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New 'Pants Bond' pays quarterly interest in fairtrade undies

Finance | Tania Mason | 29 Nov 2010

Pants to Poverty, the ethical fashion social enterprise, is to launch a new bond that aims to raise £250,000 to fund its working capital requirements for the foreseeable future.

Each ‘Pants Bond’ has a value of £2,500 and Pants to Poverty has already sold 11.  Investors can get their money back after six months, giving three months’ notice and will also receive interest payable in “fair-trade, organic pants and a donation to charity”.

It is a ten-year bond with an annual coupon rate paid at 8.65 per cent. This interest will be paid in quarterly instalments comprising 12 pairs of fair-trade and organic underwear, £43 paid in cash to offset tax at source, and £14 donated to the Pi Foundaton, a charity set up by Pants to Poverty to help develop sustainable business models in the fashion industry.

Pants to Poverty was set up in 2005 as part of the Make Poverty History campaign to devise an ethical new business model for the fashion trade. It has reached the point where it is poised to launch as an ethical and fair-trade fashion brand next Easter in high-end department stores in the UK, Germany, Austria, Switzerland, Sweden and Norway. Australia and Japan will follow in time for next Christmas.

The Pants Bond was created by a collective of commercial organisations who gave their time for free.  These included accountants Smith & Williamson; lawyers Hogan Lovells, ad agency Leo Burnett and PR firm Seven Hills.  The bond will be launched to prospective investors – generally high net-worth individuals - at a catwalk show at Coutts & Co’s offices in the Gherkin on 1 December.

Once the bond has launched, Unltd, the social enterprise network, will adapt it for use by other social enterprises.

All the funds raised from the bond will be used to buy stock.

'Transform the debt financing market'

Ben Ramsden, founder of Pants to Poverty, said he hoped the bond would “help transform the debt financing market for social enterprises”.

“Rather than disappearing as a donation to charity, this money will return to the investor once the bond is redeemed so that it can then be recycled again to support other forms of social enterprise,” he said.

“It’s an adaptation of a conventional financial tool that will bridge the gap between start-up capital, which is reasonably easy to come by, and angel capital which tends to tie you into long-term partnerships and generally means you have to relinquish a lot of control.

“It will give us enough working capital to take up onto the next level while also enabling us to nurture relationships with our investors.”

'CIC not right for us'

Pants to Poverty is currently constituted as a private limited company with Ramsden as its sole shareholder, though it is in the process of changing its articles of association to ensure it cannot simply be sold off or its focus changed. Ramsden told Civil Society that a Community Interest Company was not quite the right model for the organisation, as it has “an element of political activity” which is not permitted in the CIC constitution.

“We want a corporate model that maximises the social, environmental and financial returns for all our stakeholders,” he said. “Also, the sector is developing rapidly so we don’t want to do anything in haste that we might regret later.  We need to make sure the model works before we do anything about changing the constitution.”

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