Social Capital Loan Scheme
The Voluntary, Community and Social Enterprise (VCSE) sector in Northern Ireland plays a key role in helping the NI Executive and the Department for Communities achieve the objectives set out in the draft Programme for Government (PfG) Outcomes Framework. DfC has decided to use Financial Transactions Capital (FTC) to establish a Social Capital Loan Scheme to support VCSE investment, via a Special Purpose Vehicle (SPV) managed by Community Finance Ireland (CFI), to minimise financial risk.
Background
The Voluntary, Community and Social Enterprise (VCSE) sector in Northern Ireland plays a key role in helping the NI Executive and the Department for Communities achieve the objectives set out in the draft Programme for Government (PfG) Outcomes Framework. This role requires investment in assets and funding for these assets typically comes from a cocktail of statutory & philanthropic sources.
However commercial banks do not generally lend patient capital to the VCSE sector and alternative sources of capital, such as Credit Unions, are insufficient to support the sector’s demand. DfC has concluded that the market will not provide the capital required and it has decided to use Financial Transactions Capital (FTC) to establish a Social Capital Loan Scheme to support VCSE investment, via a Special Purpose Vehicle (SPV) managed by Community Finance Ireland (CFI), to minimise financial risk.
The Department for Communities’ (DfC) Voluntary & Community Division (VCD) supports a vibrant, effective & more sustainable VCSE sector through a range of programmes & initiatives.
Social Capital Loan Scheme
Through the scheme, DfC will make £13,000k FTC available to the VCSE sector in three tranches, via Community Finance Ireland (CFI), over the period 2023/24 – 2025/26.
CFI will apply its existing business model to select projects for investment and manage repayments to DfC.
Objectives
The objectives and outcomes of this intervention are:
| Objective | Outcome |
|---|---|
| To enable the VCSE sector to access social loan capital to invest in assets aligned to PfG delivery | Assets, aligned to PfG delivery, can be developed by the sector VCSE Sector trustees will be aware of availability of capital VCSE Sector will be able to afford investment and sustain operations Trustees will not have to personally underwrite investments More projects can be supported |
| To improve VCSE sector sustainability and reduce reliance on public grant | VCSE Projects will be incentivised to robustly demonstrate they are sustainable. Sector will improve its financial capability and capacity to secure loan investment |
| To deliver social value by investing in assets | Quantifying social value impact will inform future investment decisions. The measurement will help increase DfC’s knowledge and connection to the sector, informing future investment decisions |
| To enable the VCSE sector to borrow capital for up to 15 years | Fund will be able to finance VCSE projects over several years. Loans to the VCSE sector will be more affordable, releasing earned income to deliver on PfG outcomes |
This intervention is an enabler which will bring a source of capital to the VCSE sector, complementing public and non-statutory funders.
CFI will apply its existing business model to select projects for investment and manage repayments to DfC.
VCSE Organisations will be able to apply for Social Loan Capital to develop assets aligned to PfG delivery, projects must be sustainable to meet a social need.
Compliance with the United Kingdom Subsidy Control Regime and the EU State aid rules
The Department has given due regard to the UK Subsidy Control Regime Statutory Guidance for the UK Subsidy Control Act 2022, the EU’s State aid rules and the UK Government Guidance on Article 10 of the Windsor Framework.
The Department has concluded that the FTC Social Capital Loan Scheme is providing a subsidy to CFI, as defined under the UK Subsidy Control Act 2022, as CFI operates in the services sector and is outside of the scope of Article 10 of the Windsor Framework.
When enterprises that receive loans are within the scope of the Windsor Framework (i.e. the VCSE organisations manufacture goods or it is foreseeable that they could trade goods into the EU Single Market), the Department has concluded that as the scale of the activities of the VCSE organisations will be very small, and the loans will mostly be at or above market rates, the scheme would have a ‘purely local impact’ and would have no foreseeable effect on trade and competition between NI and the EU. Therefore, as detailed in Section 6.3 of the European Commission’s Notion of aid Communication, the scheme will have no effect on trade and is not providing State aid.
Enterprises that receive loans will be providing goods and services to customers within the United Kingdom. While it is expected that most loans will be above market rates, it is possible that some of these loans may be below market rates. In these cases, the scheme would be providing the VCSE organisations with a subsidy that falls within the scope of the UK Subsidy Control Act 2022. However, the Department has considered the Statutory Guidance to the UK Act and can confirm that:
- none of the prohibitions or other requirements in Chapter 2, Part 2 of the Subsidy Control Act 2022 are infringed or apply.
- the scheme will comply with all transparency obligations set out in Chapter 3, Part 2 of the scheme.
- the scheme is not a ‘Scheme of Particular Interest’ (SoPI), (i.e. does not need to be notified to the CMA SAU for review)
- the Department has concluded that the scheme complies with the 7 Principles in Schedule 1 of the UK Subsidy Control Act 2022.
Duration
All FTC will be repaid to DfC by CFI by March 2041, 15 years from the release of the 3rd tranche.