Innovative financing for social enterprises

Strasbourg16-18 January 2014

Gene ClaytonIrish Council For Social Housing

CECODHAS Housing Europe

What are Bonds ?Bonds are a debt investment in which an

investor loans money to an entity that borrows funds for a defined period of time at a fixed rate of interest.

Bonds are used by governments, municipalities, companies and social enterprises including social housing companies to finance a variety of projects and activities.

The estimated size of the global bond market is €58 trillion with 20% of that in Europe.

What are Housing BondsHousing bonds are issued by housing

companies to raise finance to build new or refurbish existing housing.

Housing companies use their existing housing stock as collateral or security and their rental income to pay the interest on the loan and repay the capital at the end of the term.

Bonds can be long-term investments more suited to financing needs of housing sector

What are Social Impact BondsSocial Impact Bonds (SIBs) are a similar debt

investment to Housing BondsThe return or interest rate on SIBs is directly

related to improvements in defined and agreed social outcomes

For example; how many ex-offenders will be housed by a social housing company and remain out of prison after 1 year, 3 years, 5 years.

The rate of interest paid to the lender is linked to the success of reaching the defined objective.

Why the interest in Housing Bonds?2008/09 Credit Crunch: sudden withdrawal of

normal availability of financeWorldwide inability/unwillingness of

banks/finance houses to lendAffected some countries/sectors worse than

others“A” Countries: France, Germany, UK, Holland,

Nordic countries; business as usual (more or less)

“B” Countries: Spain, Portugal, Ireland, Greece; very difficult or impossible to raise finance from banks

Impact on social housing sector in EuropeFor A countries: some effect, but housing companies

continue to develop and meet housing needTighter bank lending led to increased use of bond

finance esp. in U. K. using The Housing Finance Corporation (THFC)

For B countries: total or near collapse of state funding systems, little or no access to private finance: near or complete collapse of social housing provision,

Dysfunctional housing market, increased mortgage arrears, negative equity, potential increase in foreclosures, growing housing need

Diminished ability of central & local governments & social housing sector to meet growing housing need

CECODHAS ResponseRecognition that existing financing only works

for some members in some countriesFollowing success of housing bond issues esp.

in UK, idea for transnational European Housing Bond put forward

Proposal that social housing companies that are capable of participating come together across Europe to issue bonds

Bond aimed at Pension Funds, ethical investors, those wishing to meet Corporate Social Responsibility requirements for modest, safe return.

Access to Finance Working GroupWorking Group set up in CECODHAS to

establish feasibility and see what investors want

Investors want to see all aspects of company performance in a transparent, comparable way

Working Group looked at ways of meeting this demand

Main Activities to be measuredFinancial Performance: All aspects of financial

performance which impacts risk & returnManagement Performance: How efficient is the

company in providing homes and services Environmental/Energy Performance: How

green /energy efficient is the housing stock Social Return on Investment: What additional

(measurable) benefits does it bring to neighbourhoods and society

Potential BenefitsLess reliance on hard pressed individual

national banking sectorsLarge pool of investors /current low return

investment environmentPotential to create a niche market for a new

financial productPotential to secure access to sources of

secure, long-term funding at reasonable ratesLonger term potential for risk sharing to

enable B countries to access funding to continue to meet housing need

Short, Medium & Longer Term AimsShort Term

Identify CECODHAS members willing to take part in pilot project leading to the issuing of European Social Housing Bond

Medium Term: Look to establish a Financial Intermediary (like THFC)Establish a credible track record for social housing

companies with investors by raising funds on a regular basis by issuing European Housing Bonds

Longer Term:Build reputation as solid performer to attract investors

and enable qualifying social housing companies from B countries to access funds and build solidarity

ConclusionHousing Bonds are:A prudent recognition of changed financial

environments in a number of member countriesAn additional source of finance not a

replacement of existing funding systems in member countries

An opportunity to create a financial product specifically for the social housing sector across Europe

A way of meeting growing housing need across Europe

A long term project with long term benefits

Thank You