The future of blended finance and affordable loans for charities

By David Neaum 27 January 2022 3 minute read

What are your thoughts on the availability of affordable credit for charities and social enterprises?

NPC is pleased to announce that we have been awarded the tender to produce an independent review for the government on the future of subsidy for blended finance. We would like to hear from you for this review and so invite you to contribute to this important piece of research. It has been commissioned by the Department for Digital, Culture, Media, and Sport (DCMS), and will have policy implications for the sector. Your voice matters.

But first, what exactly is subsidy for blended finance?

In the context of this review, blended finance refers to the provision of grant money, blended with loans or investment capital, which makes sustainable, repayable finance more affordable for voluntary, community and social enterprise organisations (VCSEs). The investment capital often comes from institutional or wholesale social investors. To date, Big Society Capital has been a major investor, but it also has the potential to come from a wider range of sources. The grant component is the subsidy element. It enables social investors to offer more affordable loans and support to charities and social enterprises, as well as subsidising some of the risk that social investors take on when investing. Government has provided subsidy for blended finance in the past, but has not been the only provider of subsidy to the market. Our review will focus on the future of that subsidy, including the potential role of both government and the wider sector in providing it.

Is further subsidy into blended finance needed?

A key mechanism for blending grant and loan money into funds that lend to VCSEs has been through Access – The Foundation for Social Investment. Access was set up by the government in 2015 with an anticipated ten-year lifespan. The goal of Access is to remove barriers and increase access to affordable finance for charities and social enterprises. Access helps direct where and how grant money is used as a subsidy. For example, the grant may subsidise the costs to intermediaries of providing more flexible capital, it may be applied in a fund to reduce risk levels, or it can be given directly into VCSEs.

With Access coming to the end of its anticipated lifespan, this is an opportune moment to understand future needs in this space and what the best way of meeting them might be.

To inform its position, the government wants to understand three key areas:

  • How has subsidy for blended finance been used to date, and what has been the impact of this?
  • Who else has provided, or could provide, grant subsidy to blend with loans or investment capital to support extending credit to VCSEs?
  • What would the impact of withdrawing subsidy for blended finance be?

Should a clear need be established for further subsidy, NPC will explore options for how this could be structured and delivered to maximise impact moving forward.

We would like to hear from representatives across the sector. Firstly, from charities and social enterprises who have borrowed or are considering loans made possible through blended finance. Secondly from intermediaries who manage these funds, and thirdly from funders and investors who provide (or could provide) the grant and capital to establish the funds in the first place.

What impact will this review have?

DCMS hope that this review will feed directly into forming government policy around future provision for grant subsidy for blended finance. This is an important opportunity to feed into that process and have the interests of your organisation heard and included.

If you would like to find out more or make a submission, please do get in touch with David Neaum, Senior Consultant in Impact Investing.

.@NPCthinks are producing an independent review for the government on the future of subsidy for blended finance. They want to hear from you. More info: Click To Tweet


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