Commission on UnClaimed Assets
Summary of Findings
In its July 2006 report, The Commission on UnClaimed Assets (CUA) recommended the establishment of a social investment bank to provide a wider range of finance to the third sector. This was seen as a way of encouraging the growth of the third sector, especially the development of disadvantaged communities in the UK, and a means of attracting additional private sector capital. The below are a summary of findings in advance of a detailed report to be published in the Spring of 2007.
Many third sector organisations have insufficient capacity to develop trading revenues, despite the fact that trading income now exceeds voluntary sources of income. Two thirds of registered charities operate with no financial reserves and less than 50% of those with reserves have sufficient to cover more than 3 months operating costs. In addition, existing donors prefer to fund organisation activities rather than core infrastructure and management costs.
The CUA and the government believe the third sector is undercapitalised and endorse the recommendation of the Treasury & Cabinet Office Third Sector Review to urgently develop the capacity of third sector organisations & the resources available to them.
The scale of current investment is insufficient to enable organisations to grow and maintain effective management teams or to take advantage of the revenue opportunities that are emerging
Although new types of investment (e.g. typically low-risk loan finance) have emerged, a social investment marketplace is required to provide a range of financial instruments (including equity or quasi-equity) that address different risk profiles and meet the needs of third sector organisations at different stages of development.
The right type of finance and support would encourage the development of social entrepreneurship and could enable it to make a contribution to the UK economy comparable with mainstream entrepreneurship. The Commission believes that there is need for a specialised financial institution, a Social Investment Bank. Such a bank could offset the gap between the expected rates of return from social sector activities and those from the mainstream private sector; and facilitate access to mainstream finance and capital markets. This could effectively develop the sector, increase the scale of current private and institutional investment in the sector and create social investment as an asset class of its own
The proposed Social Investment Bank is envisioned to act as a small, self-sustaining organisation (akin to a private equity house) that would support financial intermediaries (e.g. CDFIs, Credit Unions, etc.) & develop a social investment marketplace by:
• leveraging its capital to provide debt and make equity-type investments; its balance sheet to issue bonds/provide guarantees; its income to make grants and cover its overheads.
• leveraging the finance & social expertise of its specialists to grow the financial capacity and knowledge base in the sector and assist intermediaries in raising their own finance.
• developing a regional presence to oversee transactions and ensure it is operating in context of local market needs.
The Commission is urging the government to act on its recommendations as a means to leverage private sector models and develop social entrepreneurship for the benefit of under-invested communities.