From fragmentation to function?

Malcolm Hayday

In 2007 the Skoll Centre for Social Entrepreneurship published a working paper by Jed Emerson and Joshua Spitzer entitled From Fragmentation to Function. As I cleared my office cupboards to make way for my successor at Charity Bank, I found this along with much earlier papers on impact measurement and social investment, and copious treatises on defining social enterprise. But the Skoll paper set me wondering whether we are now moving from fragmentation to function.

There have been many false dawns since I joined Charities Aid Foundation in 1993; no doubt I and others contributed to them. Yet today the noise is much louder and the activity more frenetic, and key elements of a marketplace – intermediaries, wholesalers, brokers, analysts – are beginning to appear.

In 1993 we knew something was wrong. Not enough money was finding its way to enterprising organizations in the UK capable of addressing societal problems. Debt finance for NGOs seemed to work in the US and a new banking movement with its roots in anthroposophy[1] was under way in continental Europe. In the wake of the collapse of Bank of Credit and Commerce International, the authorities were not keen to see more banks but could not stand in the way of an unregulated charitable pilot. So Investors in Society was born as a pilot loan fund.

Seven years later its success led to the creation of Charity Bank. Fast forward ten years and the bank has 3,000 savers and its borrower portfolio has embraced over 1,000 enterprises, most of which have survived and grown to enhance their mission. A further 1,000+ have participated in capacity-building programmes and over 3.5 million people have been served by the bank’s borrowers. None of this would have been possible without the vision of CAF, 18 other charitable investors and one public body, Yorkshire Forward, who built the capital of the bank.

Previously people had supported charity by giving money from their assets; being a bank able to take savings allowed us to tap into people’s temporary cash surpluses as well. It was helpful to be a charity because we had a charitable mission. Charity Bank is a financial vehicle through which we can address social injustice, marginalization and exclusion.

Although we have had many complimentary remarks from around the world, few have followed our road. Nor for that matter did we follow the exact routes pioneered by Triodos, La NEF, or GLS Bank in Europe or the Community Credit Unions in the US. The market remains fragmented but functionality is more apparent, with different providers working together to provide layered solutions to needs, taking different levels of risk through grants as well as private and commercial finance. The advent of wholesalers such as Big Society Capital in the UK and the murmurings from the EU about the role of social investment enable more significant responses to social issues through specifically engineered financial instruments. These are to be welcomed but we also have to be careful what we wish for. Financial crises have taught us that complex financial instruments or risk-sharing initiatives, for example payments by results contracts, are not for the unwary. They are business tools. Without doubt we need to unlock additional resources to tackle some of society’s problems but every day we see organizations that simply need a few thousand pounds to help them with their mission.

This is not specific to the UK. It is truly an international issue: large deals are profitable and the world is littered with intermediaries that have grown along with their customers, leaving behind the very people they were set up to serve. There is a growing space between microfinance and social banking, let alone social investment, that must be filled if we are to have holistic solutions to our problems. While innovation has been key to the public good role of finance – bringing us insurance, microfinance, pensions, mortgages and the like – we must resist the temptation to think that only innovation is good. Sometimes the tried and tested merely wants for more funding to be truly effective.

We must also take care not to compound the problem. Many social investors properly expect financial as well as social return but this can create tensions with the guardians of charitable purpose and public benefit. While it should be the objective of charitable organizations (as opposed to projects) to be sustainable, it is not their purpose to create profit for distribution to investors. In seeking to extend their mission through enterprise, some organizations may leave their charitable roots for social enterprise, leaving behind increasingly volunteer-led charities for whom social investment is not a solution.

1 Anthroposophy is a modern spiritual path that cherishes and respects the freedom of each individual, based on the writings and lectures of Rudolf Steiner.

Malcolm Hayday
is chairman of Help for All Trust. He was chief executive of Charity Bank from 2002 to 2012. Email


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