Caroline Reynolds, Trainee Solicitor at BDB, endeavours to cut through the investment jargon associated with social enterprise with some essential terms and definitions.
Social investment is the provision of repayable finance to charities and other social organisations to generate a social return. As with any new opportunity, the increasing focus on social investment will present challenges for those not familiar with the terms and concepts. In this edition we explore the key concepts/terms commonly used with social investment beginning A to C.
Asset Class
A type or category of investments that share similar characteristics, such as equities, cash deposits or bonds.
Asset Allocation
The process of spreading investments among different asset classes, in accordance with the needs of the charity.
Blended Value
The theory that all organisations, both for-profit and not-for-profit, create value consisting of economic, social and environmental components. At the same time, investors generate all three forms of value by providing capital to these organisations. The outcome of this activity is said to be a 'blend' of all three elements.
Capital Repayment
The repayment of the original investment to the investor by the charity.
Collective Investment Schemes
A scheme that enables a number of investors to pool their assets and have them professionally managed by an independent manager. The wide range of investments reduces the risk that one particular investment will pose a serious risk to the portfolio as a whole. Common examples of such schemes are unit trusts and common investment funds.
Community Development Finance Institutions (CDFIS)
Independent organisations that lend money to businesses, charities, social enterprises and individuals who have difficulty accessing mainstream finance. They have a double bottom line of providing financial sustainability and social impact. There are 76 CDFI's registered as members or associate members with the sector's trade body, the Community Development Finance Association.
Community Development Venture Capital (CDVC FUNDS)
A particular type of CDFI that specialises in equity investments. These types of funds are relatively new to Britain and are usually run for profit, offering some degree of financial return to investors.
Community Investment Tax Relief (CITR)
This scheme offers a tax incentive to investors who invest through accredited CDFIs. The tax relief, which is spread over 5 years, reduces the investor's income tax (or corporation tax) liability and is worth up to 25% of the value of the investment in the CDFI.
Community Interest Company (CIC)
A new type of limited liability company designed for social enterprises. The organisation must pass a 'community interest test' indicating that it operates for the benefit of the community rather than the owners of the company. CIC status is also subject to an 'asset lock' stipulation to prevent assets and profits being distributed.
Credit Union
A financial co-operative which is owned and controlled by its members. They have a common bond which determines who is able to join them. A credit union offers a good savings option, as well as offering low interest loans to its members. As of January 2012, credit unions are able to provide their financial services to charities, community groups and social enterprises in addition to individuals.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
