There are lots of things Nigel Kershaw is not, and the first of these is a financier. He’s not a peddler of guilt or a pan-handler for charitable causes either. But the chairman of the Big Issue is certainly a social entrepreneur of substance. And despite a background in printing and publishing rather than banking, he’s also CEO of social enterprise finance firm, Big Issue Invest.
For Nigel, business is the answer to social problems. His involvement with the Big Issue, offering homeless people the chance to earn a legitimate income, means he has a track record of making business work for society. Right now, he’s developing a start-up business that – if successful – could take 1.2 million people out of a cycle of poverty and into regulated credit.
With the recession in full swing and banks increasingly unlikely to approve loans, it’s a timely project. “We know that people are kept in poverty because they can’t get bank accounts or affordable loans.” Nigel explains. “Last year, seven or eight million low income people were refused mainstream credit. So they all went to the high street shops and doorstep lenders. Some went to the base-ball bat lenders. All those people got an average APR of 169%.”
The Big Issue Invest team is developing an alternative credit scoring index that could change the situation. The venture is currently in the concept proofing phase. Like any good business idea, the concept is based on a gap in the market: credit rating agencies aren’t utilising all data available to them. Big Issue Invest is convinced there is predictive value in rental data. If they find that value, they will start a social enterprise to share rent payment data with banks, retailers and credit scoring agencies to improve tenants’ credit scores.
Any profit made by the credit reference agency will be re-invested back into the Big Issue ventures. Funds will also be directed to housing associations where people are working on the ground giving budget advice, debt counselling and training.
To illustrate the potential of the project, Nigel details a case familiar to him: “We know somebody who is seven years in the housing association; five years in a job of £18-20,000; a single mother of two kids. She can’t even get a debit card. The reason is that ten years ago, her husband went and left her with £60,000 worth of debt.” In a situation like this, it is possible to look through the data for positive markers which indicate an individual is good for a loan. Nigel insists: “When you look at her rent payment record, it’s regular as clockwork. No arrears. What we are trying to demonstrate is whether this good rent payment record could help improve her credit score and increase her access to affordable credit.”
Big Issue Invest already offers risk capital investment for social enterprises that are scaling up, and a contract finance fund to help social enterprises secure public sector contracts. Now it’s working with all of the main housing associations and the National Housing Federation, analysing 100,000 tenant records going back over 11 years. Respected financial experts involved in the proof of concept include Robin Monro-Davies, founder of leading ratings firm IBCA and Sarah Forster, who was formerly with the World Bank and the New Economics Foundation.
But despite such high level personnel, the venture is encountering the same problem many promising start-ups have met before them: sourcing adequate support and funding. “We are talking about people who are credit risks. The banks don’t understand what it is to be a pioneer,” Nigel explains, “They ask us for a proven business model, but we’re still going through a proof of concept. As a start-up, you face this problem time and time again: the problem is finding those people who believe in what you’re doing and are prepared to back the early stage.”
After what’s happened in the market place, Nigel believes socially minded businesses like Big Issue and Big Issue Invest should be given credit where it’s due: they pick up what he’s calling the ‘social and environmental waste’ that’s been generated by the banks’ toxic assets.
“We want the banks to come with us,” Nigel says. “Not because we’re blaming them for getting it wrong, but they need to back the pioneers; the start-ups that have the potential of changing society for the better and are trying to change this economy.”