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Third Sector Growth Fund: An update from Alastair Davis, SIS CEO

In March 2021, as Scotland tentatively emerged from a further round of pandemic restrictions, the Scottish Government announced an allocation of funding to a new £30m Third Sector Growth Fund. SIS were allocated £15m of this resource, with the remainder provided to a new proposition, the Catalyst Fund, managed by Firstport.

The capital for this fund was Government funding referred to as ‘Financial Transactions’ or ‘FTs’. This type of funding is allocated to the Scottish Government by HM Treasury. FTs can only be used to make loans or equity investments in private sector entities, and ultimately must be repaid by the Scottish Government to the UK Government. For this reason, the Third Sector Growth Fund monies cannot be made available as grants and only as loans or other repayable instruments. Therefore, SIS were ideally placed to work with the Scottish Government to explore how this precious resource might make the biggest impact in the most appropriate way – this was, and is, a responsibility that we take very seriously.

Although the investment must be returned to the Scottish Government in 2031, there were less restrictions imposed than some of the other investors that SIS works with. This provided greater flexibility for fund design and the opportunity to undertake detailed research and feasibility with our stakeholders – including charities and social enterprises.

Early in the research process, attention was beginning to turn to Covid-19 recovery and the resilience of third sector organisations post-pandemic. Our research soon highlighted that the resilience and stability of some organisations had been negatively impacted. Many organisations, and often larger charities who had been able to build ‘rainy day’ reserves, had seen these reserves depleted as they sought to keep themselves dry during the worst of the pandemic. Some had chosen to use their reserves to provide additional support to communities most impacted by Covid restrictions. We knew this was affecting confidence levels, particularly amongst trustees, and in many cases constraining innovation and investment when fresh thinking was needed more than ever.

The Recovery and Resilience Fund was developed specifically for these organisations and other funding partners who had provided charitable grants during the pandemic. The Recovery and Resilience Fund provides larger amounts of longer-term, lower-cost finance to rebuild through investment in reserves and strengthen their resilience. So far, almost £3m of investment has been allocated to six organisations, and the fund will open for a further round of allocations in early June.

Alongside pandemic recovery, in spring 2021, the eyes of the world were focused on Scotland as Glasgow hosted the COP26 summit. We knew that, like everyone, social enterprises would be examining ways in which they might take action to respond to the climate emergency. Our research highlighted a wide variety of ideas and initiatives that might require investment, and the Net Zero Transition Fund was developed to respond to these specific ideas. The fund offers low cost (3% fixed interest) flexible loans from as little as £10,000 and has already allocated almost £500k of investment to six organisations, with more in the pipeline.

As part of the fund development process, a new partnership has been developed with Zero Waste Scotland (ZWS), in which projects may be eligible for a grant award alongside a loan. SIS and ZWS have collaborated further to develop Circular Economy 360, a specially tailored business support programme to assist social enterprises thinking about becoming more environmentally sustainable.

Finally, the new funding programme aligned with a fundraising effort for SIS Ventures, a wholly owned subsidiary of SIS providing funding to mission-led businesses. In return for investment, SIS Ventures puts in place a range of impact protections, including a mission lock following a significant process of impact review. A total investment of £2.6m (of £5m) has now been made available to eight ventures. More detail on our full portfolio is available here.

Of course, these aren’t the only funding programmes that SIS has available, and across a variety of other funds, we continue to provide simple and straightforward finance from £10,000 upwards. There is more information about our funding programmes on our website. Our investment managers are always happy to discuss your plans. Interested organisations can get in touch here.

We look forward to sharing more about the progress and impact of these various investment programmes in a spirit of continued collaboration and transparency and look out for the publication of our 2022 impact report over the summer.