Stuck in a corner: Fair Finance, exclusion and a room full of women

On becoming an On Purpose Associate I made a simple promise to myself; take advantage of each and every opportunity I am presented with.  I see this year as a chance to explore new horizons, take a dip into the unknown, and push the boundaries a little. It was with this new found motivation that I recently attended a Women Advancing Microfinance (WAM) talk by Fair Finance on ‘Addressing Financial Exclusion in the UK and East London’. Such was my enthusiasm for making the most of my On Purpose year, it was only when I found myself as the only male in the room that I realised the talk was in fact part of a women’s networking event. 

I was however invited to stay, and I am happy to say I did as the talk provided a great insight into what it means to be financially excluded in the UK.  In particular, Fair Finance’s talk highlighted for me two significant issues in our society - financial exclusion and over-inclusion.

Financially excluded individuals are those who simply cannot get ‘into the system’. They don’t have a utility bill, they don’t have any assets, they don’t have a financial history, and as a result they don’t have a credit score.  These people are usually exploited by payday loan providers and credit merchants, taking advantage of the current economic environment and charging them interest anywhere from 300 to 4,000% for loans.  Fair Finance supports these financially excluded individuals by working closely with them to provide personal and microcredit loans at much more manageable rates.

The talk also highlighted the problems caused by financial over-inclusion, people having too much access to credit. In November 2011 total UK personal debt stood at £1.45bn, with average household debt amounting to £7,900.  In such circumstances it is clear that a more personalised approach to financial wellbeing is required to help people get back on track.

The WAM event was one in which I could have been excluded myself, by not meeting the most basic of criteria. However, the warm welcome I received reinforced to me the importance of giving everyone, including financially vulnerable people, a second chance.  Fair Finance’s bad debt rate of just 8% reinforces that there are benefits and a growing demand to revolutionise personal finance in the UK.  Perhaps this is a space for greater social enterprise growth?

David Bartram

@DavidBartram100

Financial Instruments On A Mission

During my first week as an On Purpose associate I was lucky enough to be one of the 15 people attending a talk by Paul Cheng of CAF Venturesome on the role of financial intermediaries in the development of a social investment market. This was particularly interesting for me given my previous life as an investment banker.

Paul highlighted the stark contrast between the wide variety of ways that corporates can raise capital and the limited selection of funding mechanisms currently available in the social investment market, largely represented by grants and donations.

During my career I've seen the design of financial instruments driven by a number of factors, unfortunately these are not always for social good. Consider for example the role that complex credit derivatives have played in perpetuating the current debt crisis. Hopefully by ensuring that positive impact is the primary goal of social investment markets we can avoid the pitfalls of the traditional financial system.

On Purpose is in a great position to be part of this exciting field, with associates at Bridges Ventures and Big Society Capital you're sure to hear much more from us on the subject.

The On Purpose 2012 Associates are out of the starting blocks....

Welcome to 2012 - London’s third Olympic year and the third year of On Purpose. And, like the Olympics, On Purpose is getting bigger and better with a record eighteen Associates in this year’s cohort.

For those of you who still don’t know, On Purpose is a one-year leadership development programme which combines two paid six-month work placements in the social enterprise space with weekly training in professional, commercial, social and personal development topics.

I have to admit that I have sometimes been confronted with blank looks when I try to explain On Purpose to others. I think it comes down to the fact that a lot of people are still unfamiliar with the term ‘social enterprise’. However, I like to think that this is a diminishing problem. This week I read YouGov research that showed that a third of people have never heard of social enterprise. My first reaction was that this means that two-thirds of people have heard of social enterprise! Does anyone agree with me that two out of three people ain’t bad?

The 2012 programme kicked off last month with two days of induction (stay tuned for the next blog to learn more about this), led by founder, Tom Rippin, and Programme Manager, Kate Richardson. Day one of induction felt a bit like day one at uni combined with episode one of The Apprentice. I surprised myself by learning the other 17 names almost immediately (see here to learn more about them).

I am now in week 3 of my first placement at the School for Social Entrepreneurs (SSE) and am really excited to get things rolling. The SSE is an established and respected provider of action-learning programmes, and has eight schools in the UK, two in Australia and one in Canada. 2012 is shaping up to be a busy and exciting time, with a new partnership between the SSE and Lloyds Banking Group helping the SSE to reach more entrepreneurs than ever before.

As an On Purpose Associate, I know that my challenge is to have a direct, positive impact and add value at my placement right from the beginning – and I wouldn't have it any other way. The learning curve is steep and will involve me asking my new colleagues at the SSE lots of questions, and so far they have dealt with my queries very patiently. It will also involve me taking advantage of the strong support network that On Purpose builds around us. As well as being able to discuss our placements with our coaches, mentors and buddies, we can, of course, get a second opinion, a third opinion and a seventeenth opinion by talking to each other.

One of the 2011 Associates, Jordyan, said in a previous post on this blog “The other associates are like close colleagues without the competition.” And I feel lucky to be in that position.

One exercise we have been asked to do is write down our goals for the year, and one of mine is to enjoy the year, simple as that. I have a good feeling about that one.

Creating behavioural change

Creating behavioural change is always a difficult task and one that our Associates often have to grapple with in the work they do for their placement organisations.

The topic also come up during our induction training with Charmian Love of Volans. 

Unilever has been doing some interesting work on this. The sustainability targets they have set themselves won't be achieved unless they can inspire widespread change amongst their customers and consumers (never mind the supply chain). Here is a video that describes how they go about it:

Year End Goals

My year of On Purpose is coming to an end. Last week was our last official training session on Friday afternoon. It was an internal meeting, just the 11 Associates alongside the OP team of Tom and Kate. Part of the time was taken by evaluating how well we had achieved the goals we set in the beginning of the year and by setting out our new goals for 2012. Friday’s group setting gave us a chance to individually reflect on the direction we are taking with our careers. How often do I sit down on my own and do such an exercise? Of course it’s not obligatory to “share” with everyone; these are personal goals. But, being surrounded by 10 strangers who have become friends, I found myself glad for the opportunity to ask them to challenge my explanation as to why I have chosen my next path and to ask me to describe the ways in which I will achieve those goals. I don't get too many chances to ask people I respect to challenge my thinking. The other associates are like close colleagues without the competition. They have an insight into me that my friends do not have since we came together for professional reasons. But we also have become friends by sharing experiences such as our weekend retreat to Embercombe in Devon, attendance of social entrepreneurship events, and Friday evening drinks after training. A goal I didn’t set for myself, but now realise I have achieved, is a firm place in a tight network of dedicated SE professionals with whom I can continue to grow alongside professionally. I don’t just have the experiences I have had in the past year to accelerate my career; I have their experiences and contacts as well. There is no Schadenfreude among this group. Only is there a sense of mutual support, where one person’s achievements actually boost everyone else’s chances rather than diminish them. This is a rare trait among colleagues along similar career paths. And, for these relationships alone, I’m grateful to have been an OP Associate for the past year. So, did I meet my goals that I set out in January? 2.5 out of 3 with a bonus it seems. I’m not quite the excel whiz I had planned to be (see a previous post!). But, luckily, I know another associate or two who are.

How Marketing needs to adapt to Social Media

Here's a video we liked that we saw in our training last Fri, shown to us by Adele Barlow who was giving us the basics on all things digital.

More Social Finance

As the Eurozone seems to continually teeter on the brink of collapse, Western governments strain to control budget deficits generated by bailing out failed banks and the stagnant economies left in their wake, there are growing demands for new ways of doing business. The Occupy Wall Street protests have swept the globe, now totalling some 951 cities in 82 countries. Calls for reform are not just coming from the radical left and anarchists; public sentiment for change has been growing worldwide, and this month David Cameron has reiterated the need for reform of "capitalism without a conscience".

As consensus grows on the need for changes in the way businesses are managed, the real question is what needs to change and how can this change be brought about?

Back in March Dominic Barton, MD of McKinsey, expressed his view that “business as usual was not an option”. Top of his list of reforms was to "Fight the tyranny of short-termism". Put simply, the vast majority of major corporations are focused on short-term profits over long-term value.

Breaking this tyranny has much to do with changing the way WE own companies - by WE I mean the 99% in the language of the occupy movement. By McKinsey’s calculations pension funds, insurance companies, mutual funds, and sovereign wealth funds hold $65 trillion, or roughly 35%, of the world’s financial assets. They hold and trade these assets on behalf of the 99%. The culture of investment that these investors have is, in general, the epitome of short-termism. Shares are traded based on quarterly profit targets, basic analysis and PE ratios over the short term. These investors who represent the many often fail to take any active role in the governance of the companies they own, and there is limited interest in the long-term vision or culture of management so long as profit targets are met. And if targets are not hit, there is no challenge to strategy, no block on executive pay: they simply dispose of shares and invest where profit appears easier.

Conversely, the 1% tend to take a very different approach to investment. Warren Buffet, for example, is famed for his active and long-term value-based investment strategy. This is where I see an exciting opportunity in a growing form of more “social” finance, one which offers a more direct route to ownership of growing businesses and, with it, a chance to influence a businesses culture and development.

Crowd funding is a way to raise finance by tapping into a “crowd” or community of people willing to invest smaller amounts of cash in exchange for rewards and a stake in the business. Recently crowd funding has been made much easier by the internet, online micro-payment systems, social networking and more recently by overcoming legal barriers on the marketing of equities.

An enterprise ranging in size from a start-up to an SME can pitch its idea or business opportunity, spread the word to like-minded people or passionate consumers and raise direct investment. The resulting shareholders have a genuine and long-standing interest, and, because the shares are generally not publicly traded, they will inevitably have a more long-term perspective.

This is an exciting time for crowd funding. In the UK the new crowd funding website Crowdcube has just celebrated its first funding request of £1m, the highest amount to date on an online crowd funding site. Crowdcube’s business model is very accessible: there’s no registration fee the site only charges a 5% commission on amounts successfully raised - this is extremely reasonable in comparison to the cost in fees of a typical IPO (c10%).

But sites like Crowdcube are not the only route to crowd funding. Brewdog, an innovative and unorthodox Scottish brewer, recently raised 0.5m in a self-issued online IPO dubbed equity for Punks. This year they are seeking a second tranche of investment, a further 2.1m. Shareholders receive a return on investment through dividends as well as drinks discounts and a sense of ownership of a business close to the heart of passionate beer-drinkers.

The investment mechanism is beneficial to both parties. Investors get access to growing businesses, potentially offering products or services they believe in, opportunities that have previously been restricted to institutional investors and high net worth individuals. There are often additional benefits for investors such as discounts and exclusive access. There’s also the potential for smaller investors to access the Enterprise Investment Scheme tax break for investing in start-up businesses.

The businesses get much needed capital for growth, capital that traditionally would only be available from venture capital. The cost of working with venture capital is often high; a large share of the business and short term focus on growing profits to allow the venture capital partner a lucrative exit via resale or stock market listing. By this point the vision and ethos of the founding entrepreneurs is often lost. Crowd investors bring other benefits, a ready army of advocates keen to promote and support the enterprise, or a wide range of supporters willing to offer skills or experience to support their investment.

It’s still early days for crowd funding so it won’t revolutionise institutional shareholding this quarter, but in the long-term it could play an increasingly important part in business finance and ownership. Firstly, at least some of the 99% get an opportunity to invest small amounts of savings in businesses they believe in – an important step in the right direction towards a culture of empowered share ownership. Secondly, I believe the crowd funding model could lead to the development of new governance relationships; investors being asked to vote on new strategies or product developments, attending online AGMs and crucially really caring about what happens to the business.

If this is a better way of doing business, in the longer term it will be these businesses that flourish. And when they do it will force a wider change.

Life's amazing and nobody's happy

This is a funny but also thought-provoking video we watched last week in training, courtesy of Steve Coles from Intentionality who was talking about well-being.

The Power of Networks

Building on Martin’s post about the Emerge conference last weekend, I wanted to share the insights from one of the sessions that I found particularly interesting. This session from the “Do It” breakout stream addressed the question of networks in the social enterprise space and how intermediaries could support social entrepreneurs. The discussion was animated by experts from well-established programmes such as Ashoka, the Schwab foundation and the Skoll Centre.

As we come to the end of the On Purpose programme and we’ve had nearly a year to learn about the realities of the UK social enterprise sector, I often find myself reflecting on what the sector really needs and what is the current missing piece of the puzzle that will allow it to grow exponentially. It became evident to me that money is not the issue. In fact, we are nearly at a point where there is more capital to invest in social projects than there are projects that satisfy both the social purpose and the commercial viability. “Investment readiness” seems to be the buzzword of the month. What it really means is that unfortunately this sector still has a long tail of small starters, relatively few more established groups trying to prove their business models and a scarcity of success stories which many aspire to (HTC, Fifteen, Big Issue).

Going back to the question of networks, could this be the magic ingredient? Andres Falconer (Managing director of Ashoka) opened the conversation by referring to networks as the holy grail of social enterprise and presented the way Ashoka endeavours to niche out individuals who could unleash the potential when paired with the right network and support. Similarly, Mirjiam explained how the Schwab Foundation moved away from granting financial prizes to simply offering their chosen members connections to other leaders and access to high profile circles such as the Davos Summit. Sarah Orr (Director of the Kravis Leadership Institute) explained how relationship building spanned from cooperation to coordination and ultimately collaboration, where the level of risk and interaction increases respectively. Then they all consecutively exposed their own approaches to finding these rising star entrepreneurs who they were going to help and plug into their web. Schwab has five criteria on the project idea; Ashoka looks for personal traits through in-depth interviews.

All these sounded like quite coherent and straightforward arguments until Indy Johar, co-founder of the newly established Hub Westminster, dared to challenge the status quo. He urged us to re-question the underlying principles in which these well-recognised entities operate and the way we’ve been framing the challenge, while proposing new ways in which the system could adapt. First of all, he urged us to abandon the theory of the hero entrepreneur. In his experience, the most successful ventures were founded by at least two people. By overly focusing on the single person, we are mystifying their capacities and hampering the rest of the supporting team. Members of the audience who were social entrepreneurs themselves were pleased to pitch in his favour: they could not have done it without their teams, they are still looking for more support and they do not feel like super-heroes. Indy also brought an innovative approach to the concept of due diligence. Although he admits not having the answers to this one, he’s convinced that something must be wrong if it takes so many and so long due diligence processes to in the end not find enough good social entrepreneurs to fund. Maybe that’s why he’s so pleased to host Village Capital at the HUB as an alternative model. Based on the group-lending mechanisms of microfinance, Village Capital is a social enterprise incubator where the seven organisation members decide among themselves who gets the funding prize of £50k at the end of twelve weeks.

Rather than picking out winners, Indy is more in favour of a user-based approach, where the individual builds the network once provided with the conditions. This would look more like a many-to-many exchange, building the network from the bottom up rather than with the pretense of a magic hand from above designing the ideal connections. That’s probably one of his inspirations for co-founding the HUB Westminster, in his words: “a place for unlikely encounters.”

Ultimately, all panel members agreed that there was probably room for more than one approach to support social enterprise initiatives and that, although these established programmes had been crucial for kick starting the movement and for building it from scratch, it was probably time to rethink the approach and open it up to others. Indeed, more and more individuals are willing to contribute with their unique skills. From university students to private sector consultants, the passion and interest are growing, but many do not find it easy to channel it given the nearly exclusive focus on the social entrepreneur persona.

In the end, hands were shaken and large smiles exchanged; nevertheless someone had rocked the boat.

The Emerge Conference

The Emerge Conference took place this weekend in Oxford with successful social business leaders from around the globe speaking to a few hundred delegates, mostly post-graduate students.

Application of technologies featured heavily. Ken Banks, the founder of kiwanja.net, spoke about his NGO’s provision of a free, open-source platform to send, receive and aggregate bulk text messages all from a non-internet enabled phone. One recent application of this service is for Mothers to Mothers, who prevent transmission of HIV from mother to child through a peer to peer advice service and currently 1 in 5 of HIV-infected pregnant women in Africa. They are integrating SMS messages into their services to remind mothers to take medication and attend. This exemplifies the fact that technology solutions work often because they are simple, effective and focussed on the nuances of communication and delivery, rather than any technological innovation.

In two impact investing conferences, it was striking that the vast majority of investors shunned rigorous measurement of impact for a simple metric of measurement, a story that resonated, and a balanced portfolio covering different human needs (education, health care etc). It’s probable that with the inadequacy of impact measurement, investors prefer simply to be wooed by an entrepreneur’s story and assess their ability to deliver on it.

Regarding the legal structures of companies, there were a number of not for profits that used hybrid models of funding. The profit arm of Embrace handles manufacturing, distribution and R & D, whilst the NFP arm makes a loss on delivering to the most needy and performs monitoring and evaluation. The not for profit holds the IP, which the for profit arm pays a royalty for its use, and therefore supports the unprofitable part of the business.

The conference closed with some wonderfully articulated pearls of wisdom by James Chin, founder of the World Toilet Organisation (check it out: it’s brilliant, http://www.worldtoilet.org/wto/). He recommended taking calculated risks: for example, naming your organisation the WTO because getting sued by the better known organisation by the same name would be worth it for the PR storm. Another gem of many: “There’s no such thing as work that’s easy or hard, just that which is fun or boring.”