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Funding social enterprise

By Peter Shergold - posted Friday, 2 September 2011

Here's some pretty unusual news from the financial markets. Take a Commonwealth government grant, double its value and transform it into a loan available as start-up capital in a small business.

You may be forgiven if you missed the launch of this public innovation amidst the market volatility of recent days. It's called the Social Enterprise Development Investment Fund (SEDIF). It could just signal the start of a transformation in the way mission-driven organisations fund their social or environmental purpose.

In truth, there is already a quiet revolution going on in the social sector. It has its genesis in the most traditional of problems. Mission-driven organisations typically have growth ambitions that far outstrip the philanthropic donations and government grants available to them. They find it hard to achieve scale.


Access to volunteer labour helps to bridge the gap. So, increasingly, do partnerships with businesses which seek to gain reputational advantage through publicly reporting on their 'corporate social responsibility' initiatives.

There is an alternative. Already it is estimated that 20,000 not-for-profit organisations seek to fund their expansion through trading. Many are contracted by governments to deliver their human service programs. An increasing number run businesses that seek to make a surplus on their activities – everything from cafes, bakeries and print-shops that provide employment and training opportunities to the disadvantaged to recycling operations or arts festivals.

These social enterprises derive a substantial portion of their income from trade but, crucially, reinvest the majority of their 'profits' in the fulfilment of their mission. There is no shortage of the new ideas and innovative approaches we generally associate with entrepreneurial drive. What is lacking is access to capital.

Some of the larger not-for-profit organisations, such as Mission Australia, have been willing to risk their hard-garnered reserves in providing start-up capital. Such resources are limited. The challenge is what can be done to harness private sector capital. Can the wealth of high-net-worth philanthropists and the ethical conscience of socially responsible investors be turned into debt facilities for community purpose?

That's where the SEDIF comes in. The Minister for Employment Participation and Child Care, Kate Ellis, has just announced two grants of $10m and $6m to a couple of Australian fund managers.

The first, Social Enterprise Finance Australia, brings together a unique combination of Australian and international partners including Triodos of the Netherlands, one of the world's leading social impact finance organisations.


The second is Foresters Community Finance which has been able to secure a cornerstone investment fromChristian Super Fund. Foresters has for the last decade been a pioneer in the field of social investment.

Both organisations have shown that they are able to at least match the Commonwealth's grant although their ambition is to grow their loan books over time. They will use their funds to provide debt facilities or 'social equity' to social enterprises which would not necessarily meet the lending criteria of a mainstream financial institution.

The loans they will extend are sometimes described as 'patient investments'. At their heart lies the concept of shared value. Investors will expect a financial return over time but they will probably focus just as much on their social return – such as the positive impact they have made in assisting the disadvantaged, opening employment opportunities for those with disabilities, providing social housing, restoring environmental damage, preserving cultural heritage or funding indigenous community enterprise. It is this promise of both social and financial returns which makes the emerging social impact investment market so attractive to a new breed of private sector investors.

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About the Author

Peter Shergold is the Macquarie Group Foundation Professor at the Centre for Social Impact (CSI) at UNSW.

Other articles by this Author

All articles by Peter Shergold

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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