The government has instructed Local Enterprise Partnerships to consider devoting some of the EU funds they will take charge of allocating from next year, to a new social investment vehicle for local charities devised by the Social Investment Business.

Local Impact Funds are a new type of social investment model that will bring national investors, like the SIB Group and Big Society Capital, together with local investors such as local authorities, community foundations and individuals, to provide funding and support to local charities and social enterprises.

SIB Group has committed up to £2m to help pilot the first two Local Impact Funds, in Liverpool and Northamptonshire.

The concept, described as a way to provide “simple finance” to local organisations, was launched at a Liberal Democrat Conference fringe event hosted by the Social Investment Business on Tuesday.

The idea is that the investors will provide a range of support to organisations during their “investment journey” – from support and mentoring to help them develop their business plans, to small, high-risk loans and other investment products to help them scale up, accumulate assets and grow.

And EU funds, which Local Enterprise Partnerships will take responsibility for distributing from 2014 onwards, could form part of the investment mix.  

The government is testing Local Impact Funds as a potential recognised ‘ Financial Engineering Instrument’ and has included them in official guidance to LEPs as they develop their strategies for using EU funds.

The structure of Local Impact Funds is outlined in a report called Place-based social investment: A prospectus for growing the local economy. SIB Group wants to see a nationwide network of Local Impact Funds develop.

Minister for civil society Nick Hurd said he hoped local councils and LEPs would consider establising a Local Impact Fund in their area.

David Frost, chair of the LEP Network, said he was pleased to see LEPs "beginning to engage with the social enterprise movement".