Extract from ‘Manifesto for Social Enterprise’

Extract from ‘Manifesto for Social Enterprise’
from ‘Social Enterprise in Anytown’ by John Pearce
12.01.12

Mutual Financing

Financial institutions are required within the third system which have the capacity to make the scale of investments that are needed to seriously grow social enterprises.

The idea of making social enterprise ‘bankable’ sends out quite the wrong message. It implies that social enterprises are, or should become, like other businesses, which they are not and should not aspire to be. It further implies that social enterprises should somehow fit themselves to the demands of the existing banking system.

The first step must be to consolidate the network of finance institutions which belong to the social economy. That may not mean proliferating small Community Development Finance Institutions (CDFIs) but building institutions of some scale which can both make loans and provide ‘patient’ equity capital.  The emphasis should be on finance institutions which are controlled by the state or by the private sector.
 
The second step is surely for the existing big financial players from the traditional co-operative sector in the social economy to take a lead in developing a new national institution or supporting regional social economy funds to build up and provide the investment capital which is required. They have the expertise.  There is substantial money around the social economy, but most of it is kept and used within the mainstream banking system. Therefore it does not work to benefit the social economy, The Charity Bank, Triodos Bank and others have demonstrated that there is money out there which people are willing to invest in social enterprises and to accept that social returns temper the financial return they may expect.

The third step is to make more sensible use of the substantial funds which the public sector already invests in social enterprises. That means the introduction of ‘recoverable grants’, paying revenue money as up-front capital, working through social investment funds rather than direct from the public sector, and diverting some of the expensive revenue schemes (Intermediate Labour Markets for example) into capital investment funds.

Four Main Points

• The social economy requires its own mutual financing institutions based on social economy values rather than having to become ‘bankable’ in the style of the first-system banks.
• These mutual finance institutions must build investment funds of a scale which can deliver the growth capital required for social enterprises to make a significant difference.
• The existing co-operative financial institutions should take a lead in developing new institutions and mobilising the substantial funds already within the social economy to work for social enterprises.
• Public-sector investment in social enterprises should be routed through the mutual financing institutions and delivered as ‘patient’ equity.