Saving communities though sharing

Saving communities though sharing
Chris Hill
Society Guardian

My local grocer’s shop, threatened with closure, was recently saved after £100,000 was raised from local residents in just two months.

The shop isn’t in an affluent area, but is located in a student-dominated part of Leeds with a high population turnover. On the whole its locals are not wealthy, yet raising the money to buy the shop, the Natural Food Store, was swift and inexpensive.

Our secret? A community share issue. This is when a community enterprise offers shares to be purchased by residents and other community members. Although it isn’t a new concept, if you are not yet familiar with it then you are certainly not alone. Do a UK Google search using the phrase ‘share issue’, and the search engine comes up with nearly 68,000 results. Put the word ‘community’ at the front, and the results shrink to seven.

In reality, the majority of the UK’s 150 community-owned shops, and bigger players like Cafédirect plc have issued shares. But as a mechanism for raising money for community or co-operatively owned businesses, it is woefully underused.

Our grocer’s shop has been transformed into a bustling enterprise that is owned and managed by locals. Now we are determined to spread the word. I am particularly passionate about this because, as a social entrepreneur, I am involved with several regeneration projects in deprived inner-city areas. I am only too aware of the difficulties and pitfalls facing those who seek to raise funds to improve their communities.

For community enterprises including shops, community buildings and arts projects, a share issue can send fortunes soaring. It raises affordable capital – and yet, it amounts to more than ‘cheap money’. In my experience, it turns the dry activity of fundraising into a campaign amongst supporters. It lends a project a renewed sense of energy. Moreover, those involved will work even harder to make that project a success.

If the enterprise has industrial and provident society status, financial and legal preparations are relatively straightforward. Working with a solicitor and existing share issue templates, the assistance should cost in the region of £2,500. A suitable solicitor should be engaged from the outset, to advise on company structure, governance arrangements and the most appropriate vehicle for a share issue. It is often possible to obtain money for feasibility and consulting support as part of a loan package from regional development agency social enterprise schemes.

Interested parties can find further details in a paper I have written on the subject with Wrigleys Solicitors, commissioned by the Development Trusts Association.

As with any financial enterprise, there are caveats. The money isn’t guaranteed to come rolling in. The challenges of raising money from within poorer communities need to be recognised. The outcome will depend on the strength of the business case, the passion that can be generated amongst potential supporters and investors, and the quality of planning and campaigning around the share issue.

It is also important to note that community shares aren’t for everyone. Those who wish to make a lot of money from their investment should look elsewhere. Dividends are paid out of profits: no profits, no pay-outs. The dividends paid out on community shares can be small, and investors may well have to wait for years before their capital investments can be repaid.

However, when local people are willing to devote a modest proportion of their savings to something socially useful, community shares could be for them.

In my spare time I am a director of Headingley Development Trust, an organisation formed of concerned residents and local businesses, which aims to develop a sustainable community in our part of Leeds.

The Trust launched the community buyout of the Natural Food Store. Residents ‘bought in’ to this project because they were worried about losing the shop and knew that their efforts could make a difference. A project group was formed, a business plan developed, public meetings held and investment pledges of £100 or more were sought. Two months later, the £90,000 target had been exceeded. With great fanfare, the new ownership came into effect in November 2007. We are now launching a share issue to turn a derelict local primary school into an enterprise and arts centre.

As more people become aware of the benefits of community share issues, a small ‘hall of fame’ has developed. My favourite community success story took place in Hesket, in the Lake District. There, villagers have twice shown the power of community enterprise. They formed a co-operative to buy out the local brewery in 1999 – and a second co-operative, to buy out their local pub, in 2003. Both enterprises are profitable and expanding; the brewery bought a new plant in 2004 and will shortly be opening a visitor centre.

The ‘ethical investor’ market continues to expand, but much of the money circulates around the traditional financial markets. If just a fraction of that money went directly into social enterprises, it could make an incredible difference. As well as preaching the gospel of community share issues, my fellow community activists and I have started working with the Leeds Community Foundation so that we can better link people with money to potential social investments in the city. When we can demonstrate that people can do great things with their money – and get it back – we are sure that money can really start shifting into social enterprise.