A social investment is a loan or other financial investment that aims to make a positive economic, social or environmental impact in a community, as well as earning income.
Big Local Collyhurst allocated £4,000 as grant funding to do a pilot project on access to low cost credit and financial management. This gave them some experience whilst they were developing their plan. They developed a good relationship with the local credit union and trained local residents to do all the paperwork locally for anyone opening an account with the local credit union.
Impact means the difference we make. The purpose of a social investment is to improve the world around you. Social investments only work if they help individuals and reach organisations that are doing good in communities.
As an example, you might decide to work with a community organisation that provides business start-up loans. They could provide a loan to someone to set up a local window cleaning business that will employ residents who have struggled to find work. Or they could fund a loan to a charity that manages local garden allotments, which provide good quality, affordable food to residents and healthy activity for people locally.
Social investments are different from high street bank loans because they are available to people and organisations who cannot borrow money to support their plans from traditional banks. If someone can get an appropriate loan from a high street bank, they should not need to use Big Local money.
With a social investment, those making the investment try to achieve a mix of economic, social and environmental returns, so there are different priorities that they take into account when they look at who or what to invest in.
Social investors do not have to maximise the profit they make. They take time to understand the people and organisations who want to borrow from them, looking at both the financial side and the social side, and how these are balanced. They are normally willing to make smaller loans and to help individuals and organisations to build a credit record.
There are many different types of social investment, but the following are likely to be most useful to Big Local areas.
If a person, a business or a voluntary or community organisation can get an affordable loan from a high street bank, they should do this in the first instance. The reason is that if someone else will finance the activity at an interest rate that is affordable, then Big Local money can be accessed by people, businesses and organisations that cannot get access to fair credit elsewhere.
The decision to make social investments with your Big Local money is made by the Big Local partnership, as part of the Big Local plan. The Big Local plan sets out how your area will use the £1m to achieve your vision and make your area an even better place to live. Looking carefully at different social investment options can make your Big Local money go further and contribute to creating lasting change. Social investment works well with other approaches – a combination of grants, social investment and buying products or services.
The North West Ipswich Big Local partnership decided to work with East of England Savings and Loans. They agreed to give a grant of £5,000 and to make a social investment of £20,000. In return, the credit union has agreed to set up Junior Savers Schemes in local schools, help residents join the credit union, saving £30,000 per year (by paying less interest than to doorstep or illegal lenders), and to open ‘jam jar’ budgeting accounts.
If your area wants to use social investment, Local Trust can support you by providing advice through Big Local social investment reps and Small Change and in finding a suitable community finance organisation or organisations to manage the loans on your behalf.
The organisations that might be able to help you include:
Sometimes, social investment is not the right answer. If a person or organisation needs money now and there is no real chance that they can earn enough income to repay a loan, or generate a social or environmental return, they need to look for another form of financial support – this could be a grant or award.
Social investments can be risky. As with any loan or grant, there is no guarantee you will achieve the results you are aiming for. You must review your plans and be clear about how much risk you are willing to take and how you will monitor the results of your investments and learn how to improve them.
We know some people may object to lending on moral or religious grounds. We will only work with reputable, community-based lenders such as credit unions and community development finance institutions and will do our best to make lending available that complies with ethical and religious principles.
Social investment is an important option for Big Local areas to consider for the following reasons.
There is a lot of jargon associated with the financial sector and social investments; here are a few key phrases that you might come across.
You can download this guide to social investment as well as two more detailed guides at https://localtrust.org.uk/library/programme-guidance
For more information please contact us on 020 3588 0565 or email firstname.lastname@example.org