Why not build new coalitions across impact investing, community finance and other new finance markets to scale up all these new and emerging markets of “social finance” and fulfil a prospectus of reconnecting finance with social purpose. All these new markets have more in common than divides them – they are all about achieving new models of finance, serving the underserved and realizing the economic growth and social impact that result. And these new markets, despite great achievements, are still very small compared with mainstream finance. On their own, what they can achieve is limited; they can cooperate for greater effectiveness while still preserving their identities. Let’s find ways for community finance, social investment, social housing finance and other markets to work together and form active trading and marketing collaborations to realize the on-mission impact and clout of what they can achieve together – coalitions across different “social finance” markets as well as within them. Let’s call this a wider “Finance for Social Purpose” market.
The Community Finance Coalition in the UK, led by the CDFA (Community Development Finance Association) and its inspiring chief executive Ben Hughes, held a conference yesterday (25 January) that was as important as it was timely. And which had resonance for the impact investing/social investment market and other “social finance” markets not just for community finance.
Titled “From the Margins to the Mainstream”, with an immediate focus on the community finance market, its theme was the need to scale up community investment in the UK.
I want to strongly support its findings on urgency and a major financing gap as well as its conclusions generally while offering a solution to one of its main conclusions which was to build new coalitions and new language for articulating and delivering a much needed scale-up in a new sort of finance, a finance for place and community, a finance for social impact.
In my terms I call this “Reconnecting Finance with Social Purpose”. I see a natural coalition or tapestry of different new and emerging alternative finance markets that are used to defining themselves closely and tightly by reference to very specific missions and values but which also need to recognize that for maximum effect in changing the way finance is offered and the way finance is popularly understood there is much more that unites them than distinguishes them.
Including Social Investment and Impact Investing , Community Finance, CDFIs, Credit Unions and Co-ops, Social Investment and Impact Investing, Housing Association Financing, Mainstream Financing to Civil Society Organisations (and maybe peer to peer financing should be in there) this is about them recognizing that they form part of a bigger tapestry of what I call a market for Finance for Social Purpose – and should actively work together on trading collaborations and marketing collaborations.
Quantifying the Need and Urgency for Scale-Up
Commissioned by the CDFA and supported by RBS (through its Inspiring Social Enterprise initiative), ICF GHK in its report produced for the conference “Quantifying the need for community finance in the UK”, found that in 2012 community finance organizations in the UK delivered £0.7 billion of community finance against an estimated current annual demand of £5.45-6.75 billion – a gap of some £5 billion.
In response to these findings ICF GHK recommended that sector associations needed to work together to provide leadership and champion the development of the community finance market.
“The scale of unmet demand can only be met through a partnership of public, private and social investors – through [establishing] a viable and sustainable community finance system as an established and embedded feature of the UK’s financial landscape” the report said.
“Community finance organizations, if capitalized to do so, would generate sustainable economic development and social well-being in communities across the UK. Currently, society and the UK economy are losing out” the report added.
This is NOT because of any failing by the community finance sector which on the contrary has taken major steps forward in establishing itself over the last ten years, serving some of the most underserved areas of the country. Over £800m of loans has sustained tens of thousands of businesses, social enterprises and jobs as well as saving thousands more from predatory lenders. (See “JUST Finance: Capitalising Communities, Strengthening Local Economies”, CDFA – http://www.cdfa.org.uk/wp-content/uploads/2012/01/JUST-Finance-ONLINE-VERSION.pdf).
Rather it just reflects community finance’s stage of development which sets challenges for the next ten years.
As Ben Hughes said ( in“JUST Finance”) – “Impressive though the past decade’s achievements are, we must do more to scale this potential and make it a reality… to achieve the step change in wealth creation, new jobs and economic growth” that community finance is capable of.
This is the backdrop to creating new strategic coalitions within community finance.
Recognizing a coalitional Market of Finance for Social Purpose
As well as coalitions within the community finance market and within other new social finance markets considered separately, markets like impact investing and social investment, this same strategic context and sense of potential calls for coalitions across different “social” finance markets taken together.
A brute fact is that even taken together, all these new and emerging “social finance” markets are tiny compared with mainstream finance. Community finance in the UK is running at £0.7 billion per annum. UK social investment might grow in the next few years to hit the first £1 billion (says Boston Consulting Group). In contrast, the big banks in the UK made £75 billion of loans to SMEs alone. If the job is to “mind the finance gap”, that’s a huge finance gap. If we want to realize the potential of community finance, of social investment and of other new markets then we should collaborate to get on-mission scale and clout. If part of the objective is to transform what “finance” means and establish new norms and instinctive understandings of what finance can include, then we need scale – for our missions, not in opposition to them.
In each of these markets we are not used to thinking this way. What distinguishes “our” market often seems to matter more. Missions and values promote difference between small markets that would be much better off collaborating.
Social investment for example is about impact; Big Society Capital as an exemplum cannot support investments that are not aimed at achieving social impact and which is not achieved through social impact organisations. Investment in community, in place, that achieves great social impact but which is achieved through investment, say, in local small enterprises and businesses that create wealth and jobs and through that create social benefits do not fall within the definition of social investment. The opposite also applies.
A focus on differences finds it easy to segment markets and, by segmenting, fragment what amounts to large scale impressive social effort, that together shows the potential for transforming what finance can stand for and mean.
Particular missions and particular values matter. This is about “and” not “or”. This is about looking at collaborations between different missions not supplanting or diluting distinctive values and missions.
The call, merely, is to look as much as what these different markets and missions have in common as at what distinguishes them.
They each of them in their way are about reimagining finance, about reconnecting finance with broader social purpose. Through their different missions and segment of the market, they are each about targeting finance at achieving sustainable social value as well as financial and economic value. Each of them is about not being second rate, is about real investment and real finance, about sustainable business models. Each of them is about developing new business models, about developing new credit worthiness models, about understanding the outcomes of finance in a broader richer way.
Lets recognize those similarities and recognise each market as being in part a different aspect of a wider market – a wider movement – for finance with social purpose. Creating a new language for finance – for “social banking” – creating new norms of finance for the wider population to understand that rest on bigger simpler ideas rather than on the technicalities and technical language of different specific markets.
The impact could be huge.
Rupert Evenett (C) 2013
Normative Capital - On Social Investment, Finance for Social Purpose and the Role of the City 