Report by Ingrid Burkett, April 2013, Knode Pty Ltd: Queensland.
The social marketplace must be shaped around the real needs of social purpose organisations. This report provides a comprehensive and timely review of the role of specialist financial intermediaries in supporting this critical social mission. Burkett focuses on the role of intermediaries to direct capital and investment into financially underserved markets, with a particular emphasis on social enterprise.
She suggests that social enterprises are not wholly underserved by finance, but are often, paradoxically, ‘one-dimensionally overserviced’ by grants. As a result, many social enterprises lack awareness and access to other opportunities to finance their growth and development, such as debt and equity capital.
Burkett documents a range of capital demands across the life cycle of social enterprise, and links these stages to the many roles of intermediaries. Coherent and coordinated entry points and pathways toward diverse types of capital are needed. Burkett then develops this to create a continuum of the many intermediation processes that are needed to respond effectively to the financial exclusion of social enterprise. These include a focus on skills, investment-readiness, market building, advocacy and research. Importantly, not all roles of intermediaries emphasise accessing finance:
“Particularly at earlier stages of development, finance is not always the most important. Equally vital are access to skills, advice in shaping business models, and networks and relationships” (Shanmugalingam et al, 2011, p.7 quoted in Burkett, p.27)
Burkett identifies three key, interconnected roles of specialist financial intermediaries for social enterprise.
1. Building investment readiness
Investment readiness is a key concern in the social investment space (see the Gregory et al 2012 article in this review). Investment readiness includes preparing organisations with the capabilities and tools to make decisions and leverage opportunities from new access to capital. In Australia, Burkett identifies that while the investment-readiness intermediaries have received some support in the past, they are faced with a relatively rapid growth in supply of capital through initiatives like SEDIF. Efforts will be needed to support the breadth of the pipeline of social enterprises in a ‘coordinated and intentional’ way.
2. Providing demand-led finance opportunities
Demand-led finance refers to providing financial services is the means to an end (social purpose), rather than an end of itself. This requires specialist intermediaries to ensure that capital is available, but crucially that it creates impact, and supports the sustainability of social enterprise. This requires different processes in the assessment, tailoring, feedback and effort required to support the needs of social enterprise compared with mainstream loans.
3. Growing and balancing the supply of capital focused on social enterprise
Financial intermediaries are needed to ensure that the supply of capital meets the needs of social enterprises. Constructing credible approaches to measure and share results with investors and the sector as a whole are important to ensure that capital is not ‘pushed’ into social enterprise without clear impact or purpose.
In identifying these three roles, Burkett shows us the importance of financial intermediaries for the social marketplace – both in terms of depth and breadth. However, the Australian financial intermediary sector for social impact remains relatively underdeveloped compared with other jurisdictions. Nurturing the development of financial intermediaries is a critical step for building the social marketplace, and ensuring its sustainability.
n.b. This report builds on a body of work by Ingrid Burkett focused on the financial needs of social enterprise in Australia and impact investment. You can view some more of those here:
- Financing Social Enterprise: Understanding Needs and Realities
- Place-based Impact Investment in Australia