Homelessness charity Framework and Nottingham Building Society have laid claim to pioneering an innovative new social investment model which will see the interest rates of a commercial loan offset through a retail charity bond.
The project – believed to be the first of its kind in the UK – is the first step towards Framework’s strategy to raise £10m through social investment to provide 150 units of move-on accommodation for homeless people across the East Midlands over the next three to five years.
Nottingham Building Society has lent Framework £800,000 on a 5.5 per cent interest rate to help provide 14 units of move-on accommodation in the East Midlands. The interest rates on the loan will be partly offset through four retail saving bonds developed by Nottingham to support Framework.
Savers can choose from four accounts on various fixed rates and terms. The lower the interest rate paid on their savings bond, the cheaper the loan to Framework will be.
Speaking at the launch of the bonds yesterday in Parliament, David Marlow, chief executive of Nottingham Building Society, said: “Our new bonds allow supporters of Framework to pool savings to provide homes in the community for the homeless and reduce the costs to Framework in doing this.”
He added that if Nottingham took savings evenly spread in the four bond products, Framework’s interest rate payments on the loan over the 20-year term would reduce to 2.48 per cent, resulting in savings to Framework of £360,000.
If £1.2m is deposited in the lowest interest rate bond account, the savings to Framework could be around £500,000 over the 20-year term.
Commenting on the model, Andrew Redfern, chief executive of Framework, said the initial £800,000 from Nottingham had got its plan to raise £10m in social investment going. Redfern also announced a £500,000 match-funding grant from Esmée Fairbairn Foundation for its next stage in fundraising.
He added: “To achieve our £10m target we need to reach different audiences so we are working with ClearlySo extensively on the next phase.”
Rod Schwartz, chief executive of ClearySo, which helps social enterprises raise capital, said: “We have admired Framework for some time. We were absolutely delighted when they selected us to advise on and manage their £10m social investment fundraising.”
Cabinet Office grant application
Framework has also applied to the Cabinet Office’s investment and contract readiness fund, and if successful plans to develop a special purpose vehicle.
“Social investment is part of our future,” says Redfern. “We don’t have a choice. We have to make this work.”
Minister for civil society Nick Hurd, who attended the product’s launch, praised the scheme as ambitious and a powerful idea: “If we can prove that we can all invest for the common good and get our money back then we can help to transform the funding environment for ambitious charities and social enterprises.”
The minimum investment in the Framework savings bond is £1,000 and interest rates range from 0.50 per cent to 1.90 per cent. It is already open to the public and will be listed on Nottingham Building Society’s website in July.
Move-on accommodation is self-contained one- bedroom flats which house homeless people on their journey to independent living while freeing up space in emergency accommodation.
