The Social Investment Confusion


Social Investment has been around for quite a few years in the UK and yet we still don’t have a shared concept of what it is, or who or what it is for. We constantly hear that investors can’t find enough quality social investment propositions and yet we also know that VCSE organisations are in need of capital to invest in the sustainability of their organisations. It’s not because there is a lack of entrepreneurialism. So where is the disconnect happening?

In this guest blog, Phil Caroe, Allia’s Director of Social Finance, offers his views on where the misunderstanding might be.


Evidence suggests that charities and social enterprises are generally pretty confused by social investment. The one thing that is clear is that it’s not the same as getting a loan from the bank, because bank loans have been available forever and the ‘social investment market’ is apparently some new thing that Big Society Capital and a bunch of ‘SIFIs’ are busy trying to build.

And therein, I believe, lies the problem. So I’m going to go out on a limb here and say something potentially controversial: the fact that we talk about this concept of ‘social investment’ as a type of finance raised by charities and social enterprises is, I suggest, one of the main barriers to them getting involved.

First, debt is often a scary enough word as it is. The idea of getting into debt in order to pay for stuff you couldn’t otherwise afford and putting your organisation and your beneficiaries at greater risk doesn’t always, unsurprisingly, sit that comfortably with trustees. Now introduce a new and unfamiliar concept called ‘social investment’ as an alternative to conventional finance, and you can appreciate how the comfort zone is getting left even further behind. Add to the mix the political rhetoric of social investment offering salvation for the sector at the same time as deep funding cuts and the proliferation of ex-City people trying to offer you finance, and you can see why social investment hasn’t always been whole-heartedly embraced.

The second issue is that it’s not always clear what to expect from investment with a ‘social’ label. Sometimes what investors mean is that it’s finance exclusively for social organisations. But investees may interpret the label to mean that there’s something different about ‘social’ investment compared with ordinary commercial investment – perhaps a willingness to accept lower returns and longer timeframes, and to not mind so much if it all doesn’t work out and the money can’t be repaid. So you can also understand the frustration from investees when some sources of ‘social’ investment turn out to be much more commercial than they expected.

My proposition therefore, radical as it might sound, is that we stop talking to charities and social enterprises about raising social investment as a type of finance. We stop giving the impression that social investment is a thing with definable characteristics, and instead simply talk about how repayable finance could support their mission. We explain how there is a spectrum of different investors and lenders – from banks to venture philanthropists – each with their own mix of social and financial goals. And some of these might describe themselves as social investors.


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