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In the midst of debates over philanthropy versus tax, the launch of Big Society Capital this week was presented as a “third pillar” of finance for social impact, alongside philanthropy and the state. Initially capitalised from dormant bank accounts it will channel money into social enterprises and community groups “to blend financial return with social impact”.

With £600 million to play with, this fund could be a lifeline for many community groups facing uncertain futures. But it’s not immediately apparent where the assurances of social impact will come from. Is the bank predicated on the idea that as long as a return is made on investments, you can assume the social impact is occurring? Without success being measured through other indicators I am not sure that’s necessarily true – especially not for hardest to reach groups.

In international development the pillars of finance are even more varied: Development finance covers any number of methods – from government aid to innovative sources proposed like a Robin Hood Tax on banks. It is not all about giving either: one key source of development finance would simply be to allow developing countries to collect the tax revenue they are due. No profit or return is expected with such forms of finance – and rightly so. Oxfam’s constant experience is that predictable, regular and un-tied finance allows for long term investment to pay health worker salaries or allow for basic services to be free at the point of use.

Having a healthy educated workforce will itself contribute to growth – but of course Private finance and investment has a role to play in development too. Foreign Direct Investment (FDI) can be instrumental in aiding developing economies, and at the other end of the scale microfinance has had many successes. Profit does not equal poverty alleviation however – unless a pro-poor mandate sits alongside an institution’s bottom line. This is the area where DfID’s private sector lending arm the CDC was beginning to lose its way, and was rightly remonstrated by the Development Select Committee – leading to DfID promises of reform to ensure its investments will target poverty reduction.

But whilst FDI and micro-finance can help both large and cottage industries there is very little targeting the SME sector in between. Financing this “missing middle” would be instrumental in creating more equal growth, empowering women and also, particularly in the agricultural sector, contributing to food security.

It was in recognition of this that Oxfam set up the Enterprise Development Programme. It targets rural enterprises with $10,000 – $200,000 turnover, requiring investment (both loans and grants) for equipment or working capital. Typical examples – which often focus very much on the empowerment of women – include a mushroom producing and marketing company in Rwanda where the aim is to reach up to 900 women.

But if you want to attract bigger sums then offering a return on investment can be instrumental. Even more ambitiously, Oxfam has recently partnered with Symbiotics to pilot the Small Enterprise Impact Investment Fund (SEIIF), offering institutional investors the opportunity to achieve positive social change through investing, via Small Enterprise Financing Intermediaries in SMEs in the developing world. Similar in fact to Big Society Capital but a completely innovative model in development, a crucial attribute of this fund is that success will not simply be measured though returns. Oxfam’s role is to advise on the poverty focus of the fund’s activities. A large amount of work has gone into developing impact metrics which will give a rich narrative to describe the social impact of what is achieved – and in time contribute to a new impact investing industry standard.

So yes, it’s possible to achieve social impact or development and expect a return. But the links are not automatic. They can be outright contradictory when dealing with essential services such as healthcare, education and water. And if enterprise is to be pro-poor, measuring returns has to be accompanied by effective measurement of social impact.

Katy Wright is Oxfam’s UK Advocacy and Parliamentary Officer. 

Follow Katy on twitter: @katywright 

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