Use of Subsidy: Lessons from the Growth Fund programme on blending grant and loan funding

Introduction

This report covers how the Growth Fund was set up as a ‘test and learn’ programme for all parties involved. Its focus is on how well the Growth Fund’s subsidy model met the needs of the social investors, and enabled them to provide blended finance effectively to Voluntary, Community and Social Enterprises (VCSEs).

Findings

The report focuses on understanding how the Growth Fund’s structured grant subsidy model has worked in practice. The model was designed using three grants, as follows:

• A (operating cost subsidy)

• B (first-loss protection)

• C (blended grant for VCSEs)

Grant A

For Grant A, predicting and managing operating costs over the entire programme timetable was challenging.

The early experiences of the organisations that were new to social investment confirmed that a longer period of grant support for operational costs was needed.

Grant B

For Grant B, there was greater risk taking and the risk appetite was wider than they would otherwise have been comfortable with.

Grant B also enabled the social investors to work with investees to find ways through loan interest and capital repayment problems.

Grant C

For Grant C, the loan enabled social investors to make the Growth Fund loans attractive to charities and social enterprises.

Grant C allowed organisations to take on larger loan sizes, implement more quickly and deliver impact more rapidly.

Conclusions

Across all types of grant, the:

• language of Grants A, B and C, first used in The Growth Fund, to describe their specific purposes has stuck

• model has been flexed over the life of the programme, responding to the needs of VCSEs and social investors

• level of supportiveness and flexibility shown by the Programme Partnership has been transferred by the social investors into their relationships with their investees