Funding social enterprise

The goal of the two funds is to attract additional investment. Their remit, however, is not just to be a source of structured private capital. Both see their contribution to social finance as extending to business incubation and mentoring so that the social enterprises they support will have the capacity to manage debt and become financially sustainable.

SEDIF is an important step in moving government from funder to facilitator, using its influence to harness the resources of the private sector for social enterprise. The Commonwealth will need to ensure that the foreshadowed review of tax policy as it applies to not-for-profits engaging in activities that create profit, does not result in legislation which undermines the social businesses it is seeking to stimulate.

Much more can be done in the future. The NSW government is already examining new forms of social impact investment partnerships. Much as in the UK, government could look at placing a price on the achievement of social benefit which will reduce public expenditure, such as lowering the rate at which children are being placed in care or reducing the level of prisoner recidivism. A social enterprise could then use the potential value of its government contract to attract private sector investment to its mission, through the issuance of instruments such as social impact bonds.

Beyond that there is the potential for governments to create wholesale banking facilities for social financiers or even to underwrite a social stock exchange. For now the task is to monitor and evaluate the success of SEDIF. If it works, it will illustrate the opportunity for social finance companies to attract private sector investors who seek a financial return which also generates the creation of social and environmental good.