Social impact bond offers up to 15 percent pa using tax breaks

Socially responsible investment and competitive returns are not always phrases that are found in the same sentence, but a new investment opportunity launched this week may be an exception. Launched in partnership with ethical bank Triodos, under the leadership of CEO Richard Nicol, the Midlands Together Community Investment Company (CIC) Bond aims to address some of the obstacles faced by ex-offenders when seeking employment after the end of their sentence. The money raised will be used to provide training and employment opportunities in the Midlands to some of the 58.2% of adults serving short-term prison sentences who go on to reoffend upon release (source, 30/07/13).

A worthwhile investment

Many ex-offenders lack training, experience and skills to enter the workplace, as well as facing social and personal challenges to gaining employment. With the odds stacked against them, many ex-offenders find it all too easy to drift back into their previous lifestyle on leaving prison. Midlands Together aims to provide paid work for ex-offenders and equip them with the skills they need to secure permanent jobs, helping them break out of the cycle of reoffending.

The estimated £3m raised from the bond will enable Midlands Together to purchase over 70 derelict properties in the West Midlands, train ex-offenders in the skills needed to renovated them, and then sell them at a profit. At least £2m is intended to cover the salary, training and mentoring of up to 150 ex-offenders over the five-year period of the bond. As well as having the potential to change the lives of ex-offenders, this investment will help to restore local communities and provide housing by making good use of properties that are currently unoccupied and unusable.

Paul Harrod, who founded the company’s sister initiative in Bristol in 2011, expressed optimism about the future geographical growth potential of the business model, commenting that: “This is a wonderful opportunity to develop our work throughout the Midlands. We have a CEO with great ability, passion and enthusiasm. I look forward to supporting Richard as he leads the capital fundraising over the next few months.”

Competitive returns through community investment tax relief

The Midlands Together CIC Bond isn’t just about social responsibility – it also offers the potential for a competitive return. The bond requires a minimum investment of £20,000 and offers an annual fixed return of 4% or 6% depending on whether you go for the Series A or Series B Bond. However, the latter is also eligible for community investment tax relief (CITR) which is worth up to 25% of the investment made, meaning a gross return of 14.3% for 40% taxpayers and 15.1% for 45% taxpayers. The relief is spread over five tax years.

The Midlands Together CIC Bond is a retail bond, which means that the company aims to pay you a fixed level of interest each year for a set period (in this case, five years), plus a 100% return on your capital at the end of the term. You need to be able to tie up your capital for five years in order to invest, as well as accepting the level of risks involved – the main risk being the loss of your initial investment. You should note that the bond is not covered by the Financial Services Compensation Scheme, so in the event of a default you could stand to lose some or all of your money.

Information about how to invest in this bond is available through Fair Investment Company. Due to the risks associated with this investment it is only available to those who consider themselves experienced investors and understand the risks associated with investments of this kind.

This is a Community Interest Company (CIC) Bond that is not capital protected and is not covered by the Financial Services Compensation Scheme (FSCS) for default alone.

Repayment of capital is dependent on the success of the CIC’s business model and means of potential refinancing, neither of which is guaranteed. There is a risk that the company backing the bond may be unable to repay your initial investment and any returns stated and so you may not get back the full amount originally invested, even if the bond is held for the full term. Investment is an unquoted security and is therefore speculative and can involve a high degree of risk. This is an illiquid investment that cannot be traded and as such is designed to be held for the full term. Eligibility of tax relief is dependent on ongoing tax legislation and your individual circumstances.

If you are at all unsure of the suitability of this type of investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

Written by James Caldwell ,
30th July 2013