Models of Community Investments

During Giving Week 2021, as part of our learning journey on local investment models we hosted an online workshop on “Investing in Our Future: Models of Community Ownership” in collaboration with Stir to Action.

Following the decision by Barking and Dagenham Council on 15 December to establish an endowment fund with BD Giving, we launched a process to co-design an investment policy with the community, starting with a design workshop in March 2021.

We want to make sure that our new Community Endowment Fund follows our three core values of perpetuity, inclusivity and sustainability. Following feedback from participants to the March workshop, which included the desire to look at models of local investment, we decided to look more closely at models of community ownership seen in the UK.

During this online session Stir to Action, who have already done some incredible work around this area, shared their knowledge on community owned investments with both the participants from the community and ourselves. This blog explores some of the concepts that were discussed.

Difference between Community Enterprises and Private Enterprises

Community enterprises are community-based enterprises that use business to improve the life of a community. They are different from private enterprise because their business activity is undertaken as a means of achieving community benefit, not private gain. As such, they can provide access to certain services or products to users who struggle or are unable to pay their full market price. The difference is usually covered by a customer, commissioner or purchaser willing to pay for or subsidise these services on behalf of the service user or beneficiary.

A community enterprise also differs from a private enterprise in that it usually uses a democratic governance structure. Whether it is a cooperative or a community interest company it can have a large number of owners and ownership tends to be distributed equally between its members. In cooperatives, a model of community enterprise, everyone has a share of the business and power/control over decisions around the business is distributed equally, regardless of the number of shares held by any one member. In other words, each member has only one vote, ensuring that there is a democratic control of the organisation by the members.

This also means that there is less speculation within the organisation and the profits generated are reinvested into the community. As there are multiple stakeholders from the community, such as customers, residents or employers, there is a greater sense of member ownership. All have the same stake within the business and get to decide how the business operates and how the profits are distributed.

What are Community Shares?

Community shares generally refers to shares which are withdrawable and cannot be transferred or sold to third parties. They are known as affordable and practical as they are exempt from financial regulation. Additionally, even if an individual holds a significant amount of share capital, they have one vote to ensure that the enterprise is democratic. In most cases, shareholders tend to invest in projects and organisations that will benefit the community rather than solely provide a financial return. These investments are usually long term capital investments with a 5-10 year payback period to allow the organisation sufficient time to develop their trading and build up their income. The return on investment on community shares also tend to be lower than what can be expected on the private market as the value is not just financial, which also means that there is less speculation.

Stir to Action have shared with us three different case studies of cooperatives that have had great success within their community.

Case study 1 – The Solid Fund
The Solid Fund is a funding platform that distributes small grants to support education and training for co-operative workers. The decision makers are the 634 members, and each member contributes £1 every week. So far, this fund has released £205,000 since its inception in 2016. 

The way it works is through a decision-making app Loopio with the main principles of: Maximum participation, transparency, accessibility, and simplicity. This app is used to create proposals for actions and policies and make decisions through votes on an equal basis. Once an eligible proposal goes through, the members have 7 days to vote using four options: Agree, Abstain, Disagree and Block ('I believe the proposal goes against the fund’s agreed rules or purposes or would create unacceptable risks to the fund').

Each year a maximum of 50% of the fund is disbursed and the remaining retained cash is held in a common reserve and invested at a secure and reasonable rate of interest to ensure a growing balance and which meets the fund’s aims of guaranteeing worker co-operative continuity and autonomy in the medium and long-term.

In 2019 all the members collectively voted to make a £2500 donation to a warehouse café which reopened as a co-op and now is active in the community as a sustainably run vegetarian café bar.
Case study 2 – Community Spaces Loan Fund (Co-operative Foundation)
This is a blended grant and interest-free loan fund launched in 2018 for enterprising ideas to improve community spaces and build stronger communities. The fund provides a grant of up to £40,000 and an interest free loan of up to £50,000 which is aimed at community organisations who are seeking to grow their trading activities to generate a more sustainable income.

Organisations in more deprived areas where their work benefits more disadvantaged members of the community are offered the grant of up to £40,000 alongside the interest-free loan. On the other hand, interest-free loans are available to more viable businesses that will benefit the community and the benefits of this is that there are no repayments required in the first year. This is so the organisation can develop their trading activities and repay the loan on a 3 – 5 year basis.

A great example of this is the Hulme community garden centre which the fund had provided both the £40,000 grant and £50,000 interest-free loan which helped support the expansion of their trading services. So instead of singularly trading plants, the fund gave them the opportunity to build new office spaces within the centre, a shop to boost income and funded some care costs for community engagement and outreach.

This model works on the assumption that at least 50% of the blended grant investment will be repaid and recycled into the programme. In addition to this they have appointed an investment advisory partner who makes recommendations to the trustee board after taking these four principles into consideration.
  • Is the organisation run for the benefit of the community rather than private profit?
  • Does the organisation own or manage a building or outdoor space that’s used for a wider range of activities?
  • Are they involved with a wide range of local people, is their work including more disadvantaged members of the community?
  • Do the organisations have realistic plans to develop trading activities that will grow their long-term income?
  • Case study 3 - Community Shares Booster programme
    This is a programme currently funded by Power to Change and the Architectural heritage fund with the aim of overcoming key issues faced by groups seeking to raise finance from a community share offer at the development fundraising and post launch stages. It is managed by Co-operatives UK which provides an investment vehicle for institutional investment into coops and community benefit societies via community shares.

    An example of this is the Clipper Inn pub in Plymouth. The fund invested £100,000 alongside £106,750 raised from 165 local people to bring the former pub back into use for community benefit. The funding has enabled the venue to be restored into a vibrant community space with a market and popup café and two affordable flats in the upstairs space.

    The fund works by investing alongside the community and takes on a shared level of risk and benefits from the investment. There are three different pathways of support dependent on the stage the organisation is in terms of shares.

  • Pathway one includes an Initial development grant of up to £10,000 to help the community groups prepare their community share offer followed by the chance to secure matched investment up to £100,000
  • Pathway two is a matched investment of up to £100,000 for community share offers at least 3 months ahead of the offer launch date
  • Pathway three is for a matched investment of up to £100,000 for community shares that are less than three months ahead of launching or are open for investment. These are for organisations that may already have a share in the market.

    The fund investment does not usually exceed 50% of the society’s overall withdrawable share capital or £100,000 to ensure that it isn’t a majority investor so that the control of decision making always lies within the organisation.
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