Local impact funds: Growing the local social economy

Anyone who knows what makes their local community tick will understand the importance of a thriving charity and social enterprise sector.

However, the economic impact of this sector is often less discussed. In reality we are a powerful and growing economic force, providing jobs and creating wealth for communities – often for those who need it most. Around the country the sector is worth £55bn, supporting more than two million jobs and with 82% of organisations reinvesting their profits locally.

I am proud of what we have been able to achieve at the Social Investment Business (SIB) over the last decade, investing over £320m into more than 1,200 charities and social enterprises. However, in spite of demonstrating a real market opportunity for lending, many organisations in the sector still find it hard to raise capital from the big banks, especially if they don’t own a building. Our own research has shown unmet demand of over £350m of investment from the sector.

There is an opportunity for that demand to be met by a growing range of investors, from local civic institutions to foundations, private investors and individuals, wanting to invest their money for more than purely financial returns. These investors want to use their capital, not just their spending, to make a positive impact in their own communities.

But how to connect this supply with the demand for social finance in communities? Local enterprise partnerships (leps) are charged with developing economic strategies for their areas. The role of charities and social enterprises should be central to this. At SIB we have created a new financing model, ‘local impact funds’, to make this connection and last week we launched the UK’s first local impact fund in Liverpool.

Working in partnership with Social Enterprise North West, the £2m Liverpool city region impact fund combines investment from ERDF and SIB’s own foundation, and will offer business support and simple finance to local charities and social enterprises, providing unsecured loans of up to £250,000, helping them to grow and scale up the impact they make in their communities.

This model of local impact funds could deliver £100m to local charities and social enterprises by 2020. The guidance that leps have received from government highlights the opportunity for the structure. Ten further cities and regions, from Devon to Cumbria, have already detailed plans to set up their own local impact funds. We believe that 15 to 20 local enterprise partnerships will want to launch a local impact fund by 2016, and expect these funds to be between £5m and £10m initially. They will be a critical first step in bringing social investment to communities anywhere in the UK. The funds will vary from place to place but will have a number of common factors. They will:

• Be locally driven, flexible, and responsive to need and context; providing the right sort of financing for the local market.
• Combine finance with incubation and business support, to help organisations become investment ready and build a healthy social ecosystem.
• Draw together into one place the right mix of national and local initiatives and interventions, achieving more through the sum of its parts.

We are calling for ambitious local partners to join us in pioneering the next cohort of local impact funds. We would love to hear from local enterprise partnerships, local authorities, universities, businesses or any local organisation keen to invest and grow their local economy. If you are interested register your interest with us by 28 February through our website, and we will be in touch to discuss how setting up a local impact fund can benefit your organisation and help your local economy.