Social investment: Who’s got it, who wants it, and what’s next?

Today NCVO publishes new research that should help social investors zone in on the charities and social enterprises for whom social investment is most likely to be relevant.

It includes a comprehensive literature review, ground-breaking data analysis and up-to-date case studies.

We anticipate this analysis will be welcomed by the social investment community and voluntary sector alike – not least because it will enable communications about social investment to be better targeted in future.

What’s new about this research?

Previous estimates of the social investment market – including Big Society Capital’s (BSC) latest analysis – focus on the total size of the market, often seen through the lens of investors. Ever-larger figures for the total amount invested are signs that social investment is indeed ramping up. Numerous qualitative reports have analysed and further extrapolated from the success to date.

Yet, key questions have remained:

  • For whom is social investment most relevant?
  • Is it playing as major a role in the voluntary sector economy as some (particularly government ministers) have implied?

NCVO’s new analysis uses financial data from the accounts of charities and social companies (a working term we are using to refer to asset-locked social enterprises whose data was drawn from Companies House – see definition on page 10). We use these data to analyse their assets and liabilities in much greater detail than before. This should help all of us with an interest in social investment to refine our assumptions about who’s already taking on investment (of any kind) and who is most likely to in future.

Based on the findings described below, we believe there to be a limited but identifiable group of social sector organisations for whom the prevailing forms of social investment are most likely to be relevant. See our diagram and further analysis below.

So, who’s already borrowing?

Of 160,000 charities, around £3.5bn is owed in outstanding loans of different types

This is out of a total £15.5bn in liabilities. Larger charities are more likely to have loans; and three-quarters of all loans are secured against assets.

The average loan size varies significantly by charity sub-sector

The largest average loan size held by housing organisations is £116k, whereas other sub-sectors have an average loan size in the low tens-of-thousands.

Only 20% of charities are incorporated as companies

Incorporating as a company providing trustees with limited liability (and thus, we assume, likely greater willingness to take on the financial risks of repayable finance). However, this rate of incorporation is increasing as newer organisations are more likely to register as a charitable incorporated organisation.

There are 67,000 asset-locked social companies in the UK

This was found out after new analysis of Companies House data, and is in addition to the many registered charities described above), which we break down in terms of turnover (£16bn, excluding £9bn of the Co-op group), assets and liabilities, by size of company and by sub-sector.

Social companies, at a headline level, have a healthy level of liabilities relative to their assets

The average debt ratio for these companies is around 40% (ie their debts in proportion to their assets) and average current ratio is 1.8 (ie the number of times their current assets could cover their current liabilities).

The data available on social companies includes information about their mortgages

Around 4,000 social companies (6%) have at least one mortgage – typically the largest organisations (those with a mortgage have an average annual turnover of £400k, compared to £80k for those without).

What does this mean for the future of social investment?

It confirms that the number of organisations benefiting from social investment to date has been limited

BSC’s own estimates published last month showed that around 3,000 charities and social enterprises had received investment – a relatively small proportion of the social sector’s 160,000 general charities and 67,000 asset-locked social companies.

This is not to reduce the significance of investment to those who have benefited from it (for whom it may be making a big difference). But it might help to temper the ‘hype’ around social investment that BSC itself acknowledges and which we know many in our sector have grown weary of.

This new research should help social investors zone in on their likeliest future customers and target their communications appropriately

Organisations that are already relatively strong financially are the most likely to take on investment. In assessing potential demand from the charity sector, key factors are:

  • the rate of incorporation
  • asset concentration
  • current turnover
  • revenue growth potential.

Yet, if we assume the largest organisations – who readily pass these tests – are already able to borrow from high street banks, then we begin to zone in further on those for whom social investment may be most relevant. Around 9,000 charities look most likely to fit the brief for secured lending, with more that may be interested in unsecured lending, although this is less commonly available.

social-investment-report-graph

The average size of loans held by charities and social companies is lower than those typically offered by social investment bodies

We know many social sector organisations are also concerned about the rates of interest currently being charged.

These issues are no surprise, with the Access Foundation already set up to help organisations wishing to access smaller-scale investment. Yet they remain relevant issues for the health of the market overall.

Find out more

We hope that the research we’re publishing today will help the investment community as it grapples with some of these difficult questions and helps keep its focus on making social investment accessible for social sector organisations who in turn can put this money to best use in pursuit of good causes.

You can read all of the components of this new research in full.

Note: This article was amended on 11 May to clarify use of the term ‘social companies’.

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Charlotte Ravenscroft was NCVO’s head of policy and public services. Charlotte’s wrote about funding, public service delivery, and strengthening the evidence base for voluntary action. She has also worked at the Big Lottery Fund and the Department for Education.

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