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As a concept, additionality is about understanding the extent to which something happens as a result of an intervention, and what would have happened without that intervention. It enables us to understand how adding something new or different has resulted in a particular impact or created additionality.
In relation to an organisation's accounts. a financial benefit recorded on a balance sheet. Assets include tangible property (i.e. a property with a physical form such as buildings, equipment and vehicles) and intangible property, and any claims for money owed by others. Assets can include cash, inventories, and property rights.
A rule which prevents the residual assets of the society being distributed to members. If a society has an asset lock, its rules will usually specify what must happen to these residual assets; normally they are transferred to another asset-locked body with similar aims and objectives to the society that is being wound up.
is a building or piece of land that has been identified as valuable and is used for a positive social purpose to benefit the local community, These include village shops, pubs, community centres etc.
Where a charity or social enterprise takes ownership of a building previously owned by part of the public sector; the building is usually one that is particularly valued by the local community.
This is sometimes called the ‘Bank of England base rate’ or ‘Bank Rate’. It sets the level of interest all other banks charge borrowers and its purpose is to help regulate inflation. Some social investors set their interest rates relative to this rate of interest e.g. base rate + 2%. It is important to understand how the cost of interest will be calculated on any money you are looking to borrow.
is mix of investment - part repayable finance and part grant. Specialist social investors and grant makers may offer this, but you can also source blended capital yourself by applying for both grants and loans.
This occurs at a fund level where concessionary capital like grant, guarantees or tax reliefs is blended or mixed with the non-concessional capital which is then used to provide repayable finance for social enterprises and charities.
a promise by a borrower (the issuer) to repay money to an investor (the bondholder) usually with interest (the coupon). The issuer borrows money by selling bonds to bondholders; the issuer receives the money and the bondholder receives a promise from the issuer to repay the debt at a later date, with interest (usually through a written contract).
Is a new scheme introduced to help smaller businesses impacted by COVID-19 access repayable finance. Social enterprises and charities can apply online to borrow £2,000 - £50,000. Because of the government guarantee, the loan is interest free for the first 12 months and then subsequently carries a 2.5% interest rate.
A period of time, usually at the start of a loan, where the lender agrees to receive only interest payments, so the borrower won’t pay back any of the original capital lent during this period. This is usually used to allow new trading activities time to generate revenue before the full cost of borrowing kicks in, or to help improve cash flow during tough periods of trading.
is the risk where an investor might lose money from an investment and where as a result, the organisation is unable to either make the repayment of the loan or is unable to recognize the returns the investor expected to receive.
Being ‘Carbon Neutral’ means taking active steps to remove the same amount of CO2 to what’s emitted through trading activities and supply chains, by investing in measures that absorb CO2. These measures are often referred to as ‘Carbon Sinks’ and examples include forests and oceans.
the actual cash held by an organisation over a given period. A cash flow forecast shows the total expected outflows (payments) and inflows (receipts) over the year, usually on a monthly or quarterly basis. It is an essential tool for understanding where there will be shortages and surpluses of funds during the year and planning for ways to resolve these.
Is investment capital that is patient, risk-tolerant, concessionary, and flexible and is an approach used to support impact-driven enterprises that lack access to capital on suitable terms and to unlock impact and additional investment that would not otherwise be possible.
This term recognises that although global warming is a crisis affecting us all, the effects are not felt evenly around the world, resulting in inequitable outcomes for some communities. The concept refers to this ethical challenge and how we can continue to protect the planet in a way that creates a fairer more just and equal world in the process.
a private financial institution that provides affordable loans and support to businesses, social enterprises and individuals who struggle to get finance from high street banks and loan companies.
A Community Interest Company (CIC) is a type of limited company whose profits are reinvested in the mission of the organisation to benefit the community, instead of private shareholders. There are different types of CICs; they can be limited by guarantee or limited by shares.
A CIC limited by guarantee is a company which has no share capital and cannot pay dividends.
A CIC limited by shares has capital that is divided into shares for individuals to invest in.
refers to withdrawable share capital; a form of share capital unique to co-operative, community and charitable benefit societies. Investors are able to take their money out (subject to any conditions) but the shares are not transferable to another person.
is a mark of recognition that is awarded to community share offers that meet a national standard of good practice. This national standard is built using an assessment framework that was created to ensure that community share offers are clear, honest and transparent.
is a way of raising finance (donations/grant, equity or debt) from a 'crowd' of people - typically using an online platform. Equity or debt raised using crowdfunding is repayable on an agreed basis with the individual investors, usually with interest on top.
investment with the expectation of repayment (usually with interest). Debt finance usually takes the form of loans, both secured and unsecured, as well as overdrafts and standby facilities or standby facilities (e.g. bonds or loan notes). Generally, debt financing requires a borrower to repay the amount borrowed along with some form of interest, and sometimes an arrangement or other fee.
is a term that is used to decide if your business can pay back its debts on time. It considers how much your loan and repayments would cost you in comparison to the income you generate, and determines your ability to repay debt.
is the process an investor undertakes when considering an organisation for investment. This process varies from investor to investor, but will generally include an in depth review of your organisation, including governance, financial information, business model, revenue, projections, organisational management etc. This process gives the investor an opportunity to become better informed on where their money is being invested, and determine if the investment is the right fit for them.
The term ‘Resilience’ refers to the ability to withstand or recover quickly from difficulties. In the context of energy and social enterprises and charities, we refer to ‘Energy Resilience’ as having the knowledge, tools and assets required to be sustainable through the ongoing energy bills crisis.
This describes access to reliable and affordable sources of energy. For many social enterprises and charities, various global contexts have caused difficulties for energy supply, pushing up prices and making it difficult for organisations to continue to operate sustainably. In addition, many beneficiaries of social enterprises and charities are deemed to be in fuel poverty, meaning the demand for services is ever-increasing.
Non-financial performance indicators focusing on ethical, sustainable and corporate governance, ensuring systems are in place to give accountability on important working practices and global issues. For example in areas such as: net zero aspirations, managing the organisation’s carbon footprint, gender and ethnicity pay, living wage and social mobility.
The equitable solution allocates resources that each person or group needs, leading to positive outcomes for all groups (not be confused with equity, which is a type of investment in exchange for a stake in an organisation).
investment in exchange for a stake in an organisation, usually in the form of shares. Each share represents ownership of a proportion of the value of the company and typically provides the shareholder with voting and dividend rights. Equity finance is permanently invested in the organisation which has no legal obligation to repay the amount invested or to pay interest. Equity investors expect to receive dividends paid out of the organisation’s earnings available for distribution and/or capital gain on the sale of the organisation or on selling their shares to other investors. See product types for more information.
This may also be known as an arrangement fee. It is the cost charged by an investor to structure a deal and will cover staff time, overheads etc covering their professional services to the investee.
Financial abuse often involves or is associated with: someone taking or misusing someone else’s money or belongings for their own gain; harming, deriving or disadvantaging the victim; controlling someone's purchases or access to money; often associated with other forms of abuse; doesn’t always involve a crime life theft or fraud.
the monetary surplus generated by an organisation on an investment. It may be expressed as "not" (i.e. after deducting all expenses from the gross income generated by the investment) or "gross".
it is possible to have different tiers of investors so that one set of investors accepts that, in the event that the investee suffers financial difficulties, it will lose the money it invested before any of the other investors lose any money. This investor will bear the ‘first loss’.
Investment that is structured with a repayment schedule that’s tailored to your organisation’s specific needs. The conditions of the investment will work alongside your business plan to allow income to develop alongside the need for repayment. This could include a range of options including but not limited to:
- An initial capital and interest repayment holiday period (in order to get trading off the ground)
- An interest only period (this keeps repayments low)
- A sliding scale of interest (this might be related to profitability or return)
- Investment could be made in the form of a loan or equity (although this will depend on your organisation's legal structure)
a collective investment scheme that provides a way of investing money alongside other investors with similar objectives on a pooled basis. This often provides individual investors with access to a wider range of investments than they would be able to access alone and may reduce the costs of investing due to economies of scale. Funds are managed by fund managers for a management fee on behalf of investors.
Plays an important role in the investment process to improve equality and access to investment for social purpose organisations. this means investing in Women led/owned organisations, ensuring a fair workplace and taking a stance on gender equity.
A Green Economy is an economic model. It’s usually described as low-carbon, resource-efficient and socially inclusive, whereby growth is determined by public and private investment into ‘green’ infrastructure, reducing our emissions and building our capacity to adapt to climate change.
Greenwashing describes the process of disseminating false or misleading information about how a company’s products are deemed environmentally sound. In the context of investment and social investment, this particularly refers to un-substantiated claims about the sustainability characteristics of an investment product.
is an agreement between an investor and the guarantor of an organisation wanting to take on social investment if the debt cannot be repaid by the investee, the guarantor will step in to cover the costs.
Human rights are universal and inalienable rights and freedoms that belong to everyone. Based on the principles of fairness, equality and respect, they reflect the conditions that all people need to both flourish as human beings and participate as members of society.
Concerned with discrimination that has been incorporated into the structures, processes and procedures of particular organisations or institutions, either because of prejudice or because of a failure to take into account the particular needs of different social identities.
fee paid by a borrower to a lender to pay for the use of borrowed money. When money is borrowed, interest is typically paid to the lender as a percentage of the amount owed. Interest usually accrues on a daily basis but is charged less frequently, e.g. monthly, quarterly or annually.
An investment committee is a group of people that ensure an organisation is delivering on its investment strategy and goals. Investment Committees are made up of a range of skills, knowledge, backgrounds and experiences. They ultimately support an organisation to make investment decisions.
An investment vehicle is a tool that helps investors choose the best investment to gain the best positive, financial returns. They can be low risk such as bonds, or high risk such as stocks.
Also known as subordinated debt, this is because this type of finance has a lower priority of repayment below that of other investors. It is therefore potentially riskier for investors. It is therefore potentially riskier for investors and as a result usually carries higher rates of interest.
This term refers to an equitable and sustainable shift from a carbon-intensive economy to one that is environmentally friendly, inclusive, and fair in terms of the planet. This transition is essential to lessen the impacts of climate change and address social inequalities while encouraging sustainable economic development.
refers to the availability of cash that an organisation has to meet short-term operating needs. It is the amount of liquid assets that are available to pay expenses and debts as they become due.
Marginalised populations are groups and communities that experience discrimination and exclusion (social, political and economic) because of unequal power relationships across economic, political, social and cultural dimensions.
is a type of debt that includes investment, it can be used for a range of reasons. The cost of this finance can carry higher interest rates and can also involve equity characteristics.
Is a profit-sharing contract. Under a Mudarabah contract, the provider of capital agrees to share the profits between themselves and the entrepreneur at an agreed ratio or percentage.
A form of asset finance or an equivalent to a hire purchase agreement. where a fee is constructed as part of a mark-up within the deal and the capital used to buy assets. interest is not used or calculated.
present value of expected future cash in ﬂows minus the present value of cash outflows e.g. the amount of investment and any initial and ongoing investment costs. Often used in capital budgeting to determine whether or not to make an investment (if negative, the investment should not be made).
Net Zero refers to the state in which the amount of greenhouse gas that’s produced is balanced by the amount that’s removed from the atmosphere. It’s achieved through various reduction and removal efforts.
share in the ownership of a company that gives the holder the right to receive distributed proﬁts and to vote at general meetings of the company. An ordinary shareholder ranks behind all other creditors/investors if the company is wound up.
an amount agreed between a borrower and a lender (typically the bank of the borrower) up to which an organisation can borrow when it needs funds rather than in one lump sum. Overdrafts are repayable on demand by the lender. Interest is usually paid on the amount of money that is borrowed until it is repaid and rates are usually higher than for standard loans. See product types for more information.
loans or equity investments offered on a long-term basis (typically 5 years or longer). It is often used to describe long-term investment by investors looking for non-financial as well as financial gains and may be offered on soft terms (e.g. capital/interest repayment holidays and at zero or sub-market interest rates).
investors investing directly into borrowers (rather than in a financial institution) typically using online platforms that match (usually individual) lenders with borrowers to create crowdfunded loans for both business and individuals. See product types for more information.
Capital offered for investment which focuses more on the impact that an organisation is delivering on instead of the potential return of investment. As a result this type of capital is usually able to tolerate making higher risk investments.
Social investment products range from well-known mechanisms, such as overdrafts and mortgages, to more unfamiliar forms such as quasi-equity and patient capital. There are two main types of social investment - Borrowing (debt) or Shares (equity). Click here for more information on the full range of products.
also known as an income and expenditure account, it shows income earned for the year and deducts from it all expenses incurred in earning that income. This will show a profit (surplus) or loss (deficit) for the year, depending on whether income is larger than expenses or expenses have exceeded income.
Qualitative data is non-numerical information and generally tends to be about people’s experiences, perspectives, or opinions. It can be collected through interviews, open ended survey questions, quotes or testiomonials. Qualitative data is an importance way of understanding the impact of a programme or activity on someone’s quality of life.
Opportunities for work that is productive and delivers a fair income, security in the workplace and social protection for families, better prospects for personal development and social integration, freedom for people to express their concerns, organise and participate in the decisions that affect their lives and equality of opportunity and treatment for all women and men’
is defined as lessening unfair differences in the status, treatment and outcomes of different people and groups in one or more aspects of their lives (e.g. economic, social, cultural, political and/or environmental).
The concept of Riba al-fadl refers to exchange or sale transactions in trade which effectively result in the charging of ‘interest’ through the exchange of the same commodity, but of a different quality or quantity.
Interest-based lending that results from the exchange not being immediate. A practice similar to conventional lending today where the borrower pays the lender more than the original amount lent to reflect the delay in repayment.
This factors in the likelihood of the investment being paid back. For example borrowing money to buy an asset such as a building which is considered to be lower risk than lending money to a start up organisation with no proven track record.
is the level of risk an organisation is prepared to face in order to meet their objectives. It is a framework to ensure organisations are making informed decisions including the appetite to take on investment and associated risks.
a loan that is backed by property (in the case of a mortgage) or assets belonging to the borrower. This may be the property or asset that is being bought with the loan itself or other assets held by the organisation. If an organisation defaults on its debt, the lender can sell the asset to recoup, in full or in part, its loan. See product types for more information.
debt that takes priority over other unsecured or otherwise more junior (or subordinated) debt. In the event that the borrower organisation is wound up, senior debt theoretically must be repaid before other creditors receive any payment.
is a type of investment that must follow Islamic Law. It is known as socially responsible investing due to the specific requirement in order to access the fund that complies with Islamic principles. As charging interest is prohibited, Islamic banks agree to a certain amount of profit or loss from the business.
a business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners. #SocEnt
there is no one definition of the term or concept, but the social impact can be defined as the effect on people that happens as a result of an action or inaction, activity, project, programme or policy. The 'impact' can be positive or negative and can be intended or unintended, or a combination of all of these.
a payment-by-results contract where social investors pay for an organisation to deliver a service - for example, helping homeless people to find a home - and the commissioner (typically government or local authority) repays the investors with interest if the service is successful unlike a conventional bond, they do not offer a fixed rate of return. See product types for more information.
an organisation that provides, facilitates or structures financial investments for social sector organisations and/or provides investment-focused business support to social sector organisations.
offsets the risk to investors by offering a 30% tax relief on qualifying investments. It can be used by eligible social enterprises, charities and community businesses to raise patient, flexible and more affordable capital to support their trading activities.
an investor which makes larger investments in funds or financial organisations (social investment finance intermediaries) that will themselves invest smaller amounts in a number of charities and social enterprises. Big Society Capital is the UK social investment wholesaler.
charities and social enterprises that exist primarily to deliver social impact; that reinvests the majority of surpluses to further their social mission; and that are independent of government. The social sector includes, but is not limited to voluntary and community organisations, charities, social enterprises, community interest companies and community benefit societies. The social sector is also referred to as the "Third Sector".
A sophisticated investor is a name given to a type of individual who has sufficient capital and financial knowledge to engage in more advanced types of investment opportunities.
usually provided in the form of a loan where money can be drawn down over a certain period of time when an organisation needs it (if budgeted income does not materialise), rather than as one lump sum. Interest is charged only on the funds drawn down. This is similar to an overdraft but is typically repayable on a fixed date (rather than on-demand).
An asset lock which is baked by legislation (statute); once in place it cannot be removed even with the consent of members. It is possible to include an asset lock rule in any type of society, although only a statutory asset lock in a ‘community benefit society’ is absolutely watertight. Charities and ‘community interest companies’ also have statutory asset locks
Sometimes referred to as pressure, in the social investment process these terms might be used to describe testing a financial model to determine how a business might react under pressure or a worst-case scenario. So, what would happen to your profit and loss or cash flow numbers, or the financial model for your organisation in under less-than-ideal circumstances?
Refers to macro-level or overarching rules, norms, routines, patterns of attitudes and behaviour in institutions and other societal structures that represent obstacles to groups or individuals in achieving the same rights and opportunities that are available to the majority of the population.
debt which is ranked after other more senior debt. In the event that the borrower organisation is wound up, subordinated debt will be paid only after other senior creditors have received payment. This is a riskier investment for a lender and is therefore typically lent at a higher interest rate than senior debt.
Taxonomy is essentially another word for categorization that also has key principles which then explain each subset of the categories. In the social investment world, it can be used to categorise the reasons why organisations want to take on investment as it's extremely beneficial to fund managers and other stakeholders to be able to see trends, themes and potential opportunities. Keeping it clear and comprehensive is key to creating a successful taxonomy, so that users and readers can clearly understand how to use it and why it is useful.
approach to measuring a company’s performance on environmental, social and economic issues. The triple bottom line focuses companies not just on the economic value they add but also on the environmental and social value they add or destroy.
A person, usually a relative, parent, spouse, partner, child, or friend, who provides regular and substantial voluntary care, often in lieu of a paid care worker, to someone who is disabled, severely ill, frail or has a mental health problem.
Is a contract between an agent and principal. This contract enables the agent to render services and be paid a fee (Ujrah). This type of agreement enables the pooling of investors into a yield sharing structure.
when all or part of the value of an asset (e.g. an investment) as shown in an organisation's accounts is reduced. In respect of an investment, this may occur when the investor considers there is no likelihood of any recovery of the amount invested.
Zakat is a financial obligation (if you meet the requirements) to donate a certain proportion of wealth to charity. Zakat is payable on all accumulated wealth held for the period of 12 lunar months. Zakat is the third pillar of Islam and seen as an act of worship.