It is likely that mainstream banks are lending far more money to social enterprises and charities than the ‘social investment market’. That’s the headline news from The Forest For The Trees, a new report I’ve co-authored with Dan Gregory for the bank, RBS.

The report explains that RBS has around £250 million in lending outstanding to the social sector and, if replicated across all banks, this would amount to total lending of over £3 billion. There’s also a huge level of overdraft finance available to social enterprises and charities from mainstream banks: nearly £100 million from RBS alone, £1.2 billion is replicated across all banks.

These are big numbers and it’s big news, not least because it’s the first time (to our knowledge) that a bank has provided this kind of information on its lending to the sector. While the past six years have seen rapid scaling in the rhetoric and survey-based branches of the social investment report industry, generation of meaningful data has been stuck firmly in the start-up phase.

Much of the new data in our report was generated by matching a database of nearly 200,000 social organisations (charities, CICs, CLGs and Community Benefit Societies) with RBS’s customer database. Around 16,000 (8%) of those organisations were active RBS customers and our report provides information about lending to and saving by those customers.


Size matters 

The volume of lending is significant compared to the ‘social investment market’ as encapsulated by social investment wholesaler, Big Society Capital‘s report The size and composition of social investment in the UK, published in March this year. That report reveals total outstanding social investment of £1.5 billion, however this includes £427 million of investment in ‘Profit with Purpose’* organisations and equity investment as well as lending.

Potentially more significant, though, is the fact that the average size of loans from RBS (around £350,000) is significantly small than the average size of investment within the ‘social investment market’ (over £600,000). This is important because a key reason (possibly *the* key reason) why social investment has been enthusiastically promoted by the UK’s sector leaders, and both trumpeted and subsidised by our politicians, is that it’s meant to fill a gap.

Research research from NCVO Understanding the capacity and need to take on investment within the social sector notes that, in terms of investment needs of different groups of charities: “the highest average loan amount by sector is £116,000” while Social Enterprise UK’s most recent State of Social Enterprise survey suggests the median amount of funding or finance sought by social enterprises was just £60,000.

While the exact figures vary from survey to survey, the broad picture is remarkably consistent. As Social Investment Business chief executive, Jonathan Jenkins, noted in March:


Find the gap 

Our report suggests that claims such as charity-focused bank, CAF’s suggestion that: “many commercial or high street lender simply don’t have the appetite for lending to charities” should be treated with caution. Mainstream banks lend vast amounts of money to charities and social enterprises and there’s no evidence that they are disproportionately unlikely to lend to the sector.

That matters but it unequivocally does not mean that the problem of providing appropriate finance for charities and social enterprises has been solved. As the report of The Alternative Commission of Social Investment (most of which Dan and I wrote) noted last year: “There may be some unmet demand in certain segments of the market, such as for cheap, risky, long term growth finance in the tens – but not hundreds – of thousands.

While mainstream banks may be doing more than many of us previously thought to provide small amounts of relatively risky short term finance in the form of overdrafts, there is no evidence that they’re providing unsecured, long term growth finance on any significant scale. If you need an extra £5,000 or £10,000 for a month or two because you’re waiting for a big customer to pay up, your bank may be able to help. If you want to spend £15,000 – £50,000  on trying something new (or offering more of an existing service) – and you’re not likely to earn the money back for a year or two – an overdraft isn’t the right option.

This is a gap that social investment could fill. Unfortunately, Big Society Capital-backed social investors (the artists formerly known as SIFIs) are not currently filling it – and, based on the type of finance available to them, they are not able to. While Access may be part of the response to that problem, there is a need for wider consideration of what publicly supported social investment is actually for.


What happens next?

Our report provides nine recommendations split between: ‘social sector organisations’, ‘banks’ and ‘policymakers and social investment experts’. These include:

Social sector organisations seeking investment should understand that there are a range of routes to finance – some of which may be labelled ‘social investment’, some of which may not.

RBS and other banks should continue to explore new ways to make affordable finance available to social sector organisations including: direct lending, investment in SIFIs, and/or community lenders (including credit unions), referrals and facilitating individual investment.


Social investment policymakers and experts more clearly understand and articulate how their services and products are meeting unmet needs of social sector organisations.

There’s a potential next phase of work on access to finance for charities and social enterprises (which may or may not be carried out by us) to get a clear picture of which providers are best placed to fulfill which functions:

  • Are there some functions – for example, loans of £25,000 or less – where government could provide subsidies/guarantees to mainstream lenders (both banks and peer-to-peer platforms) to enable them to lend to more social organisations?
  • Could mainstream banks play a bigger role in providing finance for Credit Unions and SIFIs to enable them to lend/invest more?
  • Are there ways that mainstream banks could provide opportunities for individual customers to invest in charities and social enterprises?
  • In what circumstances is it really important that an organisation is able to take on investment from an investor who is specifically socially motivated?

The Forest For The Trees is hopefully the beginning of a useful discussion about the role of mainstream banks in supporting positive social change. It would be great to see more banks following RBS’s lead in making their data available and supporting this kind of research – and it’s vitally important that social investment leaders consider more clearly the gaps they are seeking to fill and the reasons why they are best placed to fill them.


*While readers of previous post my be aware of my views on the issue, in this instance I am not making a point either way about the status of ‘Profit with Purpose’ organisations as ‘social enterprises’ or ‘social businesses’. I have separated this figure because as Companies Limited By Shares (CLSs), these organisations are not included in the charity and social enterprise database we used to generate data from RBS.

→ Read David Floyd’s original article on his blog here