317,798 loans by providing both capital to on-lend and revenue funding to cover the costs of making loans. The majority (over four-fifths) of these loans were made by credit unions. The current Growth Fund comes to an end in March 2011, and its future beyond then is uncertain.

The progress made in increasing loans to financially excluded people is short-term. Growth Fund funding brought about an impressive increase in the number of loans made to financially excluded people. The money should continue to be recycled by credit unions and CDFIs (as it is returned from one borrower and lent out to another) for the next few years at least. However, the Growth Fund provided capital to on-lend, and has done little to build the capacity of the sector so that it can continue to grow its loan book beyond the end of the Fund (March 2011), or to make lenders more sustainable.

The sustainability conundrum

The best way to sustain lending is to make third sector lenders self-financing.

This means covering operating costs through the margin made between the interest taken in from loans and the interest paid out on deposits. However, it is incredibly difficult to make a small loan cover its costs a leading academic in the field conservatively calculated that credit unions make a loss of £30 on a loan of £400.⁵ He calculated that credit unions would need to charge 50 per cent APR to break even, but the actual return on capital in the sector is around 10 per cent. The other way to make interest cover the cost of lending is by reducing costs by making efficiencies. Why do they struggle to break even? Small loans cost the same as a large loan to make, but generate less interest. It is therefore difficult to make enough interest to cover the overhead cost.

Some progress has been made towards making the credit union sector self-financing, but a lot remains to be done.

Sector bodies agree that credit unions need to be of a certain size to cover the costs of lending ('self-financing'). Birmingham Credit Union Development Agency (BCUDA) says that credit unions need, on the one hand, assets of £400,000, and on the other, £240,000 lent out to members to be sustainable (see Appendix B for details).⁶ Mark Lyonette, chief executive of the Association of British Credit Unions (ABCUL), also emphasises that scale is the crucial ingredient for sustainability. However, he estimates that a credit union needs closer to £2.4 million on their loan book (rather than £240,000) to achieve sustainability, assuming the credit union is making only small loans.

The proportion of credit unions which are self-financing has increased from around one in ten to four in ten between 1997 and 2008. Alongside this, the overall number of credit unions has fallen from 596 in 1997 to 444 today.⁷ Improved efficiency has been achieved largely by growth and merger.⁸ This has made larger, more efficient, credit unions, whilst 40-50 non-viable credit unions have folded. This increase in efficiency has been achieved alongside rapid growth in members (from 262,000 in 2002 to 524,000 in 2008), and in the number and value of loans. This shows that credit unions are able to grow whilst simultaneously becoming more efficient, given sufficient external funding.

The challenges for the affordable credit sector in the next ten years

What is the scale of the affordable credit challenge in the next ten years? Private sector 'doorstep' lenders provide short-term loans at interest rates in excess of 100 per cent APR, compared with around 25 per cent APR for third sector lenders. There are three million households using high-cost doorstep lenders. The Financial Inclusion Task Force estimates that these households borrow £3 billion each year⁹ so that there is still much to do to meet this remaining demand for affordable credit.

What needs to be done to meet this need? The banking target - halving the number of people without access to a transactional bank account - has been reached. Commentators we spoke to agreed that there are two main challenges for financial inclusion - educating financially excluded people to make good choices and increasing (or at least maintaining) the supply of affordable credit in the absence of the Growth Fund. We focus on the latter.

4.1.2 Overview of investment options

Our analysis suggests that third sector lenders require between £29 million and £77 million over the next three years to keep lending and move towards sustainability. They need capital in three main forms:

• Soft, semi-commercial capital to lend on: up to £36 million of patient capital for third sector lenders to make loans to financially excluded individuals. Credit unions may be able to meet some of their need for soft capital themselves.
• Capital to fund intermediary overheads: £7 million to £16 million of grants to cover the high costs to third sector lenders of making small loans to people on low incomes.
• Capital to build capacity of the sector: £22 million to £25 million, as a mixture of grants and patient capital, to move all unsustainable credit unions to sustainability (i.e. not reliant on grants). £7 million to £10 million would pay for mergers of local credit unions, and around £15 million would fund the creation of a Central Service Organisation for credit unions.

These are all order of magnitude calculations, and further testing of the assumptions would be required to come up with precise figures.

Table 4 shows the amounts required, and what sorts of returns may be available to the Big Society Bank (BSB). As shown, credit unions need soft capital (grant or patient capital) which will provide no or low returns. Our projections suggest that there is no need to provide hard capital to lend on to investees, this is provided by deposits (or more precisely shareholders - credit unions are mutuals). Nor is it clear to us that credit unions will need additional capital reserves to support deposits, although in some downside scenarios there may be some capital hunger.

After three to five years we expect the demand for grant funding to cover revenue costs to taper, as the capacity building investment mentioned increases the number which are able to cover their costs. However, there will probably still be some credit unions that will take longer, maybe four to seven years, to become fully self-financing. We therefore think that a smaller amount of funding should be provided beyond 2013, tapering down to zero by 2016/2017.

4.2 Modelling demand for capital

Third sector lenders in general

Where our calculations relate to third sector lenders in general, we use trend data from the Growth Fund. We use this data to estimate the needs of lenders for two things: soft capital to on-lend and capital to cover overhead costs.

Credit unions

For credit unions, we had access to FSA statistics on their balance sheets. We used this data to make projections for the funding needs of credit unions to 2013, but to do so we had to make assumptions. We assumed the following:

• Deposits grow at trend: The value of credit union deposits grew at a rate of 8.5 per cent per annum from 2005 to 2009. We used this rate to project the growth rate of deposits out to 2013. This may in fact be an underestimate the recession has already increased the rate of growth of deposits. Also legislative changes will make it possible for organisations to make deposits with credit unions from next year.¹⁰ This means that deposits may grow faster than the historic trend.
• Loans grow at trend: The value of credit union loans grew at a rate of 7.8 per cent per annum from 2005 to 2009. We used this rate to project the growth rate of loans out to 2013. Many factors influence the growth in loans, making it very difficult to predict. We therefore felt it was best to use historic trend data only.

*Gross need for capital to make deals or increase portfolio size

From the trend in deposits and loans from the last four years, we produced a projection for the next three years (see Figure 3).

We then projected forward what would happen on other parts of the credit union balance sheet. We made the following assumptions for specific items in the balance sheet:

• Liabilities: We assumed that capital reserves are calculated by adding any surpluses to the previous year's capital reserves.

• Assets: In most cases these were a percentage of the loan book, based on trend – provision for bad debt at 3.5 per cent, liquid assets at 36 per cent and fixed assets at 3.7 per cent of the loan book. The main exception is 'cash', which was our 'balancing item', in other words where it made up the difference between assets and liabilities. In our model, deposits are greater than loans; meaning credit unions built up cash (see Table 6).
• Income: We assumed that there would be no grant funding from 2011. Sector experts feel the Growth Fund is unlikely to be continued. Given the challenging funding climate we have assumed that all grant funding was cut. This is a worst-case scenario, but is probably not far from what will take place. We assumed that income on loans followed the trend between 2005 and 2009 (9.7 per cent of the loan book). We also projected a fall in interest rates on liquid assets from 3.7 per cent in 2008 to 1.5 per cent from 2009 to 2013 (given the drop in the Bank of England base rate).
• Costs: All were set according to the trend between 2005 and 2009, including overhead costs (6 per cent of loan book), dividends (2.4 per cent of deposits), bad debt provisions and write-offs (1.7 per cent of loan book).

4.3 Investment opportunities

4.3.1 Soft capital to lend on

We estimate that third sector lenders could use up to £36 million of soft capital to make loans to financially excluded individuals in the next three years. This is based on the amount of soft capital provided by the Financial Inclusion Task Force's Growth Fund - £59 million over five years. We have little doubt that third sector lenders will have enough demand for loans to lend similar amounts in the next three years (see Table 5).

The £59 million of capital provided by the Growth Fund has all been lent out, and in some instances lent numerous times. Together, third sector lenders took in an average of £12 million of soft capital per annum and lent it on. The majority (£10.4 million per annum) was lent by credit unions, with the remainder lent by CDFIs (£1.1 million) and housing associations (£0.3 million).

Looking forward, we therefore estimate that third sector lenders could use £12 million of soft capital per annum, which is £36 million in total over the next three years. The Growth Fund provided revenue funding for the cost of lending; this demand is likely to remain (see 4.3.2).

It may be that credit unions can meet a substantial amount of this need for capital themselves. Our modelling suggests that the credit union sector has no requirements for soft capital to on-lend or for their reserves to 2013 (see Table 6). This is because we project that the sector as a whole will receive enough deposits to cover loans, and will make enough surplus to build up their capital reserves to a healthy level (10-12 per cent of assets).

However, there are likely to be at least some credit unions that require soft capital. We looked at the sector on aggregate, and so our calculations do not pick up on the financial situations of individual credit unions. Experience from the Growth Fund suggests that some credit unions serving financially excluded individuals can struggle to attract enough deposits to meet demand for loans. There may therefore be a role for the Big Society Bank in providing soft capital to keep credit unions lending.

Form that capital should take

The capital could either take the form of a grant or patient capital (e.g. a loan over 10-15 years with very low interest and high appetite for risk). Providing some funding as patient capital could be a driver for sustainability. To pay back the loan, they will need to generate operating surpluses. To generate surpluses, they will need to increase income from loans so that it more than covered costs. This would mean they are funding themselves, and so would be financially sustainable. Providing soft capital does not mean being an undisciplined investor. Soft capital gets very low levels of financial return; the BSB should therefore be disciplined about achieving other types of return with this investment:

• Priority should given to lenders making loans to financially excluded groups in areas with insufficient affordable credit providers (along the lines of the Growth Fund).
• Funded organisations should be asked to demonstrate impact on financially excluded people.
• Need for soft capital should be assessed on a case-by-case basis to avoid creating unnecessary dependence on state funding.
• Funding should be designed to make lenders sustainable, rather than creating long-term dependence on public or charitable funding.

4.3.2 Capital to fund intermediary overheads

Demand for revenue funding to keep third sector lenders lending

Third sector lenders will probably face a revenue funding gap of between £7 million and £16 million over the next three years. This would

Please note: Cash was the 'balancing item' in our model; it shows how much money is left over in credit unions' bank accounts after deposits have been lent out to borrowers.

have to be provided in the form of grant funding. The demand will depend on how many are able to make themselves self-financing. The Central Service Organisation, if implemented, should also reduce this gap in funding.

The maximum revenue funding needs of lenders is £16 million; this is based on Growth Fund figures. In the past five years, the Fund has provided a total of £26 million to cover third sector lender costs, which is just over £5 million per annum: £23 million revenue funding for running costs (e.g. salary costs), and £3 million for capital expenditure (e.g. premises or IT). As not all lenders will become sustainable in the next three years (see 4.1.1), and cuts to grants are likely, lenders may still need this level of subsidy over the next three years.

Credit unions alone (removing other third sector lenders) will face a revenue funding gap of between £5 million and £14 million. Our modelling suggests that credit unions will have losses of £5 million over the next three years, which means that they would require funding of that level to maintain lending. However, if the need for revenue funding remains the same as during the Growth Fund period, the revenue funding gap for credit unions could be up to £14 million.

Big Society Bank funding would have to take the form of a grant. The funding could not be provided as a loan as it is there to make up the shortfall in operating surpluses made by lenders. The fact that lenders struggle to cover their costs means that they are very unlikely to generate surpluses to repay loans in the short term. The aim of the grant would be to help lenders continue lending to financially excluded people in the next three years. To gain maximum social return on its investment, the BSB should target this funding in the following ways:

• Priority should given to lenders making loans to financially excluded groups in areas with insufficient affordable credit providers (along the lines of the Growth Fund).
• Of these, it should be targeted on those not generating enough income to cover the costs of making loans.
• Funded organisations should be asked to demonstrate impact on financially excluded people.
• Funding should be designed to make lenders sustainable, rather than creating long-term dependence on public or charitable funding.

4.3.3 Capital to build capacity of the sector

There is now consensus in the credit union sector that there are two big steps required for credit unions to reach sustainability and continue to grow rapidly. First, individual credit unions need to become self-financing (cover their own costs without external funding). Secondly, they need to integrate 'back office' functions nationally, to make the sector more efficient and to allow credit unions to significantly increase loans and deposits.

Making local credit unions self-financing

We estimate that the total cost of making most local credit unions self-financing is between £7 million and £10 million. This would pay for 90 mergers, over either one year (£7 million) or two (£10 million). We recognise that mergers won't be the only way to reduce costs and achieve sustainability for local credit unions. In some cases, other types of collaboration or integration of services between credit unions will also achieve this outcome. However, we still feel the costs we set out below provide a useful proxy (indicator) of the amount of investment required in local credit unions to move them towards sustainability.

We estimate that a single merger will cost between £73,000 (one year) and £108,000 (two years). If the 271 unsustainable credit unions merged, and they did so by groups of three, there would be 90 mergers. The amount of individual mergers could be more or fewer depending on the way mergers are undertaken. Because of the various assumptions in our calculation, we emphasise that this is an order of magnitude figure rather than a calculation of precisely how much is required.

We estimate that around 271 credit unions are not self-financing, of the total of 444 credit unions operating in the UK today. This estimate is based on a 2008 survey that found that 61 per cent of credit unions were not self-financing.¹¹ We have then estimated how much it would cost to make them self-financing in the long term. In making our calculation we have made these assumptions:

• Merger or closer integration of back office services is the only way to achieve the scale credit unions need to be self-financing.
• On average, three credit unions would need to merge to create a sustainable operation.
• A merger would take between one and two years, based on evidence from a merger that took place in the West Midlands.¹²
• The cost of a merger would include revenue items such as staff salaries, but not capital items like new office space.

The full calculation of merger costs is set out in Appendix B.

A Central Service Organisation for credit unions nationwide

Association of British Credit Unions (ABCUL) estimates that creating a Central Service Organisation for credit unions would take a one-off investment of around £15 million. We feel ABCUL is well placed to make this estimate, but this figure should be scrutinised by experts, including specialists in banking technology.

This organisation would provide credit unions with a single platform that could be linked to the Post Office network of 11,500 branches, giving credit unions access to millions of new clients. This, along with the phone line and online services provided by the Central Service Organisation, should help credit unions to grow their deposits and their loan books at a scale not seen before in the sector. The organisation would enable credit unions to provide a totally new level of service to both depositors and borrowers, as ABCUL explains:

"...if a number of credit unions in Britain shared one banking platform it would enable them to offer shared branching through the Post Office network and each other's branches. It would also allow for a telephone helpline giving credit unions much longer opening hours and easy internet access to accounts for those who were able to use this."¹³

Why is a Central Service Organisation needed? Credit unions in the UK have grown substantially in the past ten years. However, they make a lot of small loans to people on low incomes. To achieve sustainability, they need to increase income from loans and reduce costs. To increase income from loans without punishing financially excluded people, they need to provide more large loans to more affluent people. These large loans provide much better returns, and can therefore be used to cross-subsidise small, costly loans to financially excluded groups. To reduce costs they need to make their back office functions more efficient.

Evidence from around the world shows that the best way to both grow their loan book and become more efficient, credit unions need to centralise their 'behind the scenes' services at a national level. By this we mean all the systems (for instance IT systems) and processes (e.g. due diligence) that credit unions have for making loans and taking deposits. In 1999, the Credit Unions of the Future Taskforce suggested that the only way to integrate these services would be to create a Central Service Organisation. An organisation of this sort has been essential to creating thriving credit union sectors in other countries.¹⁴

Form that capital should take

Funding for mergers could be provided as a mixture of grant and patient capital (soft loans). The local merger investment is unlikely to generate significant surpluses for lenders. The majority of third sector lenders are not self-financing. If the Growth Fund is not extended beyond March 2011 (which is likely), lenders' financial situations in the next couple of years will be even more challenging. In addition, even when they are sustainable, lenders that serve financially excluded people are unlikely ever to be able to generate surpluses on a par with the private sector, for two reasons. First, because it is costly to make small loans to low-income clients. Secondly, because even if third sector lenders' surpluses grew, much of this would go to depositors in the form of dividends (basically interest payments on their deposits).

Funding for the Central Service Organisation (CSO), on the other hand, could be provided as patient capital.

The Central Service Organisation should help create significant surpluses over the next five to ten years. Therefore the loan could be provided at either market or slightly sub-market rates and be repaid over five to ten years (the precise terms of the loan should be set in consultation with the Association of British Credit Unions). Providing funding as a loan would be part of BSB's 'disciplined investor' approach - to ensure that credit unions generate surpluses so that they become sustainable.

4.3.4 Who else could help meet the capital needs of the sector?

From our interviews and desk research, we have not identified another source of funding that is big enough to fill the gap in third sector lending (between £29 million and £77 million over the next three years). Central government, local authorities and banks all potentially have a role to play. However, given the current funding situation the public sector is more likely to be reducing than increasing funding. Our view is that banks are the most likely other source of support to credit unions, both financial and non-financial (see 4.4). However, banks are unlikely to make an investment of this scale. We therefore feel that the BSB should play a key role in plugging the funding gap we have identified.

• Ensure that Post Office plans come to fruition: First, more detailed work is needed to estimate the precise costs of integrating the credit union Central Service Organisation into the Post Office network. Secondly, this investment needs to be made. Alongside this, government and the Post Office need to remain committed to making the necessary changes to Post Office processes and marketing to make these plans a success.
• Explore potential of 'intermediate' loan products: Government could look at the potential of CDFIs (e.g. My Home Finance) providing 'intermediate' interest rates to grow. Their interest rates, at 50 per cent or 60 per cent APR, are higher than other third sector lenders, but lower than doorstep lenders. Higher rates give these lenders a good chance of covering the costs of loans. Some in the sector feel their role should grow. Others feel interest rates of over 50 per cent APR aren't affordable. Some people on both sides of the debate agree that loans at these interest rates could be termed 'responsible', as they are a less risky alternative to doorstep lenders. More research is needed into whether such interest rates are affordable for financially excluded people. Funding an impact evaluation of My Home Finance would be a good start.
• Make banks long-term partners: Government should consider how to secure commitments from banks to support the affordable credit sector over the long term. In discussions with the Financial Inclusion Task Force, a number of high street banks committed themselves to supporting the affordable credit sector - most have not fulfilled this pledge. Banks could fund third sector lenders directly or provide expertise free of charge (e.g. advising them on how to improve the efficiency of their systems). Most banks could also be doing more to ensure that local branches signpost financially excluded people to local third sector lenders.

4.4 Building the wider financial inclusion market

This section has so far focused exclusively on what funding third sector lenders need to increase loans to financially excluded people in the short and over the long term. Here we take a step back and provide a short (and certainly not exhaustive) list of what else would help to build a healthier affordable credit sector:

• Building 'financial capability': A lack of financial skills and knowledge is one key reason that people become financially excluded. The funding for 500 financial advisors for low-income people runs out in March 2011. Government should consider either funding these advisors in future or finding other ways of supporting third sector organisations that offer these services (such as the Citizens Advice Bureau).

4.5 What might the Big Society Bank achieve?

4.5.1 Impact

Providing soft capital (£36 million) and revenue funding (£7 million to £16 million) would help third sector lenders to keep lending. The benefits of this would be that levels of lending to financially excluded people would remain the same or grow slightly. Financially excluded people would, as a result, have an alternative to doorstep lenders and in turn avoid getting into serious financial problems. The precise numbers of people the money would help would depend on the amount of funding provided. The Financial Inclusion Task Force's Growth Fund gives some indication. It was used to make 317,798 loans; if each loan was to a different person, it will have reached over 300,000 financially excluded individuals.¹⁵ This is around 10 per cent of the estimated number of people using doorstep lenders (three million people). The benefit of the Growth Fund was that it was lent out more than once. By late 2010, government had provided £59 million of funding to make loans over five years, but lenders had made loans worth £137 million.¹⁶ So for each £1 of government money given to lenders, £2.32 was lent to financially excluded people. It will continue to be recycled to make further loans in future.

The capacity-building investments of £22 million to £25 million could realistically take the credit union sector to sustainability in the next ten years, with substantial progress towards this target in the next five years. Providing an accessible service through the Central Service Organisation and the Post Office network would open credit unions up to millions of new savers and borrowers. As a result the sector should vastly expand loans to financially excluded groups, in turn attracting tens or even hundreds of thousands of people away from high-interest doorstep lenders (who currently serve an estimated three million people).

4.5.2 Return on investment

Financial inclusion interventions have a range of potential benefits. By providing affordable alternatives to doorstep lending, individuals have more disposable income, which they spend. This means that more money is kept in local economies. A recent evaluation found that financial inclusion interventions in Leeds (including affordable loans and advice services) that cost £3.3 million increased the disposable income of clients by £26 million.¹⁷ For every £1 invested in financial inclusion interventions, £8 was spent in the city economy.

Though the evaluation did not cover this, increases in disposable income should increase income to the state, in the form of VAT. In addition, addressing financial inclusion could create a range of savings to the state. By preventing financial crisis, it could reduce the costs associated with bankruptcy and homelessness, amongst other things. We would welcome further research into whether affordable loans create savings for the state.

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PART 5: FINANCING SOCIAL HOUSING: LESSONS FOR THE BIG SOCIETY BANK

5.1 The context

Since 1988 the way social housing has been financed, built and run has been transformed. Since then the majority of council housing stock has been transferred to housing associations (HAs) in the UK. The amount of public subsidy per home built has shrunk and the role of commercial finance has grown. Many in the sector see this as a great success story in the transfer of mainstream public services to the voluntary sector. However, it has also brought tensions and risks. The Big Society Bank (BSB) has ambitions to leverage-in private sector finance to social purpose organisations, and may well have a role in financing voluntary sector providers to deliver mainstream public services. Based on interviews and desk research, we summarise what seem to be the key lessons from the housing association story that should be taken into account when designing the Bank.

5.2 A success story

The growth and development of HAs over the past 30 years or so is, in some ways, a great success story. The transfer of council housing stock to HAs in the UK from 1988 on is the largest transfer of state assets to the voluntary sector ever in the whole of Europe. The 1988 Housing Act encouraged big growth in the sector, making HAs government's preferred deliverer of new social housing and manager of housing stock. Today HAs in the UK own and manage 2.5 million homes that house around five million people.

The combination of massive fixed assets (the buildings that they own), a reliable income stream (in the form of rent) and strict government regulation has allowed HAs to leverage in private sector funding. Using its property as security, the sector has borrowed around £60 billion from commercial sources over the past 30 years. This has more than matched the £40 billion of public funding to the sector. HAs' operating surplus of £15 billion over this period has also been reinvested in new homes or neighbourhood services. This surplus comes in large part from rents, but also from the profits from the sale of new homes, which are used to subsidise socially rented housing. The expanded role of commercial loans and operational surpluses allowed HAs to reduce the amount of government grant required to fund social housing - from around 80 per cent per unit in 1989 to around 40 per cent in the last couple of years. In effect, HAs have been able to deliver more or less the same social housing for less government capital funding.

Freed from restrictions on public borrowing that constrain councils, HAs have been able to lever in commercial borrowing to make substantial improvements to housing stock. Generally, social tenants are more satisfied with their housing.

5.3 Dependence on the state

The increased role of commercial funding has not meant a wholesale shift away from dependence on the state. The HAs' new financing model is heavily (in practice wholly) reliant on government. David Montague of London and Quadrant (L&Q) describes HAs as resting on a three-legged stool supplied by government: regulation, capital grants, and housing benefit.¹⁸ The capital grants provide an essential subsidy for the delivery of new housing. Housing benefit represents two-thirds of housing associations' income, and provides them with a consistent, predictable source of revenue. Grants and rents combined with tight government regulation have underpinned their high credit ratings and the favourable rates they get from commercial lenders. Heavy government involvement mean banks and bond markets see investing in the HA sector as a safe way of achieving reliable returns with low risk, not least because of the implicit (and unwritten) rule that government will step in if a housing association is unable to fulfil its obligations.

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Footnotes

5.4 Vulnerability of the model

The new model of financing social housing makes HAs vulnerable to changes both in government policy and in the private sector.

HAs are vulnerable to changes in government policy. HAs borrow money against the value that their properties will have over the next 30 or so years. This value is determined by the level of housing benefit, which represents on average two-thirds of rental income. Changes in housing benefit therefore impact on HAs' capacity to borrow. Housing benefit looks set to change when it becomes part of the Universal Credit proposed by the coalition government. It is as yet unclear whether the housing cost element of this Credit will match actual individual rents. If it does not, welfare reforms could make it much harder for HAs to borrow money from commercial lenders. Such a change would probably make it more difficult for housing associations to service existing loans, which are based on previous housing benefit levels. It may also make it more costly to take out new loans, as reduced revenue would probably prolong repayment and increase interest rates. So despite increasing their commercial borrowing, housing associations are as sensitive as ever to changes in government policy.

The new model also makes the developer HAs more vulnerable to fluctuations in the housing market. Over the past few years, some of the larger HAs have developed large numbers of homes for sale, generating surpluses to reinvest in other activities. When the credit crunch hit housing markets in late 2007, some found themselves exposed. As one industry source put it: "Over the next few years a lot of housing associations will be working through the consequences of having had too much development risk at the wrong point in the cycle."

The model also makes HAs vulnerable to the terms of borrowing offered by banks. Though a growing number of large HAs are issuing bonds as an additional source of finance, commercial loans still make up the majority of commercial finance in the sector. HAs have benefited from borrowing on incredibly good terms in the last few years. If the terms on which credit is lent were to change, this would fundamentally alter their ability to finance social housing in future. An industry source said that over the past two years some banks have done their best to increase the interest rates given to HAs, both for existing and new loans. There are only a handful of banks - around five - that provide the majority of the commercial loans to the sector. If just one or two of them hardened the terms of lending (e.g. increased interest rates), this could cause a 'credit crisis' in the HA sector.

In summary, HAs have had huge success in using assets and rents to lever in commercial finance to deliver new social housing and improvements to existing stock. The model has worked through a combination of government backing, cheap commercial lending and high demand for market-rate homes. Today, this model looks vulnerable to changes in government policy, the terms of lending, and the downturn in housing markets.

5.5 Lessons for the Big Society Bank

The politicians, civil servants and advisors charged with designing the BSB might do well to consider the following lessons:

• Housing associations have been able to reduce dependence on government capital grants and increase the role of commercial finance, this has in turn helped them improve housing stock and tenant satisfaction.
• Housing associations' borrowing relied heavily on substantial assets and stable rents, both of which are unusual in the voluntary sector. Other voluntary sector organisations will struggle to lever in similar amounts of commercial finance without these two elements.
• Also, more commercial funding has not meant total independence from the state – HAs' financing model remains almost entirely dependent on government capital grants, regulation and revenue funding (in the form of housing benefit).
• There can be risks for HAs of blending a reliance on government funding/policy and commercial loans in the social sector. Political cycles are shorter than commercial cycles, and policy changes can place commercial deals and loans at risk.

Part 6: Recommendations

The Big Society Bank (BSB) has a huge range of options to deliver social impact, and prioritising the options will be difficult, especially if it is under pressure to generate financial as well as social returns. The Bank will have to be clear about what it is trying to achieve. And it has to ask itself does it want to solve problems in the market? Or do something useful with its money without endangering its long-term future? The two are not the same.

6.1 Investment options

6.1.1 Social Finance

A mix of investment may be the solution. If the BSB can take advantage of market failures to earn returns on part of its portfolio, then this may help to spread the returns and risk. It could split its investments into three categories:

• Making investments with commercial or close to commercial returns. This would support deals where there are insufficient investors either to share risk, or where there are liquidity problems in a commercial sector.
• Investing patient capital for minimal or zero returns. This is likely to include capitalising intermediaries, or investing in new product development.
• Provide grants/other support. This would be to develop the market, e.g. capacity-building grants for investees, or activities to support investors.

The BSB should avoid crowding out other sources of capital, be they commercial or philanthropic, even though this might compromise its ability to participate in markets with attractive returns. Start-up risk capital was identified as a shortage area, which, although highly risky, can provide returns.

There is a trade-off between the sustainability of the BSB, which would rely on achieving financial returns, and its impact in terms of building the market, which does not promise much in the way of financial returns. Similarly there is a trade-off between perpetuity and short-term gains. Options for the BSB lie anywhere along these continuums.

What might the BSB achieve? The BSB could help to fill gaps in capital provision which currently frustrate intermediaries. By adding some disciplined investment to the market, it might encourage other entrants.

However, as some of the bigger existing funding streams may be drying up, NPC cannot say with any certainty that the BSB's participation in the market would result in growth. The BSB's capital may just replace this with something more flexible and disciplined. But it will help to maintain the momentum of the market, and also target particular areas needing investment.

6.2 Financial exclusion

Our analysis suggests that third sector lenders require between £29 million and £77 million over the next three years to keep lending and move towards sustainability. They need capital in three main forms:

• Soft, semi-commercial capital to lend on: up to £36 million of patient capital for third sector lenders to make loans to financially excluded individuals.
• Capital to fund intermediary overheads: £7 million to £16 million of grant to cover the high costs to third sector lenders of making small loans to people on low incomes.
• Capital to build capacity of the sector: £22 million to £25 million, as a mixture of grant and patient capital, to move all unsustainable credit unions to sustainability (i.e. not reliant on grants). £7 million to £10 million would pay for mergers of local credit unions and £15 million could fund the creation of a Central Service Organisation for credit unions.

These are all order of magnitude calculations, and further testing of the assumptions would be required to come up with precise figures.

What might the BSB achieve? The first two opportunities (£36 million and £7 million to £16 million) would help third sector lenders to keep lending. The benefits of this would be that levels of lending to financially excluded people would remain the same or grow slightly. The government's Growth Fund was used to make over 300,000 loans to financially excluded individuals, about 10 per cent of the estimated number of people using doorstep lenders (three million people). The Growth Fund showed that over a number of years, government money can be lent out multiple times, benefitting hundreds of thousands of people.

The capacity-building investments of £22 million to £25 million could realistically take the credit union sector to sustainability in the next ten years, with substantial progress to this target in five years. If this investment was combined with a link to the Post Office network, the sector would vastly expand deposits and loans to financially excluded groups.

6.3 Important considerations for strategy and operations

Key findings from the research to factor into decisions

1. The absolute amounts needed from a funder like BSB total hundreds of millions rather than billions of pounds.
2. Patient and soft capital is in greater demand than purely commercial capital.
3. But soft capital does not necessarily mean undisciplined. All funds should be spent wisely with a clear understanding of impact and objectives.
4. Building the market is essential, but financially unrewarding.
5. So BSB will have to think about the trade-off between its own sustainability and market strength.
6. There seems to be little appetite for a new intermediary entrant. Intermediaries exist to process deals and indeed the greatest shortage is in staff equipped to process demand.

Other considerations

Market building:

• Both the social finance and affordable credit markets are still early-stage and not financially sustainable. They need further subsidy and investment to reach sustainability. The housing finance market on the other hand is more mature. Lessons can be learnt from this market, as they can from the microfinance arena.
• Developing new products is a slow and expensive process, but ultimately rewarding.

Making investments:

• The BSB must avoid incurring government funding restrictions which cause annuality to be an issue. Annuality has made the SIB funds' investment and disbursement processes very difficult, and in the case of the BSB would certainly lead to reduced financial returns and reduced social impact.
• The BSB should adopt a 'disciplined investor' approach, even if its investments contain subsidy. Subsidy should not mean sloppiness.
• The BSB must be transparent about its investments, funding, and costs, and present clear accounts on its website. NPC found the paucity of clear public information on the SIB managed funds a hindrance to understanding and assessing the market.

The impact of investments:

• NPC did not comprehensively examine the social impact of the markets and segments in which the BSB might operate. This is well worth exploring, as there are likely to be difficult choices – sacrificing financial returns for social benefit. Going forward, the BSB should have systems to measure its social impact as well as financial returns, and develop measurement tools/platforms to share with other social finance intermediaries.
• The BSB should regularly 'take the temperature' with commercial providers to ensure that it is not crowding out their space unnecessarily.

The regulatory environment:

• The BSB/government should review tax, legal, regulatory issues to see whether improvements might help to make the market more attractive to investors.
• The BSB could be a champion for policy improvements to the whole sector to improve the environment for investment. It could take an active role in market development, identifying needs, forming strategy, helping to coordinate efforts and funding development within the sector.

6.4 Suggestions for further research or investigation

NPC could not cover everything and saw interesting avenues worth exploring further.

6.4.1 Social finance

• Investigating the role and potential of CDFIs in serving local and regional markets in more detail. NPC only looked at CDFIs at quite a high level, but has the impression that there could be some valuable lessons from closer examination, including mining their 2010 data, which is not yet available. In particular the social return on the current operational subsidy on CDFIs should be assessed. Also, could the CDFI network expand from its core geographical areas? The Community Development Finance Association (CDFA) would be ideal for this.
• Investigating ways to improve the legal, regulatory and tax environment for investment products and investors.
• Examine the impact of past social investment funds and activities more closely, especially SIB. (Views on SIB's contribution are mixed – only formal evaluations will demonstrate the case either way). NPC believes that examining the evidence of impact of previous funds should be an essential part of the process going forward.
• NPC has not quantified the costs associated with capacity-building in the sector. This could be guesstimated by an analysis of other capacity-building efforts in the past.
• The market is still 'early-stage'. Lessons could be learnt from other sectors, such as microfinance, environmental technology and social housing.

6.4.2 Financial exclusion

• More detailed work to estimate the precise costs of integrating the credit union Central Service Organisation into the Post Office network.
• Explore the potential for banks to provide support to third sector lenders, either through funding or by providing expertise (e.g. pro bono support to help them improve their systems and processes).
• More research is needed into whether 'intermediate' interest rates (e.g. My Home Finance) are affordable for financially excluded people. Funding an impact evaluation of My Home Finance would be a good start.

6.4.3 Further reading

Social finance

• Inside Out 2010 Community Development Finance Association, November 2010.
• Evaluation of Community Development Finance Institutions GHK, March 2010.
• Financing the big society CAF Venturesome, September 2010.
• Response to the Office of the Third Sector's consultation on Social Investment Wholesale Bank: A consultation on the functions and design CAF, October 2009.
• Access to Capital, a briefing paper CAF Venturesome, September 2009.

Financial exclusion

• Mainstreaming Financial Inclusion: Planning for the future and coping with financial pressure: access to affordable credit Financial Inclusion Taskforce, March 2010.
• Breaking through to the future: The strategic development of credit unions in Britain, 1998-2008 Paul Jones for ABCUL, December 2008.
• Short Changed: Financial Exclusion a guide for donors NPC, July 2008.
• Credit Unions of the Future Taskforce Report HM Treasury, November 1999.
• Towards Sustainable Credit Union Development Paul Jones for ABCUL, January 1999.

Appendix A: Background on Social Finance

A.1 Financial products

A.1.1 Products for investors

These are the types of investment through which investors can supply capital and liquidity to the market:

• Deposits in banks. Anyone can make a deposit in a licensed bank. Banks can attract depositors from the general public, as well as corporates, trusts and foundations, other charities and so forth. Deposits are immediately accessible.
• Bonds. Bonds are becoming fashionable, but are complicated to issue to the public as investments offered to the general public are subject to regulation. But other investors (corporates, trusts and foundations) can invest more easily. Investment in bonds tends to be longer-term - typically investors will get their money back when the bond matures. The market for trading bonds in social investments is illiquid, unless the issuer is sufficiently established (such as big housing associations) to access mainstream capital markets.
• Loans. These can be tailor-made to suit borrower and lender. They vary in term to maturity, price, risk versus financial return, and social return.
• Equity subscription in unlisted companies. Subscription in unlisted investments is usually via a venture capital fund of the type managed by Bridges Ventures. But capital would only be returned when the fund matures - quite a wait. Most of the return comes from the fund's exit from the underlying investment (e.g. trade sale). Alternatively business 'angels' may take direct investments. These investments are not liquid.
• Equity subscription in listed companies. These range from mainstream companies which purport to offer social benefits (contentious), to a very few listed companies where the primary aim is social purpose. It is difficult for a company to maintain a primary social purpose when its shares can be traded and owned by people who may be seeking purely commercial returns.
• Quasi-equity in organisations which are not companies, e.g. CICs, charities. Generating financial returns from these structures is difficult, as the entities cannot be sold to realise capital gains from exits in the commercial world usually a sale of the business or flotation. Instead returns must come from cash generated by the entity - a harder task, particularly if rules or sustainability issues cap what cash can be taken out of the entity and returned to investors. It is difficult to grow entities with this conflict.
• Direct arrangements with charities, social enterprises etc. Relationships and engagement are key. Increasingly business entrepreneurs are becoming social entrepreneurs, setting up social enterprises. Business angels are also investing directly in charities and social enterprises.
• Investments in intermediaries themselves. The greatest social impact may not be achieved by investing directly in opportunities, but rather supporting the intermediaries ensuring the market exists and grows.
• New products and esoteric instruments. A number of products emerging do not fit any of the categories above. CityLife's bonds, first developed in 1999, are an example of a complex structure offering investors a chance to invest funds in housing association bonds but allowing charities to benefit from the financial return on the bonds. These bonds would not be deemed investments for regulatory purposes. The Social Impact Bond is a much newer development, offering financial returns to investors should interventions to prevent prisoner reoffending succeed. Some products are offered directly by charities, e.g. Scope's zero interest loan/ donation package, rather than through intermediaries. NPC believes that more products will be developed over time.

Commercial investors will not be the ones to develop the market, as the development of new products rarely yields a financial return first time, and other aspects of the market development process carry no immediate financial reward. But there are high potential social rewards.

A.1.2 Products for investees

Investees need a range of financing:

• Short to medium-term funding for working capital, especially if government pays in arrears for services.
• Stand-by facilities and underwriting so that investees have the confidence to pursue a project or expand, even if they never actually have to draw the funds.
• Long-term funding for assets, e.g. property.
• Medium to long-term funding for organisational development, expansion, start-ups and so forth.

The financing comes in many forms:

• Commercial loans: Big brand charities can borrow from high street banks, and do not need specialist lenders. They may also have an asset base against which to borrow.
• Commercial and semi-commercial loans from specialist lenders: Other charities and social enterprises can access products from Charity Bank and Triodos. These banks report steady matching of supply of liquidity (deposits) and demand for loans. Stand-by facilities are also popular. But in order for Charity Bank to grow further it will require more capital to meet capital ratios required for banks. Triodos is able to access its own capital commercially.
• Government finance - subsidised: The funds managed for government departments by Social Investment Business (SIB) have been huge investors in this market - NPC estimates that over £350 million has been invested by funds managed by SIB since 2008. The funding is by no means commercial – roughly 30 per cent of the funding comes in the form of grants (this varies between funds), around 70 per cent in the form of loans where interest rates also vary. But many of these funds are now closed, which may result in a funding gap (to be described in more detail later).
• Soft loans outside SIB: The scale of individual participants in this market are dwarfed by SIB's activities, and very varied. Venturesome and Big Issue say they keep pace with demand, but volume seems quite limited. The regional CDFI market is important in this, but mainly concentrated on the North West of England, West Midlands, Yorkshire and the Humber, and London, so access in many areas is limited. Processing the loans is very labour-intensive and expensive, so it is difficult to avoid subsidy of some sort to cover operating costs. Loan losses may also be incurred. Intermediaries are generally supported by development grants or very patient capital.
• Quasi-equity in charity/CIC sector: This market is pretty thin. The current tax and legal structures do not readily lend themselves to successful deal-making, although some investments are being created. It is very difficult to get organisations to investment-readiness, and the structures available deny investors returns commensurate with the risk. And once a charity becomes investment-ready, it can often opt for a straightforward loan instead.
• Real equity in commercial sector: Equity investments in companies are a more successful product. It is possible to find companies coupling social good with financial returns, and a normal company structure allows sensible participation on profits and capital growth. Bridges Ventures is happy with performance of funds and is fully commercial/ sustainable; Rathbones feels the same about its mainstream asset management.
• Esoteric instruments: e.g. Social Impact Bond. New instruments and products are being invented all the time and create new markets. This requires much time and effort - Social Finance worked on the Social Impact Bond for 18 months before launch. Other products are being developed, e.g. financing arrangements for retro-fitting social housing for energy efficiency. Refinancing charity assets is another area being developed. Seed funding/ patient capital for these areas is valuable.
• Grants: Almost all charities access grants in some shape or form. Specialist grants are available to help charities and social enterprises develop the social enterprise/ investment side of their work, e.g. UnLtd, which offers grants to help develop business plans and feasibility studies.

A.2 Investee market

NPC did not analyse the investee market directly, but this is what we learnt from interviews about the characteristics of charities and social enterprises seeking funding:

• Small organisations need grants to get to first base if they are to develop social enterprise activities with potential to scale. But grants for developing early-stage plans are scarce. UnLtd is therefore a key player here, but only goes up to £20,000 grants. SIB also makes grants and has found the leverage to be excellent - £1 invested in investment-readiness capacity-building is claimed to yield £27 of future investment.
• Small to medium-sized charity/social enterprise trying to get beyond first base to an investable proposition on a bigger scale, or seeking to diversify income. We are told that there is a gap in the market for £20,000-£250,000 high-risk investments to get charities to the next level. Impetus provides grants but only works with charities and is not necessarily about supporting social enterprise. Many of the SIB funds kick in at £50,000 and upwards, but not all of them are still open, they are generally sector specific, and their futures are uncertain. Venturesome also covers this market. Loans are available from £50,000 upwards from specialist lenders, but these tend not to be high-risk. Local CDFIS may have an important role here.
• Traditional charities and social enterprises of medium-large size needing working capital for government contracts. This market will grow as commissioning structures move to payment by results. Risk profiles will also change. Specialist lenders (Triodos, Charity Bank, Venturesome) are already active in this space. These claim they are keeping up with demand at the moment, but NPC is not sure whether they are marketing aggressively enough to stimulate demand.
• Charities and social enterprises needing working capital to bridge private income. A charity may have reasonably assured future income from donations or trusts, but it is not arriving soon enough to meet a specific cost. Specialist lenders which understand these dynamics are prepared to lend against such future income.
• Traditional charity/social enterprise needing financing to develop assets. Asset development can be good business for banks as the assets can be secured, and often development brings income streams. NPC believes that high street banks could complement specialist lenders more. The market for bond issues could grow, although the investor base is still somewhat thin.
• Social enterprises trying to scale-up with a quasi-commercial proposition. This often needs patient capital in the absence of immediate cash flow or assets for security. It may take time before implementation becomes fully commercial. SIB, Venturesome and Big Issue are players here, albeit on different terms. It takes time to generate investable deals and get charities and social enterprises to investment-readiness. However, a new breed of social entrepreneurs with business backgrounds is entering the market, although these do not displace the need for some charities with little business experience to develop commercial strands. It is also very difficult to structure deals offering financial rewards to investors.
• Established social enterprises growing. Low-risk propositions can be funded by loans. Higher-risk propositions are still hard to structure in order to reward investors, unless they are companies. Companies are much easier to invest in.
• New ideas, new vehicles, consortia etc. Social Finance is the current best-known example of this - fixing social problems through engineering financial products. However, Social Finance stresses that it takes a huge amount of work to put packages such as the Social Impact Bond together.

A.3 Availability of capital

NPC has not spoken to investors directly, so we are reporting what we have heard from intermediaries, as well as our own knowledge of the sector.

What happens with the SIB funds and other government funding will have consequences for the market. There are a number of issues with SIB funds:

• They are sector-specific (e.g. Social Enterprise Investment Fund (SEIF) focuses on health and social care; Communitybuilders on local communities). So charities and social enterprises not in the particular sectors are denied access to this sort of funding.
• Their futures are uncertain. We only partially know what will happen in 2011, let alone 2012, and without certainty it is hard to determine the demand left unserved.
• If the funds go, will there be a gap? When Futurebuilders closed, some intermediaries reported a surge in demand until this current period where organisations have become risk averse in the face of cuts. But once this period has settled, there may be a rise in demand once more.
• The funds are 'sub-market'. Some fellow intermediaries have been frustrated by SIB funds undercutting them. However SIB would argue that there is a tranche of organisations needing sub-market funding which is unserviced by other intermediaries.
• SIB's annuality requirement has been an enemy to disciplined investment. Deals are struck and disbursements made in undue haste in order to spend the year's allocation, and furthermore the investee then has arduous requirements to spend within time. So this inhibits organisations' ability to prepare well for the investment. The heinousness of annuality is one of NPC's key findings for the Big Society Bank. It must avoid being tied to Treasury annuality requirements at all costs.
• SIB may have helped stimulate demand for loan products, but it has done little to stimulate the investor market, and may even have stifled part of it through 'crowding out'. One large charity known to NPC remarked that its loan from Futurebuilders was helpful for one project, but that Futurebuilders could not help it on the scale required and that it is having to create its own market for philanthropic lending. A full evaluation of impact of funds so far not evaluated would be enormously helpful in determining the market impact of SIB funds.
• But evaluations of SIB-managed funds (if all completed) may reveal the benefits of SIB's somewhat generous grants offerings. For instance, grants to help achieve investment-readiness may result in considerable additional investment, both immediately and in the future.

Government has heavily funded the development of the CDFI market. The £35 million pumped into the CDFI market via the likes of the Phoenix Fund needs examination to determine to what extent it has developed market, and what social returns have been achieved. Will CDFIs ever become sustainable? Earned income was only sufficient to cover 74 per cent of operating costs for the average CDFI. There seems to be some rationalisation in the sector with the number of CDFIs dropping from 80 in 2006 to 66 in 2010.

The appetite for CDFI funding is growing fast - up 77 per cent in the year to March 2010, although much of this may be due to new joiners to the CDFA. But it may be that the operating losses of CDFIs are worth the social returns on getting the funding out there. Not all of the funding went to charities and non-profits. Small local businesses make up about 20 per cent of the portfolio.

Trusts and foundations are dipping their toes in the market. But the sums are relatively modest. Esmee Fairbairn is most notable in setting up a £20 million Finance Fund in 2007. By 2010 £14 million was spent, partly via intermediaries such as Venturesome. The Tudor Trust is also active (not quantifiably), while the Henry Smith Charity has been very cautiously looking at deals on a case-by-case basis. Some of the Sainsbury's Trusts relating to the younger members of the family are considering participating in developing social finance products, e.g. retro-fitting social housing to improve energy efficiency. There may be other trusts in this market, but NESTA's other research into investors will answer this question more fully.

Trusts and foundations control £30 billion of financial assets. If just 5 per cent of the collective portfolio were invested in social finance, £1.5 billion would be available to the market. But many trustees are cautious about using what they see as the endowment to make risky social finance investments or even straight loans. And in addition they may apply their own grant criteria - not always appropriate to good social investment - to the social investment in question. Some intermediaries felt their approaches were being subjected to the wrong criteria even though the social mission should have matched that of the trust. Some trusts and foundations are too small to risk capital, but the bulk of assets are held by the large foundations. Trusts and foundations worried about their own expertise could fund intermediaries. In reality the due diligence issues around pure grants and social investments will be different, with a small degree of overlap. So different skills will be required.

Ideally, NPC would like to see tranches of recycling capital lying between the grants portfolio and the investment portfolio becoming the norm.

Deepening of the risk capital market might help to coax more players onto the field. If a trust is looking at a deal but would only like to commit 15 per cent of the amount, how can this be achieved with only two to three other players present? If there were 10-20 regularly active players, then risk-sharing and syndication would be much easier.

Commercial investors are just that - commercial. They will only invest if they obtain a return commensurate with the risk. So they will not generally provide patient capital to develop intermediaries or markets. But they may provide intermediaries with capital or liquidity to invest onwards for commercial returns. Most prefer tested products and organisations with track records, unless returns are stellar - hence commercial investors backed Bridges Ventures once the proposition was proved using government capital.

Commercial markets have their own wobbles. The venture capital market is extremely illiquid at the moment. It has offered good returns, so institutional investors such as pension funds and insurance companies are already invested as far as their own asset allocation policies allow, leaving not much room for additional investment. This is affecting players such as Bridges Ventures.

Ups and downs in the banking industry also affect the banking players - sometimes positively, if they are viewed as 'safe havens'.

Private investors prepared to offer risk capital are still quite thin on the ground. Some intermediaries say they are able to match demand with supply, but admit that it is often 'the usual suspects' providing the investment. NPC wonders if there is a ceiling to the current supply of private capital in this area, and that if greater demand were stimulated it might be hard to meet.

Tax, legal and regulatory issues may be inhibiting appetite, but even if these were solved the 'retail' market still looks extremely young. It does not help that currently liquidity in the venture capital market is a problem.

The direct market (i.e. retail investors having direct relationships with investees) is too fragmented to quantify in the time allowed, but would include products such as the combined loan and donation package put to philanthropists by Scope; the bond issue by the Mencap subsidiary Golden Lanes Housing; or the complex bond issue by CityLife (now Allia) to generate income for local charities. Some of these types of products are described in NPC's report New facilities, new funding published in May 2010. NPC would say that many of these products have enjoyed a somewhat slow start, and they have required enormous effort to develop. But they are generating some interest.

Private individuals are showing appetite to invest in mainstream products with a social purpose. Banks can attract deposits; fund managers of listed equities are increasingly attracting investors looking for combined social and financial returns.

Charities themselves have deposits which are starting to look for low-risk combined social and financial returns, such as those offered by the specialist banks. Ditto corporates.

A.4 Investment options

Table 9 provides an overall picture of all the key players we interviewed and used to develop our model. It's structured differently from our high-level findings, around the organisations and their market area rather than the type of capital. This means that the rows below sometimes include more than one type of capital. We have done this because this is another way of looking at what is needed. For example, if you are to offer a loan product, what is required to achieve this? Deposits and capital.

NB Social Finance is not a fund manager, but as a significant player we have included it within the table below.

A.5 Obstacles to future growth

Demand for finance

NPC has not quantified demand by surveying the wider market. Our information is based on anecdote from intermediaries, which is biased. NPC noted that not all intermediaries are active in stimulating demand, having enough deals to process and consume readily available capital. The experience of Futurebuilders and Communitybuilders was that it required considerable effort and outreach to stimulate demand. So there may be more demand out there that is not being stimulated.

Some intermediaries were finding that the market was currently a bit sticky while organisations digested the implications of funding cuts and new commissioning arrangements. Twelve to 18 months hence may see a sharp increase in demand.

Not all of the demand is investable. Conversion ratios vary - Venturesome finds it can only invest in 10 per cent of enquiries. So there needs to be considerable effort, often tempered with grant funding, to get organisations to a point where they are investable.

A clue to real demand might be in the pilot project run by NESTA for the Big Society Bank. It received £47 million of enquiries, many very promising. Many of the applications lay in the £500,000 to £1 million bracket - these were for intermediaries who then may do smaller deals with this capital and aim to raise two to three times extra funding. Out of 65 applications, only 18 were for amounts less than £500,000, but this is to do with how the invitation to apply was couched. NPC was surprised by the demand for equity - over 30 per cent of amounts requested.

Investee-readiness

This is an obstacle. Intermediaries repeatedly talked of the effort to get deals done because investees were unfamiliar with financial concepts such as business planning, borrowing, risk/reward sharing, obligations to investors (covenants etc.), and reporting requirements. Rathbones finds social investees behave differently from commercial ones. For example, a company is unlikely to forget its reporting requirements and would have systems in place to ensure the right information is supplied at the right time. Social investees often simply forget, or do not see reporting as a priority, so working in this area often requires a commitment to investee education.

In any case, many promising ideas need resource to do business plans, feasibility studies, market testing and so forth. Charities in particular may lack funding and expertise for these types of activity, so support for this is essential. There are also cultural issues. An organisation full of social workers used to focusing on family problems will find the transition to becoming a social enterprise quite tough.

Which is why the recent increase in business entrepreneurs becoming social entrepreneurs (observed by Big Issue) is an interesting one.

Processing of demand and supply

This is an issue. Finding good staff able at once to understand social impact and to structure financeable investments. More processing capacity might make stimulation of the market feasible. For instance, Bridges Ventures has no regional network. If it had one, could it grow like 3i did in the 1980s? But could it recruit? Venturesome is happy with its current balance, and finds recruitment and training of the right staff sufficiently challenging that it is cautious about growth.

Part of the challenge is matching deals with investors. What investors want may not be what organisations need, so this process takes resource. This market is not like the commercial market with standard and readily available products understood by both sides. A common characteristic of esoteric products is the very slow process of developing them, piloting them, and then getting them to the commercial market.

Tax, regulations, and legal structures

Generally NPC heard that the legal, tax, and regulatory environment can inhibit the investment environment. Sometimes it was because the environment was too complex, or the products permitted too inflexible to cope with a particular circumstance that could generate social impact. Tax breaks only favoured narrow areas, and legal structures often did not work well.

For fully commercial products, this is not an issue. However, for hybrid quasi-equity type instruments, intermediaries such as Rathbones report that investments are falling between stools and are very difficult to structure. As a consequence the market may not be able to grow as it could.

NPC has not investigated this in detail we are not qualified to give opinions on tax, legal and regulatory matters. But we strongly suggest that this should be looked into, perhaps with a steering group of intermediaries and qualified experts.

Returns

Returns do not always reflect the risk or the efforts to develop deals and manage portfolios. NPC wonders whether the investee market might accept higher charges to compensate for these risks and costs, and therefore become more attractive to investors.

We suspect that interest rate changes could affect returns. Currently intermediaries can attract depositors because returns are lousy in the commercial market. If interest rates went up, it would be harder to attract depositors unless deposit rates increased. This would either squeeze lending margins or necessitate higher lending rates. Are deals structured to allow higher lending rates if the economic environment changes?

A.6 What else needs to happen to build a social finance market?

Building a social finance market is much more than just providing a certain type of capital. These elements need development, but may not offer financial returns.

• Capacity-building to help investees become investment-ready:
  • Financial/investment literacy.
  • Ability to operationally scale-up or replicate.
• Development of financial products which appeal to investors as well as investees:
  • Simplicity.
  • Risk/reward properly allocated.
• Improving the environment for investment:
  • Legal structures.
  • Tax incentives.
  • Regulatory issues.
• Investor stimulation:
  • Development of vehicles to make retail investment easier.
  • Retail investor encouragement and education.
  • Development of market to spread risk.
  • Encouragement of trusts and foundations to participate more willingly.
  • Persuasion of high street banks to participate in bankable deals.
• Impact measurement needs to become more sophisticated:
  • Impact of interventions being supported.

• Impact of using social investment to support/scale-up - is leverage increased? Is funding recycled?

All these elements take time and money, for instance, the development of a successful financial product may take five to ten years. Figure 4 shows the time needed.

One example is the Social Impact Bond. First the product was developed (which included a great deal of policy work) and it is now being piloted but results will take five to ten years to come through.

Commercial investors will not be the ones to develop the market, as the development of new products rarely yields a financial return first time, and other aspects of the market development process carry no immediate financial reward. But there are high potential social rewards.

The BSB will need to consider its role in developing the market.

A.7 Deal sizes offered by intermediaries

Intermediaries do not generally specify size of organisation in their investment criteria, but they do specify size of deal. There were wide ranges in some funds, and funds overlapped. This is potentially an issue in the market and needs to be monitored. Table 10 shows the different levels.

Table 11 summarises the theoretical availability of funds by deal size. NB segments overlap, upward limits being considerably above the next bottom limit. So in reality we have overestimated the practical availability of funds, given that resources have to be shared.

Small to medium-sized enterprises do also access bank overdrafts and credit facilities if they can get them.

APPENDIX A: BACKGROUND ON SOCIAL FINANCE

Table 11: Availability of funds by deal size segment

APPENDIX B: FINANCIAL EXCLUSION

B.4 Investment opportunities

Merger calculations For merger costs, based on conversations with ABCUL and reading of a report on credit union merger, we developed the following list of items that would be required for a merger. Then we did some desk research into average costs per item (e.g. average costs for a project manager). We then calculated how much each item would cost for one year and two years, and then totalled these.

Table 12: Checklist: What is required to implement credit union merger?

APPENDIX C: INTERVIEWEES

ENDNOTES

1. Social Investment Task Force (2010) 'Social Investment Ten Years On.' The final report of the Social Investment Task Force April 2010 has an excellent timeline on pages 4-5. It does, however, omit the important milestone of Charity Bank becoming a real bank in 2002.
2. J.P. Morgan Global Research with the Rockefeller Foundation (November 2010) 'Impact Investments: An emerging asset class.' New York: J.P. Morgan Global Research and The Rockefeller Foundation.
3. ABCUL provided these figures, which are based on the FSA credit union register.
4. For credit union loan book figures see: FSA (March 2010) 'Aggregate Quarterly Statistics for the credit union sector based on validated CQ.' London: FSA. For the CDFI figures see: CDFA (2010) 'Inside Out 2010 - The State of Community Development Finance.' London: CDFA.
5. Jones, P. (2008) 'Breaking through to the future: The strategic development of credit unions in Britain, 1998-2008.' Interim Report Summary. Research Unit for Financial Inclusion, Liverpool John Moores University, in collaboration with the Association of British Credit Unions Ltd. Liverpool: Liverpool John Moores University.
6. ABCUL (2010) 'Credit Unions and the Post Office.' Manchester: ABCUL.
7. Jones, P. (2008) 'Breaking through to the future: The strategic development of credit unions in Britain, 1998 - 2008.' Interim Report Summary. Research Unit for Financial Inclusion, Liverpool John Moores University in collaboration with the Association of British Credit Unions Ltd. Liverpool: Liverpool John Moores University.
8. Financial Inclusion Task Force (March 2010) 'Mainstreaming financial inclusion: Managing money and access to banking.' London: Financial Inclusion Task force.
9. See Growth Fund section of the DWP web-site, http://www.dwp.gov.uk/other-specialists/the-growth-fund/statistics/
10. Jones, P. (2008) 'Breaking through to the future: The strategic development of credit unions in Britain 1998 - 2008.' Research Unit for Financial Inclusion, Liverpool John Moores University in collaboration with the Association of British Credit Unions Ltd. Liverpool: Liverpool John Moores University.
11. Ibid.
12. See: http://www.abcul.org/page/statistics.cfm
13. Jones, P. (2008) 'Breaking through to the future: The strategic development of credit unions in Britain 1998 - 2008.' Research Unit for Financial Inclusion, Liverpool John Moores University in collaboration with the Association of British Credit Unions Ltd. Liverpool: Liverpool John Moores University.
14. Annex A of Financial Inclusion Task Force (March 2010) 'Mainstreaming Financial Inclusion Planning for the future and coping with financial pressure: access to affordable credit.' London: Financial Inclusion Task force.
15. ABCUL (2010) 'Legislative Change for Credit Unions.' Policy Briefing. Manchester: ABCUL.
16. Jones, P. (2008) 'Breaking through to the future: The strategic development of credit unions in Britain, 1998 - 2008.' Research Unit for Financial Inclusion, Liverpool John Moores University in collaboration with the Association of British Credit Unions Ltd. Liverpool: Liverpool John Moores University.
17. Jones, P. (2005) 'Creating wealth in the West Midlands through sustainable Credit Unions: An Action Research Project.' ABCUL in collaboration with Liverpool John Moores University. Manchester: ABCUL.
18. ABCUL (2010) 'Credit Unions and the Post Office.' Policy Briefing. Manchester: ABCUL.
19. HM Treasury (1999) 'Credit Unions of the Future: Taskforce Report.' London: HM Treasury.
20. These figures refer to the period up to November 2010. They are based on figures published by the Department for Work and Pensions, see: http://www.dwp.gov.uk/other-specialists/the-growth-fund/statistics/.
21. These figures refer to the period up to September 2010. They were provided by the Department for Work and Pensions.
22. University of Salford for Leeds City Council and Yorkshire Forward (2009) 'Financial Inclusion Initiatives - Economic impact and regeneration in city economies: The case of Leeds.' Leeds: Leeds City Council.
23. Purkis, A. (June 2010) 'Housing Associations in England and the Future of Voluntary Organisations.' London: The Baring Foundation.
24. National Housing Federation (October 2010) 'Briefing Comprehensive Spending Review - A Briefing for National Housing Federation Members.' London: National Housing Federation.
25. CDFA announcement of 2010 Inside Out report December 13th 2010.

New Philanthropy Capital NESTA Making Innovation Flourish

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Published: April 2011

ISBN 978-1-84875-119-4 9781848751194