To what extent should banking be a metaphor for how our society works? Should finance be run like a business in the interest of its shareholders? Or is it such a significant wealth provider that it must or should be done in the social 'good'?
In a climate of heightened regulation and the government's deleveraging of balance sheets, there could be an opportunity to reshape how the world of finance works. Could social finance fill that gap?
To take you back a step, social finance is where firms and individuals invest in a way that brings both financial and social benefits. Landmark schemes include a £5m social impact bond, launched in Peterborough in 2010, where investors will profit from the government if the scheme reduces reoffending rates for inmates after they leave the city's prison. This 'payment by results' approach aims to benefit everyone involved, given that it is cheaper for the government to reward investors for the reduction in reoffending rates than it is for taxpayers to foot the bill for the courts, prison costs and the criminal damage from repeat offenders.
But social finance does not merely rely on state funding. Other forms of financing exist, including social banking, where deposits are invested into social enterprises. Such initiatives generate profits while also having a positive social impact.
The government has already signalled its support by setting up Big Society Capital in April 2012, which will distribute up to £600m into the space over the next few years. I was lucky enough to have BSC's chief financial officer Keith Starling join me for a panel debate where we launched a report on the challenges and opportunities in the social finance sector this morning, where he set out his hopes that the world's first social investment bank will revolutionise this sector.
There are challenges that need to be overcome for this to happen. Ask the average person on the street for a definition of social finance and it is likely they will not be able to answer. Therein lies the first challenge but it can be overcome.
Consumers are uninformed, ideas are fragmented and the perceived risky nature of the products are just some of the reasons suggested by commentators in our report as to why social finance is lacking that cutting edge.
But there is no doubt that the social finance sector is filled with bright, passionate and creative people who are already finding ways around these challenges which include the creation of the world's first social index.
What is needed is to develop and deliver a simple message, as well as the creation of a platform to not only attract the investment, but also the brightest minds and expertise for the sector to flourish.
These are difficulties that should not be sniffed at. But as Albert Einstein said, within every challenge lies an opportunity.
Cicero has released a report looking at the challenges and opportunities in the social finance sector. The report can be downloaded here. Iain Anderson also touches on some of these themes in a previous piece he wrote for independent think tank Reform on Reconnecting Capitalism which can be read here.
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