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Hong Kong Government Social Funds: Fit for purpose or time for a re-think?

Alison Gordon OBE, MA (Oxon) IIPC Rockefeller Foundation Fellow 2013

Table of Contents
About this study .................................................................................................................................... 3 List of Abbreviations ............................................................................................................................ 5 Executive Summary .............................................................................................................................. 6 Introduction.......................................................................................................................................... 10 Chapter 1 Hong Kong Social Welfare Context .............................................................................. 12 1.1 The Hong Kong Social Welfare Model ............................................................................ 14 1.2 Recent Developments in Social Welfare policy ............................................................ 18 Chapter 2 Hong Kongs Social Fund landscape ............................................................................ 22 2.1 Government Social Funds ................................................................................................ 23 A. Social Welfare Development Fund (SWD Fund) ............................................................ 23 B. Enhancing Employment of People with Disabilities Fund (3Es Fund)...................... 23 C. Community Investment and Inclusion Fund (CII Fund) ................................................. 24 D. Partnership Fund for the Disadvantaged (PFD) ............................................................. 25 E. Enhancing Self-Reliance through District Partnership Fund (ESR Fund) ...................... 26 F. Community Care Fund (CC Fund) .................................................................................. 27 G. Social Innovation & Entrepreneurship Development fund (SIED Fund) ...................... 28 2.2 Quasi-government Social Funds...................................................................................... 31 The Lotteries Fund ...................................................................................................................... 31 2.3 Non-government Social Funds ........................................................................................ 32 A. The Hong Kong Jockey Club (HKJC) Charity Fund ....................................................... 32 B. The Community Chest Fund............................................................................................. 32 2.4 A Surfeit of Funds and multiple capital allocation strategies ...................................... 34 Chapter 3 Analysis of findings about Government Social Funds ............................................. 35 3.1 Absence of research & policy to direct capital allocation and support Fund .............. 35 A. Lack of policy to direct capital allocation ..................................................................... 35 B. Inadequate fund management process ....................................................................... 37 C. Lack of supporting policy architecture .......................................................................... 37 D. Recommendations: Part I................................................................................................. 40 3.2 Distortion of Market Sector and Organizational Development ........................................ 42 A. Distortion of organisational development...................................................................... 42 B. Lack of diversity in capital supply and funding mechanisms ...................................... 46 C. Recommendations: Part II ................................................................................................ 48 3.3 Responsive delivery organisations but lack of innovation & skills gap............................. 50 A. Lack of innovation ............................................................................................................ 51 B. Lack of sustainability ......................................................................................................... 51 C. Growing skills gap .............................................................................................................. 52 D. Recommendations: Part III ............................................................................................... 55 Chapter 4 Summary of Recommendations .................................................................................... 57 Conclusion ............................................................................................................................................ 58 Acknowledgements ............................................................................................................................ 60 References ............................................................................................................................................. 61 A. Books, Reports & Articles .................................................................................................. 61 B. Government & Legislative Council Papers .................................................................... 64 C. Data sources for Figures & Tables.................................................................................... 68 D. Interview schedule ............................................................................................................ 70

HONG KONG GOVERNMENT SOCIAL FUNDS | Fit for purpose or time for a re-think?

Hong Kong Government Social Funds: Fit for purpose or time for a re-think?
About this study
This study was supported in part through a Rockefeller Foundation fellowship in Impact Investing1 & Policy Innovation, awarded by the Impact Investing Policy Collaborative (IIPC). The IIPC is a partnership between Pacific Community Ventures InSight and the Initiative for Responsible Investment at the Hauser Institute for Civil Society, Harvard.

The study was completed as an independent study initiative supported by the Hong Kong University of Science & Technology Business School.

About the author


Alison Gordon has been an international policy-maker for more than 10 years, serving in the British Foreign Office during a period that began with 9/11 and the US 'War on Terror', saw the UK involved in 3 wars (Afghanistan, Iraq, Libya) and witnessed a global financial crisis. A Middle East specialist, she worked on a range of portfolios, including Afghanistan, Pakistan, the Middle East Peace Process, Counter Terrorism and Counter Proliferation. Alison was awarded an OBE in 2008 for her work in Iraq. Alison has an MA (Hons) in Modern Languages from Oxford University, an MA in Journalism & Communications from Stanford University and an MBA from the Hong Kong University of Science & Technology (HKUST) & Columbia University. In 2013, she was appointed a Rockefeller Foundation Fellow and awarded the HKUST MBA Outstanding Leadership Award.

Methodology
The scope of this study is to consider the strengths and weaknesses of the policy structure and management of Hong Kong Government Social Funds. To understand the funding landscape, the study details two other types of funding - Quasi-Government Social Funds and Non-Government Social Funds. It is beyond the scope of the study to analyse the role of Private/Philanthropic Funds in Hong Kong, although some best practices identified independently are cited.
1 1Impact or social investing is the provision and use of finance to generate social and financial returns. The investment may take various forms, from loans to equity to bonds but is made on the expectation that (i) the funds invested will be returned in future, possibly with additional return; (ii) the investment will generate positive social impact.

The study has been carried out adopting three research methods: (i) A comprehensive review of local, regional and international reports and studies on impact or social investment, social enterprise, social entrepreneurship, venture philanthropy, traditional philanthropy, and social innovation; (ii) A comprehensive evaluation of Hong Kong social welfare policy, government fiscal policy, Legislative Council/Government documents; (iii) 38 interviews with sector representatives from January June 2013. Interview candidates were selected to ensure equal representation across all parts of the social sector, including government, think tanks, NGOs/social enterprises, investors, sector advocacy/umbrella groups and academia. Interview candidates are not identified by name, given the desire to encourage a more candid and frank discussion. Instead, they are classified according to area of expertise and by numerical order. Where an expert has more than one affiliation, s/he is classified according to the primary area on which s/he was commenting. For example, an academic member of a Government Social Fund Advisory Committee would be referred to as Government Advisor 1. Table 1 below defines classifications adopted throughout the report. The studys intended audience is policy makers, potential and current social investors/donors and the wider NGO community in Hong Kong and Asia who are either grappling with social policy innovation, social sector reform or how to better allocate capital whether private or public to deliver social objectives and impact. The recommendations therefore focus both on suggested policy improvements, as well as alternative sector/organizational development models. Table 1: Interviewee classifications adopted in the report
Classification Government Official Government Social Fund Manager Government Advisor Definition of functions & organisations included in class Refers to officials from the Home Affairs Bureau/Dept., Social Welfare Dept., Efficiency Unit, Legislative Council Secretariat/Administration Refers to officials/administrators and secretariat members responsible for the SWD Fund, ESR Fund, 3Es Fund, PFD, CII Fund, CC Fund (see List of Abbreviations for names of Funds) Refers to Chairmen and members of Govt. committees: Home Affairs Committee, Commission on Poverty, Social Enterprise Advisory Committee, ESF Fund Advisory Committee, 3Es Fund Advisory Committee, PFD Advisory Committee, CII Fund Advisory Committee, CC Fund Task Force, SIED Task Force Refers to LegCo representatives, most of which serve on the LegCo Social Welfare Panel Refers to academics from Hong Kong University, Chinese University of Hong Kong and Hong Kong Baptist University Refers to Directors from policy/political think tanks and social sector advocacy /lobbying groups Refers to Senior Executive & Managers from subvented NGOs, nonsubvented NGOs, non-profits or intermediary organisations, SEs Refers to officials/administrators or managers of the HKJC Charity Fund or the Community Chest Fund Refers to executives from private or corporate funds or foundations

Legislature Council Member University Academic Policy Think Tank Director NGO Director Non-Govt. Social Fund Manager Private Fund Investor

HONG KONG GOVERNMENT SOCIAL FUNDS | Fit for purpose or time for a re-think?

Abbreviations
CE CoP CS EU HAB HAD Hong Kong SAR LegCo LWB SEAC SWD FPO NFP NGO NPO SE 3Es Fund CC Fund CII Fund ESR Fund PFD SIED Fund SWD Fund ADMCF HKCC HKCSS HKFYG HKJC HKSES SVhk SKH WC SJS Chief Executive (Hong Kongs 1st ranking minister) Commission on Poverty Chief Secretary (Hong Kongs 2nd ranking minister) Efficiency Unit Home Affairs Bureau Home Affairs Department Hong Kong Special Administrative Region Hong Kongs Legislative Council Labour & Welfare Bureau Social Enterprise Advisory Committee Social Welfare Department For profit organization Not-for-profit Non-governmental organization Non profit organization Social enterprise Enhancing Employment of people with disabilities through Small Enterprise Fund Community Care Fund Community Investment & Inclusion Fund Enhancing Self-Reliance through district partnership Fund Partnership Fund for the Disadvantaged Social Innovation & Entrepreneurship Development Fund Social Welfare Department Fund Asia Debt Management Capital Foundation Hong Kong Community Chest Hong Kong Council of Social Services Hong Kong Federation of Youth Groups Hong Kong Jockey Club Hong Kong Social Enterprise Summit Social Ventures Hong Kong Sheng Kung Hui Welfare Council St James Settlement

Citation of this report


To reference this report in other publications, please provide the following citation: Alison Gordon, Hong Kong Government Social Funds: Fit for purpose or time for a rethink? (October 2013) Alison Gordon 2013 Cover photography: All images licensed from Bigstockphoto.com, Bigstock, NYC, USA.
HONG KONG GOVERNMENT SOCIAL FUNDS | Fit for purpose or time for a re-think? 5

Executive Summary
The economic, social, health and environmental challenges facing Asia in the next few decades will be huge. While Asia now generates one-third of the worlds GDP, twothirds of the worlds poor 1.7 billion people live in Asia. Creating innovative and sustainable organizational and funding models for the social sector, and supportive public policy frameworks to enable them, will be critical to tackle these challenges, ensure the regions future prosperity and deliver social solutions to the poorest and most vulnerable. This study on Hong Kongs social welfare model, an outsourced model where government relies on NGOs for approximately 90% of service delivery, and specifically its Government Social Funds a select group of dedicated government funding programs responding to different social contexts presents in microcosm one Asian perspective on the responses of government and civil society to social welfare challenges. It has relevance to the broader regional context given the debate currently taking place about social or impact investment, venture philanthropy and the role of social enterprise. And it provides concrete recommendations for how best the public, private and NGO sectors can collaborate and pool resources more effectively to tackle poverty. The Hong Kong model Hong Kong is a city of substantial wealth. Over the last decade, the economy has grown by nearly 50% and in 2012-13 the city-state generated a HK$64.9 billion surplus while maintaining one of the lowest tax rates in the world. But it is also a city of substantial poverty. Hong Kong boasts the eleventh highest Gini coefficient (a measurement of income disparity) in the world, and 1.2 million of its 7 million inhabitants or one in six people are living below the national poverty line. Although government spending on social welfare has increased as a percentage of GDP over the last decade, Hong Kongs aggregate social spending compared to OECD countries is low. In 2011-12, Hong Kong Government social spending had risen to 7.6% of GDP. This contrasts with an OECD average of 21.8% of GDP or, to cite a regional economy, a rate of18.6% of GDP in Japan. Social welfare spending across less developed Asia-Pacific economies is even lower than in Hong Kong average social spending as a percentage of GDP was only 5.2% in 2011. In a recent report (July 2013), the Asian Development Bank (ADB) heavily criticized the inadequacy of current spending. The ADB blamed low spending for the failure to protect the poor and disadvantaged across the region. Hong Kong Administrations since hand-over to China in 1997 have demonstrated a reluctance to increase recurring expenditure (i.e. expenditure that is required each year on a repeated rather than one-off basis). This is due to a culture of fiscal conservatism and a revenue regime with a narrow tax base. As a result, Hong Kong Administrations have favored a fiscal approach of providing additional public funding through Funds on a one-off basis, usually from budgetary surpluses accrued at the end of the financial year.

HONG KONG GOVERNMENT SOCIAL FUNDS | Fit for purpose or time for a re-think?

Following reforms in 2001 to how the government provided funding to social welfare NGOs who delivered the majority of social services, the Government began to rely more and more on these one-off Social Funds to boost social welfare spending. As a result, to date, the total spending committed by the Government to Social Funds is HK$24.35 billion. The potential negative consequences of a fiscal policy that relies on stand-alone funds to boost spending is significant. Firstly, these social funds risk being perceived as policy orphans, where they are not integrated into other aspects of social welfare policy and have no supporting policy architecture to ensure efficacy of delivery. Secondly, the funds risk being perceived as window-dressing and a chronic waste of public money. The social sector doubts the long-term value of Government Social fund initiatives, which hand out funds with neither specific objectives nor adequate follow-up evaluation. In general, the community does not believe that either the fiscal structure or the implementation of the Funds are fit for the purpose of addressing pertinent social challenges: Funds are a political response, not social policy not part of mainstream policy. They are candyCandies are not good for a daily diet Candies will never lift anyone out of poverty.2 The Social Funds landscape: Solutions or Band-Aids? The Government is not the only provider of Social Funds other substantial contributors exist. This study refers to these as Quasi-Government Funds (comprising the Lotteries Fund) and Non-Government Funds (comprising the Hong Kong Jockey Club Charity Fund and the Community Chest Fund). The latter are independent of government and while supportive of its policy aims, have their own priorities. These additional funds add to the soft money that flows with little strategic direction into the sector, and encourages the short-termism that has become a trait of much of the Hong Kong social sector. In 2011-12, expenditure by Non-Government Funds totaled HK$1.9 billion more than double Government Social Fund spending which amounted to just over HK$900 million. This overshadowing is important because it raises a fundamental question about the Social Fund model, namely, who is in fact driving annual social welfare priorities in Hong Kong? And further, on what basis are those priorities being decided? Above all, it highlights the need for considered coordination and collaboration between Government and Non-Government Funds if public policy priorities and capital allocation strategies are to be maximized. There are currently 7 Government Social Welfare Funds in Hong Kong: Social Welfare Development Fund (SWD Fund): Set up in 2010, the SWD Fund provides funding for the 171 subvented NGOs to carry out training and development; IT system upgrades; studies to enhance service delivery. Enhancing Employment of People with Disabilities through Small Enterprise Fund (3Es Fund): Established in 2001, the 3Es Fund objective is to enhance employment opportunities for people with disabilities through creating social enterprises to provide a first step back into full employment.

Interview with NGO Director 6 on 30 May 2013.

HONG KONG GOVERNMENT SOCIAL FUNDS | Fit for purpose or time for a re-think?

Community Investment and Inclusion Fund (CII Fund): Set up in 2002, the CII Fund provides seed money to encourage social capital development in Hong Kong communities and build cross-sector collaborative projects and platforms through tripartite partnerships. Partnership Fund for the Disadvantaged (PFD Fund): Launched in 2005, the PFD aims to promote tripartite partnership among the welfare sector, the business community and the Government by providing one-off matching grants to donations made by corporates to support NGO projects. Enhancing Self Reliance through District Partnership Fund (ESR Fund): Established in 2006, the ESR Fund aims to prevent and alleviate poverty by providing seed grants for eligible NGOs to set up social enterprises that help provide job opportunities for socially disadvantaged groups. Community Care Fund (CC Fund): Launched in 2011as a trust fund under the Secretary of Home Affairs, the CC Fund aims to provide social welfare assistance directly (i.e. through benefit payments) to people facing economic difficulties and falling outside the current social security system. Social Innovation and Entrepreneur Development Fund (SIED Fund): Scheduled to launch in late 2013, the SIED Funds objective is to support social entrepreneurship and innovation to help tackle social problems.

It is difficult to differentiate between the 7 different Government Social Funds as their aims and objectives are so general that duplication and overlap is common. In terms of funding, the Community Care Fund dwarfs other Government funds, equating to 88% (HK$21.5 billion) of Government committed capital to date. The other funds are very small overall contributors to the Hong Kong social sector. Government Social Funds: Fit for purpose? Findings from a series of in-depth interviews conducted with 38 policy-makers, government administrators, fund managers, social workers, NGO executives and academics in Hong Kong between January and June 2013 identify three fundamental problems that reduce the impact of Government Social Funds: Finding 1: An absence of research and clear policies for direction of capital allocation, management and support of Fund objectives. The community had little confidence that the Hong Kong Government knew how to tackle the changing needs of society and the disadvantaged. The primary deficit was seen as a lack of Government research, base lining and needs analysis in which to ground social policy initiatives. This deficit resulted in an absence of policy direction for Government Social Funds and a failure to articulate clear social welfare objectives. As a result, Funds became tactical quick-start mechanisms with little strategic coherence. In addition, with little analysis of post-implementation impact, there was no correlation between funding and performance. Finding 2: A funding system that distorts both the market sector and organizational development within the sector. Community representatives considered that the
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Governments Social Funds, by sponsoring a model of social enterprise that focused on job creation, had distorted the definition and function of the majority of local social enterprises. In addition, significant stakeholders were unconvinced that a market-based approach was the right model to adopt in Hong Kong. The community also recognized that the supply of private capital was limited due to proliferation of Funds and the relative infancy of a social investment approach. Finding 3: An approach that maintains sector responsiveness to immediate need but reduces innovation and fails to grow skills. A prominent finding of the study was that Government Social Funds had ironically served to reduce innovation in the sector in general, and had failed to grow its skills. In a context of somewhat undirected capital flows into the social sector, short-term funding cycles with low funding ceilings, the sector has been encouraged to be tactical rather than strategic in approach. Thus the immediate drive to respond to day-to-day needs, while necessary, pushed out innovation, and delivering short-term projects quashed organizational development and growth of new skills and capabilities. These findings suggest that the current approach to Government Social Funds needs a careful re-think. To address the structural and implementation issues of the Social Fund model uncovered by the findings, the study makes 6 high-level recommendations, proposing that they be integrated into planning for the latest Government fund, the Social Innovation & Entrepreneur Development Fund (launching in late 2013). These recommendations are: Recommendation 1: The Government should introduce the requirement to perform a Social Needs Assessment for each Social Fund it operates, before launch of any new fund and retrospectively for existing funds. Recommendation 2: The Government should develop a coherent set of policy initiatives and a supportive policy framework to address regulatory and market issues at the conception stage of any new Social Fund. Recommendation 3: The Government should encourage more strategic financing by extending the term of grants; providing non-financial support throughout the funding lifecycle; and by anchoring ongoing funding to performance and results. Recommendation 4: The Government should develop 2 models to increase impact of its Funds: (i) a funding pathway to hand over successful early-stage Governmentfunded enterprises to other funding entities/investors; (ii) an evaluation process to consider which initiatives should be spun-in as commissioned Government services. Recommendation 5: The Government should drive skills development in the sector by funding the creation of workspaces, centres and e-learning tools to showcase local centers of organizational excellence. Recommendation 6: The Government, in partnership with Non-Government and private fund providers, should sponsor the development of open technology platforms/tools to modernize the sector and enhance collaboration.

HONG KONG GOVERNMENT SOCIAL FUNDS | Fit for purpose or time for a re-think?

Introduction
The economic, social, health and environmental challenges facing Asia in the next few decades will be huge. While Asia now generates one-third of the worlds GDP set to rise to over 50% by 2060 two-thirds of the worlds poor, or 1.7 billion people, live in Asia.3 And with the transition of India from low-income to middle-income status, the majority or 81% - of developing Asias poor now live in middle-income countries.4 Creating innovative and sustainable organizational and funding models for the social sector, and supportive public policy frameworks to enable them, will be critical to tackle these challenges and ensure the regions future prosperity. China has achieved the fastest rate of poverty reduction on record from 84.6% in 1990 to 29.8% in 2008.5. With the advantage of central planning and an ability to pilot at scale at the provincial and city level, Chinas leaders have shown themselves keen to learn from the lessons of others, and to be willing to experiment with different economic development models.6 But it will require creative political thinking and innovative social development planning to manage Chinas huge challenges of rapid urbanization, inadequate access to healthcare, reform of the hukou or household registration system, and promotion of an effective nationwide social service delivery system. Meanwhile in the West, financial and economic systems are still struggling to recover from the Global Financial Crisis. While the US budget is in a state of forced budget sequestration, in Europe we see an age of austerity and capital retrenchment as governments have been forced to make substantial budget cuts and reform what some consider to be unsustainable health and welfare programs. The result is that here too we see a dramatic and increasing disparity between the rich and the poor. In this context, it is unsurprising that the topic of social innovation has risen to the top of government agendas across the globe. Aware of the need to tackle major social and environmental issues, governments, social entrepreneurs and social investors alike are searching for new, smarter ways to allocate capital (for example, with Social Impact Bonds and innovative debt and equity tools) and spur innovation to deliver social solutions to the poorest and most vulnerable in their communities. However, while the quest for social innovation and investment is a shared one, the approach and priority of governments is often quite different. In the West, governments under fiscal pressure are keen to stimulate private capital into the social sector by encouraging innovation to grow social investment markets. In Asia, however, the story is often different. Here, economic growth rates and the side effects of huge quantitative easing measures in the West have provided many
3 Poverty Reduction in Asia and the Pacific, 20 December 2012, Asian Development Bank (ADB) and Poverty in Asia and the Pacific: An Update, ADB, August 201. Living in poverty is defined as living on less than US$2 per day. 4 Asian Development Bank, ibid. 5 Asian Development Bank, ibid. 6 For example, China has used provinces to test different models of economic development (such as Zhejiang model vs. Jiangsu model) and different models of socio-economic development (such as Chongqing model vs. Guangdong model). Hong Kongs model of social welfare and lessons learned from Government Social Funds may be useful to inform wider Chinese policy thinking.

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governments with a ready supply of capital. Government priorities are therefore either to establish a social welfare net for the first time or to re-build existing systems in the face of a rapidly changing social context. In Asia governments want to stimulate innovation in order to tackle social issues at scale and in order to bring new talent and new thinking into the sector. Driving social (private) investment is usually a second order priority. The timing of this report is apposite. This study on Hong Kong Government Social Funds a select group of dedicated government funding programs responding to different social contexts presents in microcosm an Asian perspective on the responses of government and civil society to social welfare challenges. An assessment of whether this model is fit for purpose or in need of a re-think appears a useful contribution on two grounds: i. To help inform discussions about future policy-making and government spending aimed at stimulating social innovation. This is pertinent domestically, given the Hong Kong Governments re-established Commission on Poverty and in light of the launch of its new Social Innovation & Entrepreneurship Development Fund. But it is also relevant in the broader regional context given the debate now taking place in Asia about social or impact investment, venture philanthropy and the role of social enterprise, and the low levels of public awareness of the new models; To provide concrete recommendations for how best the public, private and NGO sectors can collaborate and pool resources more effectively to tackle the poverty and disadvantage now so prevalent not just in Hong Kong, but across larger swathes of Asia.

ii.

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Chapter 1 Hong Kong Social Welfare Context


With a population of just over seven million people, Hong Kong is a city of substantial wealth, most recently awash in cash due to a booming real-estate market.7 Over the last decade, the economy has grown by nearly 50% and although GDP grew by a relatively modest 1.5% in 2012, in 2012-13, the city-state generated a HK$64.9 billion8 surplus while maintaining one of the lowest tax rates in the world.9 With cash reserves of more than HK$734 billion, Hong Kong could fund itself for almost 2 years without generating any additional revenue.10 The flip side to this coin, or the shadows behind Hong Kongs wealth as a Senior Government Advisor recently described it11, is a stark and growing divide between the rich and the poor. Hong Kong boasts the eleventh highest Gini coefficient (a measurement of income disparity) in the world.12 1.2 million people, or one in six, are living below the national poverty line13 (one in three elderly) and the child poverty rate is now a shocking 26%.14 But although government spending on social welfare has increased as a percentage of GDP over the last decade15, Hong Kongs aggregate social spending compared to OECD countries is low. In 2007 the Hong Kong Government allocated approximately 30% of public spending to social welfare, housing and health, equating to approximately 5.7% of GDP. 16 This was in contrast to OECD average spending in 2007 of 19% of GDP. In 2011-12 according to published government budget figures, Hong Kong Government social spending had risen to 7.6% of GDP. This contrasts with an OECD average of 21.8% of GDP or, to cite a regional economy, a rate of18.6% of GDP in Japan.17 Social welfare spending across less developed Asia-Pacific economies is even lower than in Hong Kong average social spending as a percentage of GDP was only 5.2% in 2011, ranging from 6.4% in South Korea, to 4.6% in China and 1.9% in Indonesia.
Hong Kong borrowing costs are tied to US interest rates due to Hong Kongs currency peg to the US$. This, together with US Federal Reserves Quantitative Easing (QE) measures, lack of new property supply and an influx of Chinese buyers, has seen residential property prices double in the last 4 years and retail and office rates rise by 39% and 23% respectively in 2012. Data from Knight Frank HK Property Market & HK Office Market reports (2013).Hong Kong homes now cost on average 13.5 times the gross median household income below 3 on this scale is classified as affordable.
7

8
9

Hong Kong has only three taxes: Profits tax is capped at 16.5%, salary tax maximum is 15% and property tax is 15%. Data from Hong Kong Invest website, accessed June 2013. 10 Hong Kong GDP and financial data taken from HKSAR Government Treasury bureau, Financial Results of the Govt. of the HKSAR posted online 31 May 2013, accessed June 2013. 11 Dr Stephen Cheung, Keynote address, Rockefeller Foundation Impact Investing Conference, Hong Kong University, 14-15 March 2013. 12 Hong Kongs Gini coefficient was 0.537 in 2011. Data from Hong Kong 2011 Population Census thematic report (June 2012), Census and Statistics Department. Hong Kongs score is higher than Zambia, Brazil and Thailand according to the CIA World Fact book Gini Index data (online), accessed June 2013. 13 Hong Kong is due to adopt an official poverty line in 2013, but for the purpose of this report, we adopt the informal threshold adopted by the Hong Kong Council of Social Services which is monthly income of HK$3,600 or less for a one-person household. 14 Submission to the UN Committee on the Rights of the Child by Society for Community Organisation (SoCO), Hong Kong Human Rights Commission and Childrens Rights Association, January 2013. 15 Government social welfare spending increased from 14.3% of GDP in 1990 to 17.8% in 2009. Valentire Henrad, Income Inequality & Public Expenditure on social policy in Hong Kong (July 2011), Civic Exchange. 16 Valentire Henrad, ibid. 17 All OECD and non-Hong Kong figures quoted are drawn from the OECD database.

HK$7.8 = US$1

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However, the inadequacy of current spending, specifically by middle-income countries, was heavily criticized by the Asian Development Bank (ADB) in its July 2013 report, The Social Protection Index: Assessing results for Asia & the Pacific. The ADB blamed low spending, seen by some commentators as an Asian bias against government-provided social support in favour of traditional familial support systems, for the failure to protect the poor and disadvantaged across the region. Given its poor record, it is perhaps unsurprising that the Hong Kong government is criticized domestically for its low spending on social welfare and its failure to address increasing social inequality, and that public protest - from the growing popularity of the Occupy Central Movement to the recent dock worker strikes targeting a Hong Kong billionaire tycoon 18 is growing more strident. The Hong Kong Council of Social Services, an umbrella group representing hundreds of organisations in the social sector, sums up a common view: The government has a substantial amount of reserve, but has never adequately invested in social development, thereby sharing the fruits of economic growth with the people To reduce the gap between the rich and poor, and help the latter [get] employed and increase their income, the government should review taxation policy, increase its progressive element and redistributive effect so as to mitigate social conflicts resulting from [the] income gap.19 The Government, unwilling to consider adjusting tax rates or significantly increasing recurrent government spending, instead announces new one-off funding and policy measures to placate these views and demonstrate its apparent commitment to tackle great and increasing inequalities in the holding of wealth and address the fact that access to opportunity is getting marginalized. 20 Hence when Chief Executive CY Leungs Administration came to power in 2012, one of his first measures was to announce a new Government Social Fund of HK$500 million. The Fund was first entitled the Social Enterprises Development Fund and was designed to accelerate economic development and social mobility. However, within a year it had been renamed and repositioned as the Social Innovation and Entrepreneurship Development Fund and its focus was to tackle poverty with new social solutions on a budget of just HK$100 million per year.

The Occupy Central Movement promotes the discussion of the path to universal suffrage and will culminate, according to local media reporting, in a 10,000 strong civil disobedience campaign on 1 July 2014. Hong Kong dockworkers held a 40-day strike in April-May 2013 to demand an increase in pay. The strike was notable for its specific targeting of Hong Kong billionaire Li Ka-shing when workers set up camp outside his corporate headquarters in central Hong Kong. 19 Hong Kong Council of Social Services, Social Development Index 2012, Major Findings. 20 Dr Stephen Cheung, ibid.
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1.1

The Hong Kong Social Welfare Model

While Hong Kong is a generally affluent society, there are still many people who live a hand-to-mouth existence. We must recognize poverty as a real problem, understand the problems nature and formulate specific and feasible policy measures to alleviate it. Our aim is to help underprivileged people capable of working by offering them opportunities to become self-reliant and improve their livelihood. Public resources should be devoted to those who cannot provide for themselves. A welfare policy underpinned by heavy taxation is not a viable option, taking into account the economic structure and mode of social development in Hong Kong.
CY Leung, Chief Executive of Hong Kong SAR, Policy Address 2013 Guiding Principle

If the Bible of the Government is the annual policy address, as a senior NGO executive suggests21, the paragraphs above (emphasis mine) provide insight into the approach to social welfare policy and spending adopted by the Hong Kong SAR Governments newest Chief Executive, CY Leung. To understand this approach more fully, this chapter provides background analysis on the fiscal policy approach of this former British colony turned Chinese Special Administrative Region, and also describes recent developments in the social welfare policy arena. This wider context is important for the analysis in Chapter 3 of the role, strengths and limitations of Hong Kong Government Social Funds.

Fiscal Policy Approach


As Kester Tay states in his forward-looking 2009 paper From Financer to Enabler: Changing Governments role in NGOs as the way ahead for Social Welfare in Hong Kong22, Laissez-faire ideology accounts for Hong Kongs conservative public budget policy. The Basic Law states that the government shall follow the principle of keeping expenditure within the limits of revenues in drawing up its budget (Article 107), and must take the low tax policy previously pursued in Hong Kong as a reference (Article 108). Others categorize Hong Kong as a neo-liberal welfare state where public services are strictly means tested for the less fortunate and government only provides above minimum welfare if the social policy enhances economic growth.23

Interview with NGO Director 4 on 23 April 2013. Kester Tay, From Financer to Enabler: Changing Governments Role in NGOs as the Way Ahead for Social Welfare in Hong Kong (June 2009), Civic Exchange. 23 Chak-Kie Wong, Squaring the Welfare Circle in Hong Kong: Lessons for governance in Social Policy (2008), Asian Survey pp. 323-342
21 22

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Hong Kong Administrations since hand-over to China in 1997 have demonstrated a reluctance to increase recurring expenditure (i.e. expenditure that is required each year on a repeated rather than one-off basis). This is due not only to fiscal conservatism, but also a revenue regime that is structured to serve as a further break to restrict spending: Tax base is narrow. A limited range of taxes are relied on, namely profits and salaries tax, property-related tax and non-tax income mostly from land sales and investment earning these tax sources are easily influenced by economic conditions, adding stress during periods of downturn24 As a result, Hong Kong SAR Administrations have favored a fiscal approach of providing additional public funding on a one-off or non-recurring basis where possible usually from budgetary surpluses accrued at the end of the financial year rather than increasing their relatively low recurrent spending budget. They do this by creating funds, frequently in the areas of social welfare, health and education. Figure 1 and Table 2 on page 14 illustrate the breakdown of recurrent vs. non-recurrent Government spending on Social Welfare. As can be seen, Government spending on Social Funds is a small proportion of overall spending, due to the inclusion of financial assistance payments in the current spending total. However, the media headlines, political attention and management time dedicated to Social Funds and their increasing use by the Government as a social welfare funding model consider the HK$15 billion recently earmarked to the Community Care Fund make the model worthy of careful evaluation. The advantage of this funding model is that it appears to solve the issue of maintaining lower annual recurrent public expenditure.25 Ironically, however, the funds are not really a one-off expenditure: to date no Social Fund has been discontinued; instead all have been injected with additional funds. The result, as stated by two Government Social Fund managers, defeats the governments fiscal strategy: We are a kind of recurrent funding already as there is no time limit to our funding. In essence, the Social Funds are just politically expedient an instant measure that can fend off public criticism or buy-off certain discontented constituencies while maintaining Government budget targets. As a Senior NGO Executive said: Funds are a political response, not social policy they are not part of mainstream policy. They are candyCandies are good to eat, but they are not good for a daily diet Candies will never lift anyone out of poverty.26

Kester Tay, ibid. Interview with Government Social Fund Manager 3 on 13 May 2013. 26 Interview with NGO Director 6 on 30 May 2013.
24 25

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Figure 1: Government Social Welfare Expenditure 2011-12 (HK$ millions)*


Total Recurrent Spending

30000 25000 20000 15000 10000 5000 0 Social Welfare Dept Expenditure for Subvented NGOs Financial assistance payments Hire of services Departmental Non-recurrent expenditure Govt. Expenditure on Social Funds

Total Nonrecurrent spending

Table 2: Breakdown of Government Expenditure by type*

Budget item Recurrent Expenditure Social Welfare Dept. Expenditure for Subvented NGOs Financial assistance payments Hire of services Departmental expenditure Non-recurrent Expenditure Total Non-recurrent Govt. Expenditure on Social Funds

2011-12 expenditure (HK$ millions)

9,300 26,800 900 2,400

901

*Data compiled from Hong Kong Fact Sheets, Census & Statistics Department Social Welfare data and Social Welfare Department budget expenditure reports. See References section for details.

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The potential negative, perhaps unintended, consequences of a fiscal policy that relies on stand-alone funds to boost spending is significant. Firstly, these social funds risk being perceived as policy orphans, where they are not integrated into other aspects of social welfare policy and have no supporting policy architecture to ensure efficacy of delivery: [Using Funds] is a strategy of the government to avoid increasing recurrent budget knowing that needs in the community are growing and that current reserves [for social welfare] are insufficient[The funds] are set up with one purpose: to plug holes The government recognizes there are huge gaps in service and definitions in policy, but does not want to change. Given this framework, what kind of architecture is it? All of [the funds] require miracles. 27 Secondly, the funds risk being perceived as window-dressing and a chronic waste of public funds: Because of the strategy of establishing funds to avoid commitments to recurrent spending, these services are inconsistent, irregular, short-term and lower quality.28 Some in government recognize the need for a structural re-think: Hong Kongs poor ratings on the Social Development Index29 will never decrease unless we change the fundamental view of public finances.30 But others, advocates of the ultra-conservative fiscal agenda for which Hong Kong is famed31, perceive the new model as just another step towards reducing government spending: The government view is that the community, social sector and government should each be funding 1/3 of social services The aim is to get more private funding to grow this area.32 This is a line in part articulated in the Labour & Welfare Bureaus own 2013 Policy Initiative document (provided in support of the Chief Executives Policy Address): We must not rely solely on the Government for planning and provision of social welfare services. The key to success of various policies and measures lies in the close collaboration of the Government, the social welfare and business sectors and the community.33

Interview with Legislative Council Member 3 on 7 June 2013. Interview with Legislative Council Member 3 on 7 June 2013. 29 The Social Development Index (SDI) has been published annually by the Hong Kong Council of Social Services (HKCSS) since 2005. It tracks the pace of social development in Hong Kong across 14 development sectors (47 indicators) & 5 population groups (31 indicators). 30 Interview with Government Official 7 on 21 May 2013. 31 Economist Milton Friedman said If you want to see capitalism in action, go to Hong Kong. Quoted by Waldemar Ingdahl, Real Virtuality (March 2007), The American. 32 Interview with Government Official 8 on 30 May 2013. 33 Policy Initiatives of the Labour & Welfare Bureau, 2013 Policy Address (21January 2013) Legislative Council Panel on Welfare Services, LC Paper No. CB(2)496/12-13(01)
27 28

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Accountability to the public


Another important area of consideration for Government Social Funds is the approval and management mechanisms designed for their implementation and oversight. In contrast to recurrent budgetary spending which is closely monitored by the Legislative Council (LegCo), 34 Government Social Funds, once approved by LegCos Finance Committee, are then largely free from LegCo supervision. Some senior bureaucrats believe minimizing LegCos role is a pragmatic response to a dysfunctional form of government: Legislators dont make policy, they object to policy.35 However, many in the community feel that this lack of oversight sidelines LegCo and its role as a monitor and check on government policy. Others go further and question the potential for specifically larger Funds to be a constitutional bypassing of LegCoa backdoor to public policy with a concomitant moral hazard for [Fund] Committee members who are not publically accountable.36 The findings in Chapter 3 comment further on the issue of public accountability.

1.2

Recent Developments in Social Welfare policy

In Hong Kong, approximately 90% of social services are delivered not by the government but by non-governmental organizations (NGOs). 37 Hong Kong owes this relatively unique out-sourced social welfare delivery model in large part to its colonial legacy. In the 1980s and 1990s, the UK government, keen to ensure social welfare at relative low cost, relied in large part on out-sourcing social services to religious organizations and the voluntary sector. Over time, this approach grew into a symbiotic arrangement, where government funded services and the NGO sector designed and delivered them. NGOs on which the government relied most were given guaranteed funding, known as subventions, for the majority of their budget. Thus was born the unique Hong Kong nomenclature of subvented NGOs. The size, scale and budgetary guarantee for subvented NGOs meant that in effect they operated as a shadow or quasi-civil service: Its not the NGOs who rely on government, but the government who rely on the NGOs NGOs are like an executive arm of government.38 Posts were graded in much the same way that civil service posts were graded although many ancillary benefits (such as pension) did not transfer. The result was a developed but bureaucratic NGO sector that was relatively inflexible: The NGO sector [in Hong Kong] is one of the most mature in the worldwe function as a partner with governmentbut there is often conflict over money and what [services] to provide.39 By the mid-1990s, the government and NGO sector were questioning the efficacy of the subvention model, influenced in part by the tenets of New Public Management
LegCo is Hong Kong SARs miniature equivalent to the UK Parliament or US Congress. Interview with Government Official 1 on 8 January 2013. 36 Interview with Government Advisor 6 on 29 April 2013. 37 NGOs are non-profit legal entities, independent of any form of government. While in Hong Kong, subvented NGOs and many others really in (large) part on Government for their funding, they maintain their NGO status by excluding government representatives from membership in, or management of, the organization. 38 Interview with Government Social Fund Manager 4 on 13 May 2013. 39 Interview with NGO Director 6 on 30 May 2013.
34 35

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thinking of the time.40 When Hong Kong was handed over to China in June 1997, the subvention model was still in place. However, following the Asian Financial Crisis41, the government, fearful of ever-increasing social spending demands and suffering negative GDP growth, decided to reform it. After a period of review and consultation, the Government introduced a new voluntary model in January 2001, called the Lump Sum Grant Subvention System (LSGSS). This new model aimed to bring greater flexibility in financial management and to cap government spending. The Social Welfare Department provides the following explanatory commentary: With the introduction of the LSGSS, the Social Welfare Department no longer imposes rigid controls on NGOs staffing and salary structures or individual items of expenditure. Recurrent funding is granted to NGOs in a lump sum (thus the name Lump Sum Grant) and NGOs are given greater autonomy and flexibility to deploy resources and re-engineer their services to meet changing social needs.42 Significant controversy surrounded the launch. The reasons why are explained by a LegCo member: The Lump Sum reform was a huge change. It did not guarantee full budget, it broke pay scales and manpower establishment these were the standards by which we ensured quality of services.43 Due to the capping of funding, NGOs also felt it constrained innovation and their ability to roll out new, pilot schemes. As a result, the very basis of the relationship between government and the third sector, and amongst NGOs themselves, was deemed to have changed and a serious trust deficit emerged that exists today: We moved from partnership to contractor management. It encouraged competition among sector rather than collaboration.44 As of April 2013, 165 out of the current total of 171 subvented NGOs have joined the system, which has undergone further revision following an independent review in 2008.45 These organizations account for 99% of forecast government subvention in 2013-14.46 However tellingly, the percentage of NGO budgets that government funds represent has reduced significantly since the introduction of the new system: many medium and large NGOs state government funding now accounts for as little as 50% of their annual income, with private funding from donors, corporates or revenues from paid services
40 The basic tenet of New Public Management is that market-oriented management of the public sector will lead to greater cost-efficiency for governments without producing significant negative externalities or side-effects. 41 The Asian Financial Crisis (AFC) occurred from July 1997 to end 1998. It started in Thailand and spread to most South East Asian economies, specifically impacting Indonesia and South Korea. 42 Social Welfare Department website, accessed June 2013. 43 Interview with Legislative Council Member 3 on 7 June 2013. 44 Interview with NGO Director 4 on 23 April 2013. 45 In early 2008, the government appointed the Lump Sum Grant Independent Review Committee to assess the overall effectiveness of the scheme and to identify areas and scope for improvement. The final report Review Report on the Lump sum Grant Subvention system (December 2008) made 36 recommendations for improvement. 46 Figures from Hong Kong Social Welfare Department website, accessed July 2013.

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(i.e. services the NGOs provider to the public for a charge) accounting for the remainder. As a senior NGO executive explained: It did definitely cause organisations to do something, as they could rely less on the government, rather than more.47 Following the 2001 reforms, government began to rely more on non-recurrent spending in the form of Social Funds to boost spending at times of either political or economic crisis or when civil society mobilized, such as in 2003 when Hong Kong was hit by the Severe Acute Respiratory System (SARS) crisis and unemployment peaked at a record 8.6% and real estate prices dropped 60% from 1997 levels. Figure 2 on page 19 shows key economic events in Hong Kong and the launch dates of the various Government Social Funds. In November 2012, in response to growing discontent about the rich/poor divide and in a desire to demonstrate the Administrations priority and commitment to poverty alleviation work 48 , the Government announced the establishment of a second Commission on Poverty for a term of two years, December 2012 November 2014. Underpinned by 6 Task Forces49, its remit was to focus on analysis and review of policies and to make full use of the Community Care Fund to provide immediate relief to those in need and its new Fund, the Social Innovation & Entrepreneurship Development Fund, for longer-term poverty alleviation.

Interview with NGO Director 5 on 26 April 2013. Government Press Release (9 November 2012) from HKSAR Government website http://www.info.gov.hk/gia/general/201211/9/P201211090266.htm accessed June 2013. 49 The 6 Task Forces are: (1) Social Security & Retirement Protection Task Force; (2) Education, Employment & Training Task Force; (3) Societal Engagement Task Force; (4) Special Needs Task Force; (5) Community Care Fund Task Force; (6) Social Innovation & Entrepreneurship Development Fund Task Force.
47 48

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Figure 2: Timeline of key economic events and launch of Social Funds in Hong Kong

! June 1997: Handover of Hong Kong to China ! 1997-98: Asian Financial Crisis ! HK market and property plunge

! 2002: Launch of Community Inclusion & Investment Fund ! March-June 2003: China and HK hit by pneumonia-like SARS virus

! 2006: Launch of Enhancing Self Reliance Fund ! 2007 08: Global Financial Crisis ! 2008: Review of LSG Reform; recommends new funding

! 2012: New Commission on Poverty set up ! 2012: Social Innovation & Entrepreneurship Development Fund announced ! CC Fund augmented by HK$15 billion

Pre 2000

2000-01

2002-03

2004-05

2006-08

2010-11

2012

HONG KONG GOVERNMENT SOCIAL FUNDS | Fit for purpose or time for a re-think?

! 2001: Lump Sum Grant (LSG) reform for subvented NGOs ! 2001: Launch of 3Es Fund

! 2005 07: Commission on Poverty convened ! 2005: Launch of Partnership Fund for the Disadvantaged

! 2010: Launch of Social Welfare Development Fund (for ! 2011: Launch of Community Care Fund (CC Fund) with HK$5 billion

21

Chapter 2 Hong Kongs Social Fund landscape


I do realize there are many funds To me, its a good thing. The more funding and the more types of organizations we have, the more good to help the community Government Social Fund Manager50

Before analyzing the benefits and limitations of Hong Kongs 7 Government Social Funds, it is important to situate these Funds within the wider Hong Kong Social Fund landscape. In addition to Government Social Funds, Hong Kong boasts a range of other funds providing grants for social welfare projects. I refer to these as QuasiGovernment Funds and Non-Government Funds. I classify the Lotteries Fund as the one Quasi-Government Fund due to the fact that although the fund is administered by the Social Welfare Department, its income derives from public ticket receipts rather than government-generated revenue. I classify the Hong Kong Jockey Club Charity Fund and the Community Chest Fund as the two Non-Government Funds as they operate and generate income independently from government, although they seek to support government policy in awarding grants. It is worthwhile noting that there is a range of other Government funds operating in Hong Kong, ranging from education to environment to historical building preservation to technology. As their fundamental aim is not social welfare and poverty alleviation, they are excluded from this analysis. To understand this complex funding landscape, this chapter provides a brief overview, including financial summary and results to date, for social funds in each of the three categories mentioned above. As the overviews demonstrate, it is difficult to differentiate between the 7 different Government Social Funds their aims and objectives are so general that duplication and overlap is common. In addition to a narrative, this chapter includes three graphical representations of Fund spending. Table 3 and Figure 3 on page 27 and 28 provide a summary of the total budget announced/committed to each Government Social Fund and a comparative view of fund sizes. Comparing funds in this way helps show relative Government funding priorities. As can be seen, the Community Care Fund dwarfs all other Social Funds, representing some 88% of total Government Fund spending. Figure 4 on page 31 provides a comparison of the annual respective spending on Government, Quasi-Government and Non-Government Social Funds in 2011-12. This chart is useful to illustrate the limited annual expenditure of Government Funds in comparison to Non-Government Funds. In 2011-12, expenditure by Non-Government Funds totaled HK$1.9 billion more than double Government Social Fund spending which amounted to just over HK$900 million.

50

Interview with Government Social Fund Manager 2 on 18 April 2013.

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2.1

Government Social Funds


A. Social Welfare Development Fund (SWD Fund)

Established in 2010 as one of the recommendations from the Lump Sum Grant Independent Review Committee report of December 2008 and comprising an allocation of $1 billion over 9 years from the Lotteries Fund, the SWD Fund provides funding for the 171 subvented NGOs to carry out projects with the following scope: i. Training and professional development for NGO board members, management and staff; ii. Business system upgrades (including IT infrastructure, system design or reengineering, applications to improve NGO management capacity); iii. Studies to enhance NGO service delivery. Under the first phase of fund allocation (from 2010-2013), a total of $262.9 million had been committed to 150 NGOs to implement projects. A second phase of fund allocation will run from 2013 2016.

Established in 2001 under the Social Welfare Department, the 3Es Fund objective is to enhance employment opportunities for people with disabilities throughSmall a market-driven B. Enhancing Employment of People with Disabilities through approach and direct creation of more jobs: The objective is not just to create Enterprise Fund (3Es Fund) employment, but we wanted to provide disabled people with a platform for the open market.51 The Fund grants seed money to NGOs to create social businesses with a Established in 2001 under the Social Welfare Department, the 3Es Fund objective is to stipulation that 50% (lowered from an original target of 60%) of jobs created must enhance employment opportunities for people with disabilities through a marketemploy disabled workers. driven approach providing a first step back into full employment: The objective is not just to create employment we wanted to provide disabled people with a At launch, the Government committed to a fund of HK$54 million with no end-date platform to the open market.51 The Fund grants seed money to eligible NGOs for the given. A second cash injection of HK$100 million was committed in 2013. The fund creation of social businesses with a stipulation that 50% (lowered from an original ceiling for any single organization is HK$2 million (although most applicants receive target of 60%) of jobs created must employ disabled workers. funding less than $100 million according to government officials) over 3 years. Applications are approved by a small group of 2-3 advisors drawn from a larger At launch, the Government committed to a fund of HK$50 million with no end-date dedicated Advisory Committee supported by a departmental secretariat that given. Further cash injections of HK$4 million and HK$100 million were made in 2011 manages and monitors funding day-to-day. To promote and support businesses set up and 2013 respectively. The fund ceiling for any single organization is HK$2 million by the Fund, the Advisory Committee established Support the Employment of People (although most applicants receive funding less than HK$100,000 according to with Disabilities Ltd (SEPD Ltd) in 2002. government social fund managers) over a term of 3 years. Applications are approved by a small group of 2-3 advisors drawn from a larger Advisory Committee By the end of 2012 on the basis of grants totaling HK$54 million, the Fund had supported supported by a departmental secretariat that manages, and monitors day-to-day 76 projects which have started up 56 social enterprises and created 800 jobs overall, funding. To promote and support businesses set up by the Fund, the Advisory 580 of which are specifically for the mentally ill or physically disabled. It boasted a startCommittee created Support the Employment of People with Disabilities Ltd in 2002. up survival rate of 80%, with most businesses breaking even by the second year of government funding. The business nature of the majority of enterprises is cleaning By the end of 2012 on the basis of grants totaling HK$54 million, the Fund had services, catering and retail. supported 76 projects which had started up 56 social enterprises and created 800 jobs overall, 580 of which are specifically for the mentally ill or physically disabled. The Fund boasted a start-up survival rate of 80%, with many businesses breaking even by the second year of government funding. According to fund reporting, the business nature of the majority of enterprises is cleaning services, catering and retail.
51

Interview with Government Social Fund Manager 3 on 13 May 2013.

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Community Investment & Inclusion Fund (CII Fund) Established in 2002 under the Labour & Welfare Bureau, the CII Fund provides seed money to encourage social capital development in Hong Kong communities and build cross-sector collaborative projects and platforms through tripartite partnerships. It was Established 2002 under the Labour & Welfare the CII Fund Asian provides seed launched inin response to a dire economic situationBureau, following the1997-98 Financial money to encourage social capital development in Hong Kong communities and Crisis: Our focus was on impoverished districts the elderly, young families and working build cross-sector collaborative projects and platforms to through tripartite partnerships. parents, and kidswe wanted corporate involvement assist the community and to It was launched in response to a dire economic situation following the1997-98 Asian 52 be part of the community. Financial Crisis: Our focus was on impoverished districts the elderly, young families and working and committed kidswe wanted corporate involvement to assist At launch, the parents, Government to a fund of HK$300 million over 5 years, butthe the 52 community and to be part of the community. fund received a second cash injection of HK$200 million in 2013 for a period of 5 years. Applications are approved by an independent Advisory Committee, supported by a At launch, the secretariat Government committed to a monitors fund of HK$300 million over 5 years, but departmental that manages and the fund/fundees day-to-day, the fund received a second cash injection of HK$200 million in 2013 for a period of 5 and two sub-committees that advise the Committee on selection criteria, performance years. are approved an independent Advisory Committee, supported metricsApplications and methodologies. There by is no predetermined funding ceiling but the by a departmental secretariat, which manages and monitors the fund/fundees daymaximum funding period is over 3 years. to-day, and two sub-committees that advise the Committee on selection criteria, performance metrics andcriticism methodologies. There no to predetermined funding ceiling The Fund suffered intense in its early yearsis due a perceived ill-defined but the maximum funding period is 3 years. purpose and objective the concept of developing social capital was hard to communicate and not readily supported. As a result, the Fund has been exposed to The Fund suffered reviews intense than criticism in its Government early years sponsored due to perceived more independent any other fund: the ill-defined first purpose and objectives the concept of developing social capital was hard to evaluation was done by an independent research team comprised of members from 5 communicate. As a result, the Fund has been exposed to more reviews than any other local universities who reported in 2006; LegCo also asked for a detailed progress report Government Social Fund: the first evaluation done by anin independent research in 2006 and requested a sustainability analysis was of Fund projects 2007; The Audit team comprised of members from 5 local universities who reported in 2006; LegCo Commission conducted a review in May 2010; two independent reviews (by City also asked for of a detailed progress report in 2006 and requested a respectively) sustainability were analysis of University Hong Kong and Hong Kong Polytechnic University Fund projects in 2007; the Audit Commission conducted a review in May 2010; two completed in 2012. independent reviews by City University of Hong Kong and Hong Kong Polytechnic University in of 2012. However,were after completed several years operating and reviews that endorsed a positive social outcome to the Fund, the Fund seemed to have passed the test to be endorsed with As of 31 March 2012, the CII Fund had funded 251 projects in over 18 districts (but with additional funding in 2013. special focus on the poorest areas of Yuen Long, Tin Shui Wai and Sham Shui Po) to a budget HK$260 million, and had engaged 700,000 participants, volunteers, As of 31 of March 2012, the CII Fund had funded 251 projects in over 18 42,000 districts (but with supported 30,000 families, assisted 6,000 market mobilized special focus on the poorest areas of Yuenre-enter Long, Tinthe Shuilabour Wai and Sham and Shui Po) to a 6,700 collaborative partners comprising members from business, NGOs, academics, budget of HK$260 million, engaged 700 000 participants, 42 000 volunteers, supported residents associations district councils. The market top three target groups of the fund 30 000 families, assistedand 6 000 re-enter the labour and mobilized 6 700K relate to (i) family andcomprising child welfare, (ii) community capacity building and (iii) youth collaborative partners members from business, NGOs, academics, residents development. associations and district councils.1 The top three categories or target groups of the fund relate to (i) family and child welfare, (ii) community capacity building and (iii) youth A flagship project of the fund was to launch SC.Net in 2008. SC.Net, a membership development. community designed to facilitate knowledge sharing, expertise exchange and crosssector collaboration across districts sectors, aimed to magnify the impact of the A flagship project of the fund was toand launch SC.Net in 2008. SC.Net, an online platform fund and increase its social networking capability. Currently there are more than designed to facilitate networking across districts and sectors, aimed to magnify the 170 SC.Net from aincrease range of sectors including health, business, government and impact members of the fund and its social networking capability. Currently there are 150 the social sector. from a range of sectors. SC.Net members

C. Community Investment and Inclusion Fund (CII Fund)

52

Interview with Government Advisor 4 on 17 April 2013.

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Launched in 2005 under the Social Welfare Department, the fund aimed to D. Partnership for the Disadvantaged (PFD)sector, the business promote tripartiteFund partnership among the welfare community and the Government by providing one-off matching grants (up to HK$2 million) to donations made by corporates to support NGOs to run welfare Launched in 2005 under the Social Welfare Department, the PFD aim to promote projects for the disadvantaged. Although the matching funds were a driver to tripartite partnership among the welfare sector, the business community and the engage business, it is not just their cash we want, but their involvement [in the Government by providing one-off matching grants (up to HK$2 million) to donations 53 The organizations created were again seen as a means social by welfare sector]. made corporates to support NGOs to run welfare projects for the disadvantaged. to provide protected employment for the disadvantaged, providing them a Although the matching funds were a driver to engage business, it is not just their cash 53 The organizations first wanted, step to finding a job in the real job market. Under the subvention system, we but their involvement [in the social welfare sector]. 54 these would been workshops. created werehave again seensheltered as a means to provide protected employment for the
disadvantaged, providing them a first step to finding a job in the real job market. 54 Under subvention system, admit these would have been sheltered workshops. While the government officials that the scheme has worked more effectively While government admit that the scheme has worked more effectively large profile, effort has officials recently been made (following an independent review for of the NGOs with good relations with the Polytechnic big corporates due to their higher smaller profile, effort has Fund carried out by Hong Kong University) to attract NGOs recently been made (following an independent review of the Fund carried out by Hong to apply for funding, encouraging them to look for donor support from smaller Kong Polytechnic University) to attract smaller NGOs to apply for funding, encouraging community businesses who are more directly involved and impacted by local them to look for donor support from smaller community businesses who are more social issues. As of application 8 insocial February 2013, 60% of funding directly involved and impacted round by local issues. As nearly of application round 8 in 55 was allocated to non-subvented NGOs. 55 February 2013, nearly 60% of funding was allocated to non-subvented NGOs.

for large NGOs with good relations with the big corporates due to their higher

At launch, launch, the Government committed to a fund of HK$200 million over 5 years, At the Government committed to a fund of HK$200 million over 5 years, but the fund received a second injection of HK$200 million in million 2010. As with the other but the fund received a cash second cash injection of HK$200 in 2010. Funds, applications are approved by independent an independent Advisory Committee,chaired although in Applications are approved by an Advisory Committee, by this case it is chaired by the Director of Social Welfare, and supported by the Director of Social Welfare and supported by a departmental secretariat, a departmental secretariat for day-to-day operations. day-to-day. which manages and monitors the fund/fundees
56 on the basis of grants By February 2013 2013according according Legislative council papers 56, on , By February to to Legislative council papers the basis of grants totaling HK$247.1 million, fund implemented 573 welfare projects through totaling $247.1 million, thethe fund hadhad implemented 573 welfare projects through 141 141 NGOs and attracted attracted$255.8 HK$255.8 million of matching private capital from 917 business NGOs and million of matching private capital from 917 business partners. These projects benefited over 800 000 disadvantaged persons. partners. These projects benefited over 800 000 disadvantaged persons.

A flagship project for the PFD has been the joint funding of the Hong Kong Council of Social Services HSBC Bank Social Enterprise Business Centre, providing advice and support to social entrepreneurs and social enterprises.

Interview with Government Social Fund Manager 4 on 13 May 2013. ibid 55 ibid 56 Legislative Council Panel on Welfare Service, Implementation of Partnership Fund for the Disadvantaged, LC Paper No. CB(2)937/12-13(05) for discussion on 16 April 2013.
53 54

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E. Enhancing Self-Reliance through District Partnership Fund (ESR Fund) Launched in 2006 under the Home Affairs Bureau in response to an initiative from the Commission on Poverty (2005-2007), the ESR Fund aims to prevent and alleviate poverty by providing seed grants for eligible organizations (approved Launched in 2006 under the Home Affairs Bureau in response to an initiative from the charitable under section 88 theFund Inland Revenue Ordinance or nonCommissioninstitutions on Poverty (2005-2007), theof ESR aims to prevent and alleviate profits) set up social enterprises (SEs) that help provide job opportunities and poverty to by providing seed grants for eligible organizations (approved charitable self-reliance for socially disadvantaged groups.Ordinance or non-profits) to set up institutions under section 88 of the Inland Revenue
social enterprises (SEs) that help provide job opportunities and self-reliance for socially disadvantaged groups. Advisor summarized the focus as follows: ESR was one of A Senior Government

the major initiatives of the Commission on Poverty to use SEs as a solution to A Senior Government Advisor summarized theemployment focus as follows: ESR was one of the create employmentespecially long-term in deprived areas major initiatives of the Commission on Poverty the to use SEs as [of a solution to create The district element was very important and restriction applicants] to employmentespecially long-term employment in deprived areas The district NGOs was made out of concern of tunneling, where commercial moneyelement was very important and the restriction [of applicants] to NGOs was made losing companies would apply, effectively trying to get a form of government out of concern to avoid tunneling, whereby commercial money-losing companies 57 A key objective was therefore job creation: at that time, it was very subsidy. would apply, effectively trying to get a form of government subsidy.57 The reason job 58 difficult owners to hire disabled workers. creationgetting was a SME priority objective was because: at that time, it was very difficult At launch, the Government committed to a fund of HK$150 million over 5 years, but the fund received a second cash to injection millionover in 2011. Thebut At launch, the Government committed a fund of HK$150 HK$150 million 5 years, the fund a second cash HK$150 million in 2011. Like the 3Es Fund, fund hasreceived a short-term focus: theinjection fundingof ceiling for any single organization is the ESR Fund over has a focus: the are funding ceiling for single organization is HK$3 million 3 short-term years. Applications approved by any an independent HK$3 million over 3 years. Like the 3Es Fund, applications for the ESR manages Fund are Advisory Committee supported by a departmental secretariat, which approved by an Advisory Committee and supported by a departmental secretariat and monitors the fund/fundees day-to-day.
that manages and monitors day-to-day operations. getting SME owners to hire disabled workers.58

While the fund mimicked the earlier 3Es Fund run by the Social Welfare Bureau While true that the fund mimicked the earlier 3Es Fund run by the Social Welfare and is recognized to overlap significantly with that Fund overlapping is a Bureau and is recognized to overlap significantly with that Fund overlapping is a 59 by the end of 2012, the Fund had supported beauty notaa disadvantage 59 the beauty not disadvantage ESR Fund was on a larger scale. the start-up of 140 SEs, created 2300 jobs and an estimated 50% of enterprises are now surviving thespend third (and final year) of government seed funding. By the end of 2012 beyond on a grant of HK$150 million, the Fund had supported the
start-up of 140 SEs, creating 2300 jobs. An estimated 50% of enterprises are now surviving beyond the third (and final year) of government seed funding.

Interview with Government Advisor 1 on 12 April 2013. Interview with Government Official 2 on 18 April 2013. 59 Interview with Government Social Fund Manager 2 on 18 April 2013.
57 58

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F. Community Care Fund (CC Fund) Launchedin in2011as 2011asaatrust trustfund fundunder under the Secretary Home Affairs, the CC Launched the Secretary ofof Home Affairs, the CC Fund aims provide social social welfare assistance directly to people facing economic Fund to aimed to provide welfare assistance directly to people facing difficulties, particular in those falling those outside the social safety net orsafety socialnet security economicin difficulties, particular falling outside the social or system or with special circumstances not covered by the safety net already provided social security system or with special circumstances not covered by the safety by Government. The Fund was positioned The as a Fund complement, rather than a duplicate, net already provided by Government. was positioned as a of existing Government social security spending on the so-called Comprehensive complement, rather than duplication, of existing Government social security Social Security Assistance (CSSA). The fund is also able to take forward measures on a spending. The fund was also able to take forward measures or pilots that could pilot basis that may be considered for future incorporation into the Governments be considered for future incorporation into the Governments regular assistance regular assistance and service programs funded by annual Government spending. and service programs.
At launch, the Government committed to a fund of HK$5 billion (originally to be At launch, by thethe Government committed a fund of HK$5 billion (originally to be been matched commercial sector; to only HK$1.8 billion of donations have matched by the business community; only HK$1.8 billion of donations have been pledged to date and just over HK$1.2 billion collected), and the fund received two pledged to date), and the fund received a second commitment of HK$15 billion from additional injections: the(i) Government in 2013. The Fund isof overseen coordinated Steering an additional injection HK$1.5 and billion approved by by athe Financial Committee of 20 independent/non-official members appointed by the Chief to Committee of LegCo in July 2011 to fund a one-off allowance of HK$6,000 new arrivals from low-income to Hong Kong; Executive. The Steering Committee isfamilies supported by an executive committee (ii) further of commitment of HK$15 billion from the Government in 2013. as and four a sub-committees: Education, Home Affairs, Medical and Welfare, The Fund is overseen and coordinated by a Steering Committee of 20 independent/non-official members appointed by the Chief target Executive. The (from Steering As of June 2012, 17assistance programs covering diverse groups Committee is supported by an executive committee and four sub-committees: subsidizing low-income family school children, to monthly subsidies for lowEducation, Home Affairs, Medical and Welfare, as well as a secretariat administrated income elderly people to hire urgent service providers, to providing one-off by the Home Affairs Bureau.

well as a secretariat administrated by the Home Affairs Bureau.

subsidies for Comprehensive Social Security Assistance (the government welfare payment) recipients assist in rental payments) were launched, benefiting The Funds cash flow isto derived from interest payments gained from investment of the more than 300initial 000 people with an expenditure of HK$1,000 million. various Governments HK$5 billion committed capital (placed with theThe Hong Kong assistance programs under each of the Funds sub-committee six of Monetary Authority for sit a placement period of 6 years), together with areas, donations from the community (HK$1.2 billion), held in bank deposits to earn interest income which are administered by thealso Social Welfare Department.
before allocation/spending on assistance programmes. The fund is no stranger to controversy on launch it was criticized as a government cure-all for social problems that would overlap with other funds. Politically the driver for matching funds was seen as a panacea to get property developers to cough up some of their recent gains at a time when income disparity in Hong Kong was rising. Even those who welcomed it as a positive step responding to public demand for more comprehensive welfare services questioned why it was not integrated into recurrent government spending and raised concerns about inadequate oversight. Even the fund Chairman has said in media reports that there is potential for large-scale misspending given targets to spend HK$1 billion per year from 2014. As of June 2012, 17 assistance programs covering diverse target groups (from subsidizing low-income family school children, to monthly subsidies for low-income elderly people to hire urgent service providers, to providing one-off subsidies for CSSA recipients to assist in rental payments) were launched, benefiting more than 300 000 people with expenditure since launch approaching HK$1 billion. The various assistance programs, six of which are administrated by that Social Welfare Department, sit under each of the Funds sub-committee areas.
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The Fund is governed by a Task Force set up under the reinstated Commission of G. Social Innovation & Entrepreneurship Development fund (SIED Fund) Poverty which is considering both the role of the SIED Fund and the Community Care Fund: The Government has separated two issues: CC Fund for immediate Announced infill late 2012gaps; and the scheduled to launch in late 2013, the SIED Funds 60 issues and to service SIED Fund to develop future innovation.
objective is to support social entrepreneurship and innovative initiatives to help tackle social problems and build social capital. Its funding allocation comes from the Many are ambivalent as to whether this fund will really offer something new or Lotteries Fund and will comprise funding of $500 million over 5 years. It is sponsored by merely replicate existing is window dressing but it may plug holes to a Chief Secretary Carrie Lam funds: and its It Task Force is supported by the Efficiency Unit (EU), 61 remedy policy deficiencies in some sense. small central government team with a mandate to work across government.

The SIED Fund is governed by a Task Force set up under the reinstated Commission of Poverty (CoP). The CoP is considering both the role of the SIED Fund and the Community Care Fund (CC Fund): The Government has separated out two issues: Community Care Fund for immediate issues and to fill service gaps; the SIED Fund to develop future innovation. I think they can work in a parallel way.60 While fund allocation criteria are still under discussion, the Task Force has developed several early operating principles: The focus of the fund will be on fostering innovation to alleviate and prevent poverty not creating social enterprises per se; The scope of the fund should remain flexible to allow for learning; Risk assessment and data gathering measures are required; Criteria and uses of the fund should not overlap with existing funds; The fund will encourage cross-sector collaboration and leverage resources and expertise available in the community. The Task Force has also stated it will give priority to three areas of work: 1. Research: to better identify areas of needs and assess impacts 2. Capacity building: to build networks and establish schemes to promote and develop social innovation and social entrepreneurship 3. Innovative programs: to provide seed or scale-up funding to suitable organizations or projects that meet the funds objectives In contrast to previous funds, the Task Force is considering a much greater role for social intermediaries to administer, allocate and monitor funding on the basis that driving social innovation is best achieved outside of government where difference risk/reward scenarios can be adopted. The Task Force has said it wishes to identify a range of intermediaries with different approaches and is likely to impose two constraints 1. A ceiling on the amount awarded to any single intermediary; 2. A limit on the percentage of profits that may be shared in the event the intermediary is a not a Section 88 organization (i.e. not a registered nonprofit). Many are ambivalent as to whether this fund will really offer something new or merely replicate existing funds: It is window dressing but it may plug holes to remedy policy deficiencies in some sense.61

60 61

Interview with University Academic 3 on 17 April 2013. Interview with LegCo Member 3 on 7 June 2013.

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Table 3: Breakdown of Committed Spending per Government Social Fund*

Fund Name Social Welfare Development Fund (launched 2010) Enhancing Employment for People with Disabilities Fund (launched 2001)

Total Committed Funds (HK$ millions) Terms of commitment $1 billion committed over 9 years, 2010-2019 $50 million committed in 2001; further $4million committed in 2011; further $100 million committed in 2013 $300 million committed in 2002 ($100 million from Govt.; $200 million from Lotteries Fund); further $200 million committed in 2013 $200 million committed in 2005; further $200 million committed in May 2010** $150 million committed in 2006; further $150 million committed in 2011 $5 billion committed in 2010; further one-off $1.5 billion committed in 2011; further $15 billion committed in 2013**

1,000

154

Community Investment & Inclusion Fund (launched 2002) Partnership Fund for the Disadvantaged (launched 2005) Enhancing Self Reliance Fund (launched 2006)

500

400

300

F Community Care Fund (launched 2010) Social Innovation & Entrepreneurship Development Fund (scheduled to launch late 2013) TOTAL COMMITTED FUNDS 21,500

500 24,354

$500 million committed in 2012 for 5 years, 2013-18

*Data compiled from Legislative Council update reports, Legislative Council Questions & Legislative Council/Social Welfare Department/Home Affairs Bureau Press Releases on each Fund (see References section for further details) **PFD and CC Fund: Excludes matching of non-government donations/funding

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Figure 3: Comparison of total size of respective Government Social Funds*

2%

4.1%

0.6% 2% 1.6% 1.2%

Social Welfare Development Fund (for subvented NGOs; established 2010) Enhancing Employment for People with Disabilities Fund (launched 2001) Community Investment & Inclusion Fund (launched 2002) Partnership Fund for the Disadvantaged (launched 2005) Enhancing Self Reliance Fund (launched 2006)

88%
Community Care Fund (launched 2010)

Social Innovation & Entrepreneurship Development Fund (scheduled to launch 2013)

*Data compiled from Legislative Council update reports, Legislative Council Questions & Legislative Council/Social Welfare Department/Home Affairs Bureau Press Releases on each Fund (see References section for further details)

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2.2

Quasi-government Social Funds

Established in 1965, the Lotteries Fund finances social welfare services by grants, The Lotteries Fund loans and advances. Its revenue is derived mainly from the Hong Kong Mark Six Lottery (67%), but investment (28%),social proceeds from auctions of vehicle Established in 1965, the Lotteriesincome Fund finances welfare services by grants, loans registration marks andisdonations (2%) augment it. and advances. Its (3%) revenue derived mainly from the Hong Kong Mark Six Lottery
(67%), but investment income (28%), proceeds from auctions of vehicle registration marks Apart (3%) fromand subvented donations NGOs, (2%) augment various government it. The Chair departments of the Fund is (including a Social Welfare Department Director and Welfare) the Fund is administrated by the Social Welfare Department. Health, Housing, Social are granted allocations from the Fund. Grants Apart from subvented NGOs, government departments (including Health, out, renovations, purchase of various furniture and equipment for premises, repairs and Housing, Social Welfare) are granted allocations from the Fund. Grants approved are 62 maintenance...and to finance time-limited experimental projects. usually for non-recurrent commitments for construction, fitting-out, renovations, purchase of furniture and equipment for premises, repairs and maintenance...and to In 2012, its total revenue was HK$1,817 million and its total expenditure was finance time-limited experimental projects.62

approved are usually for non-recurrent commitments for construction, fitting-

HK$916 million. The fund balance has more than doubled since 2005.63 A 64: breakdown on its allocation by program areas is its as total follows In 2012, its total revenue was HK$1,817 million and expenditure was HK$916 Social Welfare Services
Family Child Welfare Elderly& Services Social Welfare Services Rehabilitation Elderly YoungServices People Rehabilitation Services for Offenders Young People Community Development Services for Offenders Community Development

million. The fund balance has more than doubled since 2005.63 A breakdown on its Family & Child areas Welfare allocation by program is as follows:64 3%

32%
3% 33.1% 32% 22.4% 33.1% 9% 22.4% 0.3% 9% 0.2% 0.3% 0.2%

LegCo online archive, Question LCQ1: Lotteries Fund, with reply, 21 April 2010. Figures from Lotteries Fund, Report of the Director of Audit (26 October 2012), Audit Commission, Hong Kong SAR. 64 Social Welfare Department website, Lotteries Fund information 2011-12 http://www.swd.gov.hk/en/index/site_ngo/page_lotteriesf/ accessed June 2013.
62 63

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2.3

Non-government Social Funds

A.Established The Hong Kong Club (HKJC) Charity in theJockey 1950s as a supplement toFund incomprehensive social welfare funding provided by government, the HKJC is now one of the largest provides or Established in the 1950s as a supplement to incomprehensive social welfare funding grants to social welfare organizations in Hong Kong and works in close concert provided by government, the HKJC Charity Fund is now one of the largest provider of with government policy initiatives we aim to be a complement to grants to social welfare organizations in Hong Kong and works 65 in close concert with government we dont want to be a second government attempting to government policy initiatives we aim to be a complement to government we dont 66 The provide not only emergency and needs, but future needs. 65 immediate want to be a second government attempting to provide not only emergency and Trust has donated an average of more than $1.2 billion every year over the last 66 immediate needs, but future needs. The Trust has donated an average of more than decade and focuses organizational capacity building, HK$1.2 billion every year on over the last decade and focuses on specifically organizational capacity infrastructure andinfrastructure hardware. and hardware, in the areas of healthcare, community building, specifically
social services, education and training and employment, sports and arts and recreation. The Charity Fund isnon-for-profit derived from organization surplus revenues generated by to the Hong Kong Jockey Jockey Club (a founded in 1884 manage racing Club (a non-for-profit organization founded in 1884 to manage racing activities in Hong activities in Hong Kong) and is managed by a Trust made up of the 12 Stewards Kong) and is managed by a Trust made up of the 12 Stewards of the HKJC. According of the HKJC. The Trust works with Government, charity groups and NGOs in the to the Funds annual report, in the financial year 2011/12, the Fund provided grants of areas of healthcare, community social services, education and training and HK$1.73 billion (a 6.6% increase over the previous year) to support 155 charitable and employment, sports and arts and recreation. community projects that impacted 5.4 million people in Hong Kong. The Trust has recently started to provide grants for a number of longer-term strategic projects to address issues In the financial year 2011/12, the Fund provided grants of $1.73 billion (a 6.6% such as ageing and youth development.

The Charity Fund is derived from surplus revenues generated by the Hong Kong

increase over the previous year) to support 155 charitable and

Established in 1968 as the Community Chest Ordinance, the Community Chest Fund was the first fund of its kind in Asia operating as a collective channel for fundraising to address social issues and fund local social welfare agencies. Its mission is to obtain Established 1968 as the Community Chest Ordinance, the Community Chest Fund donations in through appeals on behalf of member social welfare agencies and to act was first of fund its kind in allocate Asia operating as a collective channel for fundraising 67 It is an to as the trustee the of donors and funds raised prudently to our agencies. address social issues and fund local social welfare agencies. It is an independent nonindependent non-profit making organization neither funded nor operated by 67 but coprofit making organization neither funded nor operated by Government Government. ordinates with government policy. It operates as an umbrella organization, fundraising through appeals on behalf of member social welfare agencies. The top 5 donors Donations received in 2011-12 totaled HK$277.2 million and allocations amounted to are 68 It performs the role of Trustee for donors and mainly banks and property companies. HK$217.7 million, with HK$5.9 million set aside for the Community Chest Rainbow Fund allocates funds, under the supervision of an independent committee. (providing funding for emergency financial crises). The total cash and investments held

B. The Community Chest Fund

by the Chest equaled HK$1,321 million. Its administrative costs are subsidized by an According to the Funds annual report, donations received in 2011-12 totaled HK$277.2 annual grant from the Hong Kong Jockey Club and returns from fund investments. The million and allocations to over 140 social welfare organizations (i.e. its members) for 68 top 5 donors comprise mainly banks and property companies. community projects amounted to HK$217.7 million, with HK$5.9 million set aside for the Community Chest Rainbow Fund (providing funding for the poor facing emergency financial crises). Services supported include care of the elderly, family & child welfare, rehabilitation & after care, children and youth, medical and health, and community development. As of 2012, total cash and investments held by the Chest equaled HK$1,321 million. Administrative costs are subsidized by an annual grant from the Hong Kong Jockey Club and returns from fund investments.
Interview with Non-Govt. Social Fund Manager 1 on 26 April 2013 ibid 67 Community Chest site http://www.commchest.org/en/about/about_01.aspx accessed June 2013. 68 Top 5 donors 2012/13: HSBC, Sun Hung Kai Properties Group, Cheung Kong Group, SA SA International Holdings Ltd and Bank of China (Hong Kong). All figures are drawn from Community Chest Annual Reports 2011-12, 2012-13.
65 66

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1.1

HONG KONG GOVERNMENT SOCIAL FUNDS | Fit for purpose or time for a re-think?

Figure 4: Actual expenditure on Social Funds 2011-12 (HK$ millions)*

All values in HK$ millions

*Data compiled from Legislative Council update reports, Legislative Council Questions & Legislative Council/Social Welfare Department/Home Affairs Bureau Press Releases on each Fund (see References section for further details)

33

2.4

A Surfeit of Funds and multiple capital allocation strategies

This brief review highlights the complexity, profusion of funding sources and diversity of agendas operating in the Social Fund universe in Hong Kong. While the NonGovernment Funds may describe themselves as a complement to government spending and their mandates are in general supportive of government policy, the immense size of their annual budgets mean they nonetheless run the risk of overshadowing government initiatives and priorities. In addition, they may be considered a disincentive to private sector investment and the efforts of private donors or social investors both due to flood of capital they pump out each year and because of they do not tie capital allocation to any apparent performance or social impact criteria. This overshadowing is important because it raises a fundamental question about the Social Fund model, namely who is in fact driving annual social welfare priorities in Hong Kong? And further, on what basis are those priorities being decided? The point is not one that escapes those managing large Non-Government Funds as one such fund manager said: We want to make sure [our spending] aligns with government policy, however while we consult, we dont always listen.we have the flexibility [to try new things] we can do experiments and pilots but then ask government for longer-term funding69 When major community projects to modernize youth centers across Hong Kong are funded 50% by the Hong Kong Jockey Club and 50% by the Lotteries Fund, the answer to the question of who is setting priorities appears to be others aside from Government. Such a development may not be negative for the sector the HKJC and Community Chest have been operating social missions successfully for decades but it does bring a slightly uncomfortable discussion about what it is that Government is adding to the mix into the spotlight. And it highlights above all the need for careful and considered coordination and collaboration between Government and Non-Government Funds if public policy priorities and capital allocation strategies are to be maximized. The next chapter, a summary of the main findings from the interviews conducted for this study, throws more light on this issue as it considers in depth the strengths and weaknesses of the Hong Kong Government Social fund model and policy approach. Likewise the recommendations made suggest a way for Government to define and delineate its role and provide the leadership and direction much needed in the sector.

69

Interview with Non-Govt. Social Fund Manager 1 on 26 April 2013.

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Chapter 3 Analysis of findings about Government Social Funds


From the previous background and analysis, the complexities behind the Hong Kong Government Social Fund landscape have been touched upon: expedient political decision-making; short-term investment time-scales; a flood of capital and grants or subsidies, with little apparent strategic direction or clear social objectives; overlap and little or no co-ordination between operators and funders. This chapter discusses the strengths and weaknesses of the Government Social Fund model by presenting the findings of 38 interviews conducted across a range of policymakers, government administrators, fund managers/administrators, social workers, NGO executives and academics. The findings as to whether Hong Kongs Government Social Funds are fit for purpose identified three fundamental problems that reduced the impact of the Funds to deliver significant, long-term social value and solutions to poverty:

1. An absence of research and clear policies for direction of capital allocation, management and support of Fund objectives; 2. A funding system that distorted both the market sector and organizational development within the sector; 3. An approach that maintained responsiveness but reduced the innovation and failed to grow skills in the sector. Each of the three problem areas is analyzed in turn below, and accompanied by two recommendations for how the issue might be mitigated or avoided in future policy initiatives.

3.1 Absence of research & policy to direct capital allocation and support Fund objectives
While sector players and Government advisors said that the Government recognised society and social needs were changing, all agreed that Government was failing to adapt to these changes, tackle issues and meet societys most critical and long-term needs.

A. Lack of policy to direct capital allocation


The primary deficit was seen as a lack of research, base lining and needs analysis in which to ground policy initiatives in relation to Government Social Funds. This deficit resulted in an absence of policy direction for the Funds, a failure to articulate specific social welfare objectives or targets and a failure to embrace change. The failure to do its homework or due-diligence in research was most often blamed on political expediency, where Funds were announced reactively to placate community groups or garner political capital, and once announced, there was no retroactive research
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conducted to define the need or base-line the social area to be tackled. Instead it was left for the sector to work out. As a result, Funds became tactical quick-start 70 mechanisms with little strategic coherence and less focus, as the range of community views evidence below: The money [for Government Social Funds] is not important, policy is Government [Ministers] only create the idea for a fund and then start funding Government should provide more direction, not stand aside and leave others to deliver Before setting up a fund, you need guidelines to ensure benefits.71 Its nice to have additional funding for communities, but social problems cant be solved just by additional funding. We need better planning, better synergy among partners and a vision The argument from the government [in the early 2000s] was that planning was not working as society had changed a lot, so now they dont bother doing it hence the preference for what is called innovation72 The government does not co-ordinate [the role and priorities] of different departments such as education, health, the hospital authority, and the environment; they do not conduct needs analysis across the board.73 The Government should define needs and gaps, and gaps should be funded out of recurrent spending.74 The difficulty of social innovation is that you need to understand thoroughly how people react to interventions you need a contextual understanding of existing models, gaps, failures, new models Innovation does not start with a crazy idea but classifying models to understand client needs first and the market sector.75 The result is a dissatisfaction in the community concerning this ad hoc allocation of funding and short-termism that fails to address Hong Kongs serious poverty trap: [Funds] are all allocated in a very ad hoc mannerthere is no sense of direction They are a one-off; there is no commitment to the longer term.76 [The current funding model] creates NGOs which are donor-oriented and project focused rather than beneficiary focused The key issue is the effective allocation of funds. It can only be done to a certain degree at the unit level [i.e. directly funding small service delivery organisations].77

Interview with NGO Director 2 on 25 March 2013. Interview with Legislative Council Member 1 on 23 May 2013. 72 Interview with Policy Think Tank Director 1 of 29 April 2013. 73 Interview with NGO Director 1 on 20 February 2013. 74 Interview with Government Official 4 on 13 May 2013. 75 Interview with Government Advisor 6 on 29 April 2013. 76 Interview with Government Advisor 6 on 29 April 2013. 77 Interview with NGO Director 3 on 28 March 2013.
70 71

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B. Inadequate fund management process


In addition to a perceived lack of clearly articulated policy direction, several sector representatives highlighted the shortcomings in the fund management process. The primary concern related to the appointment of the independent Advisory Committees that oversee each fund - not only were appointments seen as lacking in transparency but also questioned in terms of suitability. As the views below illustrate, both those in government and those outside recognized the lack of credibility this caused: Compare the members and the [social welfare] expertise of the Commission on Poverty against the Financial Service Development Council, with all its top [financial] experts. Are any of [the members of the Commission] real social experts? When it comes to social issues, [the committees] are not directed by experts in the [social welfare] area. Why not? To dilute the potential power of the committee by this kind of appointment process, [the government] gets what they want while looking independent.78 Committee positions are payback in exchange for political support [committees] are dominated by business people the real power lies with the bureaucrats [i.e. the departmental secretariat which supports the committee] because the committee depends on them to provide information and screen applications.79 A small minority of community representatives were more sanguine, perceiving independence from LegCo oversight as having a positive benefit of de-politicising funding decisions and operations: Having independence from LegCo [after initial approval of funds] means that funds may in fact be less political and can operate independently and more flexibly.80 Going forward, the Government should consider the mechanisms for appointing Advisory Committee members and seek to bring more transparency to this process. In addition, it should ensure that in-depth social development and service delivery expertise is built into the committee. Both measures will give Fund Advisory Committees more credibility with stakeholders and the public, but even more importantly should help ensure the social strategy developed by the Committee delivers greater impact and results.

C. Lack of supporting policy architecture


Finally, beyond the Funds themselves, there was strong criticism that Government did not provide supportive policy architecture around the Social Funds, thus enabling more effective delivery and ensuring longer-term sustainability of their objectives. As a result, Funds became policy orphans, that is to say they were neither integrated into the existing social welfare policy frameworks nor supported by ancillary policy measures (e.g. tax, procurement, legal regulations) necessary to ensure their success.

Interview with Government Official 4 on 13 May 2013. Interview Legislative Council Member 3 on 7 June 2013. 80 Interview with University Academic 2 on 17 April 2013.
78 79

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The following views suggest that this lack of supporting policy architecture was seen as one of the determining factors for the lack of social impact and value delivered by the Governments Social Funds: The money is not important; policy is [important] policy for social enterprises, such as bidding support [for government contracts], tax relief, market protection mechanisms.81 The policy to support these enterprises is not there There are no provisions to lessen their costs, for example a reduced corporate tax rate [for SEs] The ordinance for co-operatives dates back to the 1950s when it catered for agricultural cooperatives not urban enterprises The Law Reform committee proposal on a Charity Commission has not been finalized82 To me, the money is important but the policy is more important Will the Government treat [the creation of] social enterprises as an important policy to solve unemployment issues? If so, it needs to consider its outsourcing and procurement strategy to support SEs. For example, the Housing Department maintains 1.4m units. After 5 years, they need repair. Currently, [the Government] gives all contracts to the private sector due to the size of the contractinstead [the Government] should give big companies 50%, SMEs 30% and SEs 20%.83 The community also believed that the Government had a role to play in field-building or encouraging and growing the market for social enterprise products and services. While the launch of various Social Funds such as the 3Es Fund and the ESR Fund had looked to fulfill this role, the failure of government to develop wider market and societal support was perceived as a major weakness: Now it is largely down to mother organizations [i.e. NGOs] to provide support when government funding dries up. The public and open market need to know about and support SEs, they need to buy [their] products and services to create continuing revenue streams The Government has more work to do in this area social enterprises have huge room to grow.84 The jury is still out on the yet-to-be-launched Social Innovation & Entrepreneurship Development Fund and whether it will take a different approach. Some are pessimistic, all the more so because the Fund is not affiliated with any policy-making departments: Its very hard to find a government department to match social innovation and very difficult to find a matching policy bureau.85 If no policies follow the main policy [to launch the fund], it wont drive change To maintain the [social enterprise] model, the Government needs to help provide them [social enterprises] with a market.86

Interview with Legislative Council Member 1 on 23 May 2013. Interview with Legislative Council Member 3 on 7 June 2012. 83 Interview with Legislative Council Member 2 on 5 June 2013. 84 Interview with Government Social Fund Manager 2 on 18 April 2013. 85 Interview with Government Advisor 1 on 12 April 2013. 86 Interview with Legislative Council Member 2 on 5 June 2013.
81 82

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But others see potential in both the preparatory work conducted by the Funds Task Force and Secretariat, including the high level of engagement with sector stakeholders (further evidenced by the recently published market-sounding exercise). Furthermore, they see a virtue in the fact the SIED Fund Secretariat is independent of the Home Affairs and Social Welfare Departments. The views below are instructive: It may be more effective moving it out of a given policy department in order to avoid the silo effect and have all departments support the Fund87 Now policy [for the SIED Fund] is trying to be formulated actively. This is very new. To support intermediaries is very liberal.88

87 88

Interview with University Academic 3 on 17 April 2013. Interview with University Academic 4 on 17 April 2013.

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Best Practice Example of Recommendation 1

Inspiring Scotland
Inspiring Scotland is an outcome focused venture philanthropy organization that operates in Scotland in the United Kingdom. It has developed a new model of engaged philanthropy or venture philanthropy an approach to charitable giving that applies venture capital principles, such as long-term financial investment and tailored non-financial organizational development support, to the social sector. Inspiring Scotland receives a significant proportion of funds from the Scottish Government, with some of its Funds entirely comprised of public money. Inspiring Scotlands Five Stage Model starts with two critical phases that serve as a best practice approach that the Hong Kong Govt. should consider adopting for its Funds: Phase 1: Research & Development (R&D) Each new initiative i.e. fund undertakes high quality research into areas of social need in order to identify cause, scale and implications of important issues. In addition, it establishes the current work being undertaken in the field (base-lining), and identifies any existing funding or investment streams. Finally, the research guides on areas into which funding might best be deployed over 5-10 years. Phase 2: Solution Generation & Assessment The report above is shared with social sector organisations, which are invited to put forward proposals on how, individually or collectively, they might tackle gaps identified by the R&D. This empowers the community while allowing the Government to direct focus and engineer enhanced collaboration and pool resources. An important aspect of Inspiring Scotlands success has also been the role that nonfinancial support plays. This is covered in Recommendations: Part III.

D.

Recommendations: Part I

From the findings relating to Problem Area One a lack of issue-based research and base-lining, weak policy direction with little or no integration into existing policy frameworks or creation of a supporting policy architecture the recommendations are as follows: 1. The Government should require that a Needs Assessment is performed for each Social Fund it operates, before launch of any new fund and retrospectively for existing funds. The needs assessment should: (i) Analyze gaps and articulate the target social group or issue to be addressed (e.g. support to the elderly in their home; social inclusion and education for 14 to 19 years olds from disadvantaged backgrounds); (ii) Bench-mark the current situation of service provision and funding by conducting a wider review of the related sector, including an appraisal of current available funding or investment; (iii) Articulate a clearly measurable outcome for the social group or target area that is the desired result of the policy and funding. Clear metrics and targets should be defined from the outset. All organisations applying for funding should have to show how they will measure their impact against these metrics. Ongoing funding should then be tied to performance against the stated targets. Such an exercise will serve to clarify the social policy area, aim and targets of each Fund. It will establish a clear policy priority against which to direct capital and measure performance, and ensure that more challenging social issues are tackled rather than just quick wins.89

89 Similar market analysis exercises are already performed by higher-performing NGOs and social enterprises operating in Hong Kong. NGO Director 4 in an interview on 23 April 2013 explained: When we wish to provide services in new markets we try out a market and if we find it is saturated, we will leave the market we are responsive to market supply and try not to overlap [with other service providers].

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Best Practice Example of Recommendation 2

UK Government Social Investment Initiatives


The UK Government, coordinated by the Cabinet Office, has implemented policy initiatives government-wide in order to provide a coherent and supportive policy architecture around its strategy to build a social investment market. Initiatives fall into three core categories: increasing the supply of finance for social investment; stimulating and supporting demand for social investment; and improving the legal, tax and regulatory environment for social investment/enterprise. Components of this wider policy framework include: - The Red Tape Challenge: A systematic review of barriers to social investment that seeks to (i) reduce inconsistencies and omissions in the existing legal and regulatory framework; (ii) develop policy option for new legislation required; (iii) get rid of unnecessary regulation. - Review of financial barriers to social enterprise: Announced in the 2012 Budget, HM Treasury is currently undertaking an internal review of the financial barriers to social enterprise. - Revisions to Community Interest Tax Relief (CITR): A scheme to encourage investment in disadvantaged communities by giving tax relief to investors who back businesses/social enterprises in such areas. - Investment Readiness Programme: An initiative to build the investment pipeline by providing a ladder of support for social entrepreneurs from start-up through to investment and growth. It includes the Investment and Contract Readiness Fund and Social Incubator Fund. The latter is a 3year, 10m fund established to build a strong pipeline of social ventures equipped to secure new forms of investment or compete for public service contracts.

2. The Government should develop a coherent set of policy initiatives and a supportive policy framework to address regulatory and market issues at the conception stage of any new Social Fund. This is likely to include players in Financial Services & Treasury, Justice, Inland Revenue as well as direct delivery departments such as Education and Social Welfare. By establishing a cross-government policy architecture, the Funds outcomes will be more sustainable, long-term and of higher impact. To achieve this goal, the Government may wish to consider establishing a dedicated team, such as the Australian Social Innovation Office, which brings together policy-makers and experts from across government departments and thus overcomes the departmental silo effect. They could in effect take responsibility for the future design and management of all Government Social Funds. Critical to this aspect of policy is how the government can support market-building activities that will sustain the organisations/enterprises to which it provides seed capital. Government procurement contracts are an avenue that the UK has seized on to drive the market. The Public Services (Social Value Act) 2012 and Rights to Provide regulatory reform are models to consider, as well as those programmes listed in the Best Practice example on the left.

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3.2 Distortion of Market Sector and Organizational Development


The biggest factor is how difficult it is to give away money well to achieve real impact on major social issues, or even on individual lives, is both an art and a science, and it does not come easily.
Peter Karoff, Founder of The Philanthropic Initiative

One of the problems Hong Kong has compared to other governments is that we have too much money.
HKSAR Government Official 90

Sector players felt that the proliferation of short-term capital what was often referred to as easy money, soft money or subsidy had produced significant market distortions. The primary distortion was considered to be in the models of organizational development, relating most specifically to social enterprises but also in the size/scale of NGOs. The secondary market distortion was considered to be the relative lack of diversity in the supply side i.e. limited funding and resources provided by business, individuals or private funds / foundations.

A. Distortion of organisational development Social Enterprise development


Whilst elsewhere around the globe, social enterprises are defined as organisations with a social mission, which apply market-based strategies to achieve a social purpose, Hong Kong did not in general follow this model. 91 A prominent finding among community representatives was the view that the Governments Social Funds, by sponsoring a model of social enterprise that focused on job creation and training, had distorted the definition and function of the majority of local social enterprises. A secondary finding was that key stakeholders were unconvinced that a market-based approach was in fact the right model to adopt in Hong Kongs social welfare sector. The primary distortion of the social enterprise organizational model in Hong Kong was that the majority of social enterprises have become synonymous with subsidized sheltered job creation schemes. The following views illustrate this finding: The social enterprises created by the ESR Fund were a kind of NGO tuition it produced 300 social enterprises which are mostly on the welfare end I call them welfare enterprises most of them are still applying social work processes The only KPIs [key performance indicators] they apply relate to the

Interview with Government Official 1 on 10 June 2013. Some small social enterprises funded privately by venture philanthropy organisations such as Social Venture Hong Kong (SVhk) and SOW Asia do adhere to standard definitions of social enterprise.
90 91

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number of jobs they create in business, no company is successful merely by hiring more people.92 The majority [of social enterprises] have a non-profit origin with a social mission.93 I lobbied the Home Affairs Bureau to broaden their working definition [of social enterprises] and include non NGOs, to overcome the impression that social enterprise was only related to poverty and an NGO model of support.94 The main purpose [of social enterprises] is not making money but for training over 90% are run by social workers so they treat the operation as a project not a business.95 Statistics provided by a recent market survey conducted by the HKCSS-HSBC Social Enterprise Business Centre illustrate the skew that has resulted from specifically the 3Es and ESR Funds. According to the survey96, 71% of social enterprises in Hong Kong say their social objective is job creation for the disadvantaged and 69% vocational training for the disadvantaged. 50% say that their capital source is Government with only 2% stating private fundraising. And perhaps most notably, only 36 social enterprises less than 8% of the organisations polled answered the question relating to distribution of profit and only 1organisation among this group said it intended to distribute dividends to shareholders or to profit-share with staff. It is perhaps no surprise given the prevalence of the distorted model in Hong Kong that it is in fact a model favoured by both Government and Non-Government Fund managers. This secondary finding, that key stakeholders were unconvinced that a market-based approach was in fact the right model to adopt, was explained by representatives from both these groups as follows: We need to look at social enterprise very carefully revenue generated by [social welfare] services should go back into services we have to be careful where the profit goes if it is a profit-making organization, you cant control it or know where the money goes.97 Im saying that when using government moneypublic money its very difficult to control if it goes into private pockets.98 In addition, these fund managers were sensitive to claims of local small and medium enterprises (SMEs) that the ESR Fund and its equivalents where an unfair subsidy to businesses aiming to compete in the open marketplace.

Interview with Government Advisor 3 on 26 March 2013. Interview with Government Official 2 on 18 April 2013. 94 Interview with NGO Director 5 on 26 April 2013. 95 Interview with Legislative Council Member 2 on 5 June 2013. 96 Power of Good: Hong Kong Social Enterprise Landscape Study 2012-13, HKCSS-HSBC Social Enterprise Business Centre, published June 2013. The study surveyed over 400 social enterprises currently operating in Hong Kong. 97 Interview with Non-Government Social Fund Manager 1 on 26 April 2013. 98 Interview with Government Advisor 3 on 26 March 2013.
92 93

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Other Government Advisors also favoured the current distorted model, but for other reasons. They argue that the creation of unintended positive externalities i.e. benefits external to the enterprises themselves, more than justified the current approach to social enterprises. They believed the model created significant additional social value and impact in terms of community integration, social capital, disability awareness and social sector learning. As explained by a Senior Advisor: The value created by the projects which Government [Social Funds] support is very good, definitely much higher than those run by private companies. Yet this is just the opposite of many prevailing views [in Hong Kong].99 Academic and industry literature supports the case that measuring value beyond the organizational unit is a more effective way to measure and evaluate social enterprises. Adam Grant in HBR Review highlights the wider beneficial social value: Organizations have a strong interest in fostering giving behavior. A willingness to help others achieve their goals lies at the heart of effective collaboration, innovation, quality improvement, and service excellence. In workplaces where such behavior becomes the norm, the benefits multiply quickly.100 Likewise major US impact investor Omidyar Network in its recent publication Priming the Pump: The Case for a Sector Based Approach to Impact Investing advocates taking a broader approach to social market development by suggesting the adoption of a sector-based approach. They argue that not only does this facilitate early field-building but it also provides a more holistic way to account for the total value creation of the firm, including sector value creation is well as the firms direct social impact and financial returns.101 The findings in this area thus revealed not only a lack of clarity of the role, function and value of social enterprise in the Hong Kong social welfare sector, but also a critical ambivalence by both Government Social Fund managers and Non-Government Fund managers as to whether a market-based approach is really welcome in the Social Fund landscape. A senior academic and LegCo members commentary on the workings of the capitalistic system in Hong Kong, and the threat that this kind of hard-edged market-driven approach might pose to social welfare enterprises targeting the most disadvantaged, perhaps provides insight into their ambivalence: When talking about social enterprises [in Hong Kong], Its not about running a business they are operating in an environment that is different and somewhat protected from the main market. In Hong Kong, you have a form of capitalism that is ruthless, with no protections For social enterprises to survive they need some sort of protection It is not about lack of skills [to run a business] but the lack of environment for social enterprises to survive in the Hong Kong market so to operate on a larger scale will be impossible the market will never allow it.102

Interview with Government Advisor 5 on 24 April 2013 by email. Adam Grant, In the Company of Givers and Takers, April 2013, HBR Review (online). 101 Omidyar Network argue that field-building is more successful by simultaneously funding early-stage ventures, organisations that can scale and infrastructure providers in a given sector, as this process captures all positive external value created in that sector as a whole. Matt Bannick & Paula Goldman, Priming the Pump (2013), Omidyar Network. 102 Interview with Legislative Council Member 3 on 7 June 2013.
99 100

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If the Government hopes to encourage the adoption of market-driven approaches to solve critical social issues, as articulated as part of its aim for the new Social Innovation & Entrepreneurship Development Fund, it will therefore need to help address some of these structural issues (by, for example, helping to foster the development of a supportive market ecosystem and infrastructure), as well as to encourage more experimentation with capital allocation approaches that do not overly focus on financial return at the expense of social return. An open-minded Government Advisor may provide a useful pointer: Solving social issues using public money to generate profit to distribute to investors there will be some skepticism to this approach But as long as [the funding] is not a grant, and is a kind of low-interest loan, the matter is an issue of fair market competition.103

NGO and market development


Across the sector, various NGO executives voiced concern regarding the parallel distortion that the Social Funds had on NGO development and organizational models. Some feared that NGOs who pursued funding to establish social enterprises often did it without thinking about how to integrate the SE into the NGOs social mission. Failure to do so resulted in the SE becoming mission divorced i.e. set up to generate income for an NGO but not serving the mission of the NGO. An example, as explained by a NGO Director, is salutary: A medium or large NGO serves beneficiary X. They [the NGO] apply [to a Fund] to set up a social enterprise. The social enterprise then provides services, for example catering or wine tasking, to serve beneficiary YThis grows into a self-financing operation divorced from the social mission of the NGO parent a run-away machine a self-sustainable service unit rather than an integrated part of the NGOs mission This version of social enterprise produces a cash cow not a real social enterprise.104 Others believed the proliferation of short-term, project-based funding promoted an unhelpful market fragmentation, producing multiple organisations with the same purpose, wasteful expenditure on overheads and administration, and inefficient, smallscale service delivery. The following views are emblematic: There are too many hundreds of small NGOs [in Hong Kong] they are not effective or sustainable They make fundraising very competitive with hundreds of organisations asking for money and confusing for donors.105 Mega NGOs are like a big brother and then there are a lot of tiny babies There should be some consolidation between small organisations from the grass roots and businesses with scale.106

Interview with Government Advisor 6 on 29 April 2013. Interview with NGO Director 3 on 26 March 2013. 105 Interview with NGO Director 6 on 30 May 2013. 106 Interview with NGO Director 3, ibid.
103 104

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B. Lack of diversity in capital supply and funding mechanisms


Perhaps excited by studies in the West highlighting the immense potential of impact or social investing and its ability to attract large pools of capital into the social welfare sector 107 , in addition to their own desire to cap welfare spending, Hong Kong Government officials are keen to attract a greater scope and scale of private capital into the domestic social sector whether from Family Foundations, Corporate Foundations, small private impact investment funds or commercial entities. However, the findings revealed that attracting significant private capital to the social sector was still in relative infancy in Hong Kong and more broadly Asia. A senior government official with a background in the private sector summarized a common view in the sector: The time has not yet come in Asia [for major private capital flows to target social issues]There is not enough old money aroundCorporates confuse Corporate Social Responsibility with impact investing There is not a welldeveloped market of fund providers to channel this kind of [funding] activity... Government wants to encourage it, but in my experience in private equity, the least successful funds were those in which government was involved.108 Others believed that with the current confused funding landscape, private capital was put off and had too much competition for deals, with Government and NonGovernment Social Funds offering terms that were easier for non-profits and social enterprises to deliver against: Why would NGOs bother to find private funding when they can realize much more easy money from [Social Funds]?109 Others, meanwhile, did not believe that private capital could meet the scale and social funding requirement to address systemic social issues: Private capital is insufficient to address these problems The issue is one of funding scale and strategic timescales Funding must be long-term, recurrent government spending. Foundations are small, with unpooled capital that help only singular organisations.110 However, despite the acknowledged more limited scale of private funding and Corporate Social Responsibility budgets currently sponsoring social initiatives in Hong Kong, the sector does value the diversity of capital and alternative funding models that these actors bring. Indeed, many senior NGO executives had set internal targets to expand private/commercial funding by over 20% in the next couple of years. This was driven first and foremost by a desire to reduce the risk of relying so strongly on Government:

107 J. P. Morgan, in its report Impact Investments: Am emerging asset class, (November 2010) estimated that the impact investment market has the potential to absorb between US$400 billion and US$1trillion over the next decade. 108 Interview with Government Official 7 on 21 May 2013. 109 Interview with Legislative Council Member 3 on 7 June 2013. 110 Interview with Government Official 4 on 13 May 2013.

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It is a huge risk to us if we do not develop [other capital sources] We need to work better with Philanthropists and Foundations to network and develop relationships so that they can appreciate the diversity of our services...111 A secondary motivation was a widely held perception that private funding had greater flexibility and allowed more innovation: Private philanthropy is often more willing [to take risks] and more flexible due to a different kind of relationship.112 The key criteria for corporate funders are different they consider sustainability from the start, the assessment of the targeted service gap, performance targets and branding or media coverage We benefit from their pace of work and focus on effectiveness and efficiency Non-government [private] funding allows more innovation.113

Interview with NGO Director 5 on 26 April 2013. Interview with NGO Director 5 on 26 April 2013. 113 Interview with NGO Director 4 on 23 April 2013.
111 112

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Best Practice Example of Recommendation 3

C.

Recommendations: Part II

A local model: ADM Capital Foundation


In 2006 the partners of ADM Capital established the ADM Capital Foundation to fund and provide strategic support to innovative non-profits promoting equity and environmental conservation in Asia. For ADMCF, strategic support means working closely with an organization to build a sustainable, ideally replicable, growth model, rather than funding short-term projects. After working with the community to gain a clear understanding of needs, ADMCF identifies partners that it believes will benefit from a longterm strategic relationship, with capacity to absorb capital and build a sustainable, high impact model. ADMCF consider s its grants to be an investment with a social, rather than a financial, return, and carry out the same kind of due diligence and risk assessment on investments as would be expected for an investment with an economic return. ADMCF also provides hands-on expertise, in the form of financial and organizational management support, and more recently, technological support in the form of open source platforms. In addition, ADMCFs model centers around building alliances not only between investors and the community initiatives, but also building a wider network for the organisations that it funds. This network includes other non-profits, government departments and universities. These relationships ensure long-term sustainability and increase the social impact achieved. A flagship investment has been the MLop Tapang programme for street children in Sihanoukville, Cambodia. ADMCF's investment in a purposebuilt day centre, a medical clinic, a vocational training restaurant, and an arts and sports centre for M'Lop Tapang, as well as it provision of fundraising and strategic support has helped the organization scale locally.

From these findings relating to Problem Area 2 the market and organizational distortions resulting from Government Social Funds, recommendations are as follows: 3. The Government should encourage more strategic financing by extending the term of grants and providing non-financial support throughout the funding lifecycle. Commercial Venture Capital and Private Equity Funds make investments, on average, for a minimum of 5 years and maximum of 10 years, dependent on business needs. It appears reasonable to structure social funding on comparable time-scales or at least on the basis of the NGOs plan & funding requirement rather than more arbitrary Government timescales. While the Government has sought to bring mentoring and/or expert advice to the social sector, and has from time to time offered training or use of external bodies (e.g. the HKCSS-HSBC Social Enterprise Business Centre), it should consider providing more systematic, built-in expert support to develop the capacity of each organization it funds throughout the funding lifecycle. The Government may need to partner or outsource this capacity-building element to an intermediary. This support (as evinced by other private funds adopting this model) will overcome the organizational development issues flagged in this study and provide greater opportunities for cross- sector collaboration and enhance the impact of funding.

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Best Practice Example of Recommendation 4

Piloted and Proven: An example of a spun-in service


In 2008 the Hong Kong Jockey Club Charities Trust provided funding of HK$50 million to an NGO, New Page Inn, to set up a center for tetraplegic patients leaving hospital. The centre provides transitional care and support, preparing tetraplegic patients for living at home and facilitating their reintegration into the community. The centres first few years operated as a proof of concept and pilot, proving the value and community need of this social service in Hong Kong. After 5 years of operations, the Government agreed that it was an effective and necessary social service, fulfilling a long-term need, so in March 2013 the Government provided recurrent funding from the Government budget for the Centres operations. This is a model that should be considered and developed more systematically at present it operates on an ad hoc basis, with little transparency to the sector at large, no clear prioritization of services or social issues, and no clear criteria for how projects or services are integrated into government budgets in this way. If the Government designed a clear model in collaboration with the social sector community, it would increase impact of future pilot schemes and stimulate more targeted initiatives.

4. The Government should develop 2 models to increase impact of its Funds: (i) a funding pathway to hand over successful early-stage Government-funded enterprises to other funding entities/investors; (ii) an evaluation process to consider which initiatives should be spun-in as commissioned Government services. A funding pathway will create a more coherent development path for small early-stage NGOs or social enterprises by identifying later stage sources of capital. This will also encourage a greater diversity of capital into the market by identifying market entry points and roles for private social investors or funders and family/corporate foundations. They currently suffer from low deal-flow i.e. insufficient organisations or enterprises in which to invest. In addition, a funding pathway will allow the government to define its own exit from the market, while safeguarding organisations future sustainability. A process of evaluation to consider which initiatives sponsored by Government Social Funds should be spun-in as commissioned services paid out of recurrent social welfare spending will encourage a more strategic social welfare delivery system in Hong Kong. It will also drive efficiency by ensuring the highest impact social solutions can be scaled up. This model has now been articulated as part of the basis of the Community Care Fund. It should be applied uniformly across all Government Social Funds with a single set of service priorities and transparent evaluation criteria and metric/measurement requirements. In this way, the market will again be directed to produce the most needed and highest-value solutions.

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3.3 Responsive delivery organisations but lack of innovation & skills gap
While of course there are odd examples of ingenuity littered across the social sector114, a prominent finding of the study was a strong belief among the social community that Government Social Funds had ironically served to reduce the innovation in the sector, and had failed to grow its skills. This may seem somewhat counterintuitive, as clearly it was neither the Governments intention nor the objective of its policy to encourage organizational stasis and limit innovation. However, in a context of undirected, uncoordinated capital flows into the social sector, and with the adopted Social Fund model structured on short-term cycles with low funding ceilings, the sector has been encouraged, if not forced, to be tactical rather than strategic in approach, and focused on quick wins that are guaranteed to secure funding vs. thinking outside the box, which is not. Only two groups appeared to buck this unintended negative consequence of government policy and are worth noting: (i) The largest NGOs with longer term funding and investments, stronger management and strategic planning systems in place e.g. The Hong Kong Federation of Youth Groups. Note, however, that the latter credit working with youth natural inventors and early adopters as an additional reason for their strong track-record; NGOs or social enterprises with funding, revenue generation or endowments/longer-term investments that allow planning beyond annual budget cycles. High profile local examples of these types of social business are the privately funded social franchise Dialogue in the Dark 115 and the niche social business Diamond Cab.116

(ii)

For the first group representatives believed that Government funding was positive: The Government [Funds] are accelerating the growth There is a positive spillover effect more ideas, initiatives that may drive improvement in other areas and sectors. 117 For the second, private funding brought greater non-financial resource support and private sector partnerships that built organisational capacity, developed market-based thinking and delivered higher performance.

114 In interviews with Government Social Fund Managers, several examples of small, grassroots innovation were cited, however there was no mechanism to replicate, grow or scale these innovations beyond their immediate community. Even disseminating knowledge about them was limited. It should be one of the objectives of the SIED Fund Task Force to identify and shine a light on these grassroots ideas and drive them forward. 115 Dialogue in the Dark (DiD) is a social enterprise that was started in Germany in 1988 to raise awareness of blindness. It is now active in 110 cities in 30 countries. Chinese businessman Patrick Cheung raised funds to buy a franchise for Hong Kong in 2008. It has operated without government subsidy and is funded by individuals and venture philanthropy fund Social Ventures Hong Kong (SVhk). DiD Hong Kong is registered as a limited liability company with 15 shareholders and operates a dividend policy of three one-thirds: one third of the profit would be used for developing new services, one third for business development and one third paid as dividends. 116 Diamond Cab is a social enterprise that SVhk established and funded. It provides a 24-hour barrier-free point-to-point commercial taxi service to the disabled in Hong Kong. The companys model hinges on strategic partnerships with a range of commercial operators across Hong Kong from car distributors to taxi radio support. The niche nature of the service makes cash-flow a constant challenge. 117 Interview with University Academic 4 on 17 April 2013.

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A. Lack of innovation
Overall, the findings reveal a community belief that the majority of NGOs and the social enterprises they spawned, although responsive to social needs and plugging immediate service gaps for which they could get Government funding, rarely thought very innovatively, longer-term or more strategically about operating models and services. As a result, they largely failed to develop or invent new social solutions that might be more scale-able, more impactful and ultimately more sustainable. Thus the understandable drive to respond to immediate day-to-day needs, while necessary, drove out innovation; and delivering short-term projects to meet Government funding requirements, quashed organizational development, failing to grow new thinking, skills, and capabilities. A range of sector representatives argued that the reason for this outcome was due to the availability of too much easy or soft money in Hong Kong that was structured around short-term Social Fund cycles focused on immediate results. This crowded out the drive or demand for new ideas, encouraged the subvention mentality by maintaining the status quo and thus failed to drive organizational change. The following views are illustrative: These Funds fund projectseveryone only goes after time limited endeavours they are not able to go after recurrent [longer-term] budget so [this approach] reduces risk-taking and innovation.118 The [funding] model does not encourage new players into the market.119 [The Government] wants for the new [Social Innovation & Entrepreneurship Development] Fund to operate like an investment fund, so that they [the Government] can shop around for innovative projects but it doesnt work like that for innovation, [the sector] need incubators and an ecosystem, not a shop of Social Funds.120 Others, however, believed that the lack of innovation was more a result of a lack of certain skills in the sector an issue covered in Part C below.

B. Lack of sustainability
It is unsurprising, given the above, that a related finding was the sectors view that the current Government Social Fund model was breeding a level of structural unsustainability among organisations that was problematic. This again appeared to be an unintended negative result caused by the short-term focus of the Funds and the political masters who created them: From the funds perspective, they want to seed projects that theoretically could be sustained in the longer term. But it is like giving a farmer money you hope the farmer will purchase equipment and up-skill, so that his productivity will increase for

Interview with Government Official 7 on 21 May 2013. Interview with Government Official 1 on 10 June 2013. 120 Interview with NGO Director 2 on 25 March 2013.
118 119

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the long termbut instead he hires temporary help which only increases production as long as the money lasts [to pay the wages].121 If a service is launched and serviced [by government funding] for 3 years, then stops, the question is: Has the need been satisfied? It is very hard to get funding after this timeframe as the driver [in the Funds] is to support new projects This creates a huge problem in terms of sustainability.122 Thus a structure where government support was perceived as piecemeal at best not only undermined sustainability, but also drove inefficiency, forcing organisations to dedicate large amounts of time to hunt for alternative financing if existing programmes were to be continued to meet social needs. The other aspect of inefficiency produced by short-term funding cycles was that such cycles tended to sacrifice the ability or desire of organisations to scale-up services for a larger market: To help scale up is not the intention of government NGOs are not thinking in terms of scale or transferability but rather in terms of competition [for further funding] For this to change, you would need to change the incentive structure and program requirements [of Funds].123 A statement by a Government Social Fund manager epitomizes the limitations inherent in the current risk-averse funding model: To me, small is beautiful this avoids [organisations] getting too big which may be beyond their skill to handle and [avoids] the risk of failure or collapse.124 In order to break this unsustainable cycle, the government will need to reconsider funding terms and outcomes for its smaller Social Funds, either extending funding terms (as is common practice in venture capital and private equity when supporting or growing a new business entity) or perhaps by providing a mechanism similar to that articulated as the current intended formula for the largest Government Social Fund, the Community Care Fund: For the Community Care Fund, the idea is that if a funded initiative is successful and a proof of concept is demonstrated, we could then transfer it to the Governments recurrent spending in this way, the funds are a useful buffer.125

C. Growing skills gap


Finally, the last core finding related to the growing skills gap in the NGO sector, accelerated over the last decade due to changes in funding structures, technological developments and the introduction of new social organizational and business models, such as social enterprises, which call for different skills.
121
122

Interview with NGO Director 6 on 30 May 2013. 123 Interview with University Academic 1 on 17 April 2013. 124 Interview with Government Social Fund Manager 2 on18 April 2013. 125 Interview with Government Advisor 6 on 29 April 2013.

Interview with Government Official 7, ibid.

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Sector representatives clearly articulated that the majority of employees and managers in the sector, while qualified experts in social work and social service delivery, were relatively untrained in business and management practices. An expert in sector capacity building summarized: The biggest gap is business skills and business capacity.126 Employees in the sector were self-aware that this issue was an important factor although not the only one behind what many perceived as a negative climate currently building around NGO operating practices: Currently there is a lot of discussion and criticism of NGOs and social enterprises this may help trigger the market to evolve and improve.127 Currently public trust is very low for Government, but it [trust] is also decreasing for NGOs There is a great deal of controversy regarding transparency and administration costs.128 Although a malady easy to diagnose, the skills deficiency is recognised by community representatives as harder to remedy because strength in one area does not necessarily imply strength in another: Non profit leaders are not businessmen Former social workers lead many of the organisations but they cant always manage a business but they do know how to look for critical issues and gaps that affect the under-privileged and they do know how to maintain [the] rights [of the under-privileged].129 Developing a balanced or hybrid organizational skill-set which neither de-emphasizes the value of the social expertise needed at the heart of social organisations, nor drains management focus away from social mission and outcome, is not a straightforward proposition. If the pendulum swings too far, the very essence of social organisations could be threatened as a senior NGO executive articulated: In the organization, there should be someone who loves the money and someone who loves the service but if we worked only for the numbers, we should go and work in business.130 So while the community welcomed the introduction of social enterprise as a useful vehicle to introduce more business thinking, practices and frameworks, and as a way to help modernize the sector, most inside the sector questioned the ability of many of its employees to internalize and adapt to this major shift: Social workers becoming entrepreneurs is a difficult process and not all can do it.131

Interview with NGO Director 3 on 28 March 2013. Interview with Government Advisor 2 on 26 March 2013. 128 Interview with Policy Think Tank Director 1 on 29 April 2013. 129 Interview with Legislative Council Member 1 on 23 May 2013. 130 Interview with NGO Director 4 on 23 April 2013. 131 Interview with University Academic 1 on 17 April 2013.
126 127

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However, in a sector that looks set to evolve even more quickly in the next decades than it has in the last, introducing entirely new business and funding models, these skills will be critical to foster and implant into the social sector. The future winners will be those who can do so: The key is an injection of entrepreneurial spirit This factor has a long-term impact on the future strategic development of organizations it creates opportunities in addition to creating efficiencies.132 To address this issue going forward, the sector must work with partners whether government or private donors/funders and consider how best to educate and train employees for the future, and how best to attract new talent from other sectors and backgrounds. A senior community representative encapsulates the challenge as follows: The mindset now is that social enterprise is the way to go for the next generation If so, it seems there are three aspects that need to work: (i) NGO sector leaders need to adapt [to the new model]; (ii) the Corporate sector needs to see new possibilities [for engagement] in the sector; (iii) the [social] sector needs to appreciate its base is becoming a business platform.133

132 133

Interview with NGO Director 5 on 26 April 2013. Interview with NGO Director 5, ibid.

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Best Practice Example of Recommendation 5

D.

Recommendations: Part III

Sheng Kung Hui Welfare Council: Patient Leadership to grow skills on the job
The truth of establishing and running social businesses or social enterprises is that they often have higher operating costs than normal businesses whether because of training up disadvantaged or disabled staff; applying environmentally positive processes, including energy management; or buying products and/or services from other social enterprises as a way to contribute toward the greater sustainability and development of the community. As a result, social businesses in many ways require greater risk tasking than in commercial entrepreneurial endeavours, greater patience to see their return whether in social or financial terms, and greater investment to scale. While the term patient capital is well known in this sector a concept that describes longer time investment horizons and a willingness of investors to forgo maximum financial returns in favour of ensuring the interests of the end customer the SKH Welfare Council believes that patient leadership or a patient employer are just as important. Patient leadership or a patient employer has the vision to set realistic break-even targets; realizes that even slim margins must provide sufficient cash-flow to keep the business afloat in the early days; has the ability to put the social mission before financial risk; and allows their employees, often new to business methods and processes, to develop their knowledge on the job. This is a new kind of leader and manager a tri-sector manager as an NGO Director puts it able to work across commercial, government and social models and processes. There is a handful in Hong Kong. Learning from their skills, approaches, management processes and replicating them is an easy win that the Hong Kong Government sector sponsor and support.

From these findings relating to Problem Area Three limitations in innovation, sustainability and skills development in the social sector in Hong Kong, recommendations are as follows: 5. The Government should drive skills development in the sector by funding the creation of workspaces, centres and elearning tools to showcase local centers of organizational excellence and best practice. The Government should provide dedicated funding and resource assistance to help these sector leaders establish educational and vocational workshops and facilities that can be used to transfer knowledge, inspiration and skills to other local organisations. The new SIED Fund provides a unique opportunity to institutionalise this kind of local programme. By so doing, not only would the Government sponsor intra- and inter-sector learning and sharing, but it would also promote greater collaboration and cooperation across the sector as a whole and spur the required cultural shift in the sector is by focusing where attention is needed most on its people: Every organization is based on people Its all about the people its hard work there is no silver bullet.134 The Government needs to send two clear messages. First, employees must believe they have breathing space for trial and error: We must build a community that allows [start-ups] to fail then, there will be success one day but even in failure, we can learn a lot. 135 Second, employees must believe that they are a valued part of the process and part of the sectors future.

134 135

Interview with Private Fund Investor 2 on 30 May 2013. Interview with NGO Director 6 on 30 May 2013.

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Best Practice Example of Recommendation 6

CII Funds SC.net ADMCFs financial application HKFYGs Media center


Hong Kong boasts a few small but innovative examples of best practice in building community collaboration platforms and technical applications to enhance connectivity and knowledge sharing in the social sector. Leveraging these to operate at a greater scale across the community would be of great benefit. A model for collaboration: SC.net SC.net was established in 2008 as part of the Community Investment & Inclusion Fund to build greater social capital and networks across districts. SC.net is a membership community of 171 grantee organisations and partners who share ideas (Innovation platform), successes, operating models and best practices (knowledge exchange) and to collaborate. A model for up-skilling: ADMCFs open source financial management application ADM Capital Foundation is currently developing an open source application for non-profit financial management and planning. Having identified a technical gap in the market most standard commercial financial systems are either too complex or too expensive for NGOs to adopt ADMCF set about developing their own. In future, they hope to provide it license-free for smaller NGOs across the region. A model for modernizing: HKFYGs M21 Centre The Hong Kong Federation of Youth Groups recently launched media education center in Shek Pai Wan, called M21, provides real-world skills training, access to equipment and technology that most disadvantaged youth could only dream of. Funded by the Hong Kong Jockey Club Charities Trust, the center is an excellent model of pooling funding to provide an invaluable community-based learning and development resource. Building this kind of infrastructure to up-skill and develop NGOs could have a huge impact on the sector.

6. The Government, in partnership with Non-Government and private fund providers, should sponsor the development of open technology platforms/tools to modernize the sector and enhance collaboration.
The Government could sponsor this activity either through seed funding social enterprises dedicated to technology development, or on a local or regional basis, for example through university or school competitions. It should be an open source/open platform initiative in order to benefit the maximum number of community stakeholders, to reduce on-going costs and to drive interoperability among the community. In conjunction with any effort to develop new systems, applications or tools for NGOs, the Government should provide training and implementation support for organisations to adopt and implement them. Evolving the role and focus of the Social Welfare Development Fund would provide a sustainable way to fund such an initiative going forward.

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Chapter 4 Summary of Recommendations


Recommendation 1:
The Government should require that a Needs Assessment is performed for each Social Fund it operates, before launch of any new fund and retrospectively for existing funds.

Recommendation 2:

The Government should develop a coherent set of policy initiatives and a supportive policy framework to address regulatory and market issues at the conception stage of any new Social Fund.

Recommendation 3: The Government should encourage more strategic financing by


extending the term of grants; providing non-financial support throughout the funding lifecycle; and by anchoring ongoing funding to performance and results.

Recommendation 4: The Government should develop 2 models to increase impact


of its Funds: (i) a funding pathway to hand over successful early-stage Governmentfunded enterprises to other funding entities/investors; (ii) an evaluation process to consider which initiatives should be spun-in as commissioned Government services.

Recommendation 5: The Government should drive skills development in the sector by


funding the creation of workspaces, centres and e-learning tools to showcase local centers of organizational excellence and best practice.

Recommendation 6:

The Government, in partnership with Non-Government and private fund providers, should sponsor the development of open technology platforms/tools to modernize the sector and enhance collaboration.

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Conclusion
This analysis of Hong Kongs Social Funds and the issues the community has highlighted suggest that a careful re-think of the Governments policy approach and management of its Social Funds is overdue. The imminent launch of the Social Innovation & Entrepreneurship Development Fund presents a golden opportunity to integrate the lessons learned from earlier funds and these 6 recommendations articulated in this study. By so doing, the Hong Kong Government will ensure greater social impact and a more coherent policy model for the future development, co-ordination and launch of new Funds. The benefits are multiple by insisting on measurement criteria as a way to manage performance, the Government will in the long run realise savings across service delivery mechanisms; by delineating where Government funding will act and where it will hand over to private capital providers, the Government will better leverage alternative capital flows and build in organizational sustainability; by focusing on the non-financial resources required to help build capacity and modernize the social sector, the Government will attract higher caliber human capital, prepared to work at below market rates because of the impact they can achieve. But this can only be a first step. Building a learning system, as officials working on the new fund have stated they wish to do, is undoubtedly the hardest but most critical next step. In this way Government, the social sector, and private investors or funders can ensure they do not make old mistakes but continue to learn and improve, thus building policies and models that are more robust and generate better, more innovative solutions for tomorrows problems. It is a challenge for any standard business or industry sector to evolve, but even more for a social sector on which nearly 20% of the population the number living under the poverty line in Hong Kong rely. However, from the interviews that I have had the privilege to conduct for this study, I have little doubt that Hong Kong will meet these challenges. As one sector representative described it, there is gold content136 in Hong Kongs social sector. The challenge is for policy makers to build systems that find and value this gold, and for funders to recognize that the value is more in its social worth than its financial return. This is no small challenge: Much social innovation starts locally grassroots, practitioner, local authority leadership, local champions. As a result, it can be hidden from policy makers and researchers. But it is critical to achieve: Think of it this way: whatever they may intend, these [social] entrepreneurs are doing early market research on some of the biggest opportunities of the coming decades. In attempting to bridge the great divides between privileged populations and the poor, they address the critical challenges where traditional markets fail. But they cannot tackle market failures on their own. Instead, their

136

Interview with Government Advisor 5 on 22 April 2013.

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efforts need to be supported by government, by business, by markets and by civil societys organisations and ordinary citizens.137 Government has a leading role to play in supporting this evolution as a Government Social Fund Advisor said to me: If we dont do it, who will?138

137 138

John Elkington & Pamela Hartigan, The Power of Unreasonable People (2008). Interview with Government Social Fund Manager 2 on 18 April 2013.

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Acknowledgements
I would like to thank all of those who have given me their support, time and invaluable input from across Hong Kong and beyond. The list below recognises many of these contributions; those omitted also have my thanks.
Hong Kong SAR Efficiency Unit Home Affairs Bureau & Department Home Affairs Advisory Committee Labour & Welfare Bureau, Social Welfare Department Hong Kong Legislative Council Members Hong Kong Legislative Council Social Welfare Panel Hong Kong Legislative Council Secretariat Commission on Poverty Social Enterprise Advisory Committee CII Fund Advisory Committee CII Fund Secretariat ESR Fund Advisory Committee ESR Fund Secretariat 3Es Fund Secretariat PFD Fund Secretariat CC Fund Advisory Committee/Task Force SIED Fund Task Force Hong Kong Council of Social Services Hong Kong Jockey Club Charity Fund Hong Kong Sheng Kung Hui Welfare Council Hong Kong Social Enterprise Summit Board HKCSS-HSBC Social Enterprise Business Centre Invest HK ADM Capital Foundation Social Ventures Hong Kong SOW Asia Yeh Family Foundation RS Group Asian Charity Services Hong Kong Federation of Youth Groups St James Settlement MaD Silence Nesbitt Centre Hong Kong University of Science & Technology, School of Business and Management Hong Kong University of Science & Technology, School of Humanities and Social Science Hong Kong University Chinese University of Hong Kong Hong Kong Baptist University Fung Global Institute Civic Exchange Vision 2047 Foundation FSES Hong Kong Hong Kong Transition Project China Renaissance Ltd Beyond Hong Kong: Inspiring Scotland NESTA, England Lien Foundation, Singapore Asian Venture Philanthropy Network, Singapore Impact Investment Policy Collaborative, USA HONG KONG GOVERNMENT SOCIAL FUNDS | Fit for purpose or time for a re-think? 60

References
A. Books, Industry Reports & Academic articles
Esther Alcaina & Barbara Clemenson, The long term impact of Venture Philanthropy: Is the model working? (July 2012), Report published by Social Venture Partners, Seattle Kevin Au & Thomas Birtch, Social Enterprise as an Interactive Process between Entrepreneurs and the Community (September 2012), Chinese University of Hong Kong Matt Bannick & Paula Goldman, Priming the Pump (2013), Omidyar Network A Brown & W Norman, Lighting the touchpaper: Growing the market for Social Investment in England (November 2011), Boston Consulting Group & Young Foundation A Brown & A Swersky, The First Billion: A forecast of social investment demand (UK) (September 2012), The Boston Consulting Group & Big Society Capital Chak-Kie Wong, Squaring the Welfare Circle in Hong Kong: Lessons for governance in Social Policy (2008), Asian Survey pp. 323-342 C Chua, A Gupta, V Hsu, J Jimenez, Y Li, Beyond the Margin: Redirecting Asias Capitalism (2011), Avantage Ventures, Hong Kong John Elkington & Pamela Hartigan, The Power of Unreasonable People (2008) Adam Grant, In the Company of Givers and Takers (April 2013), HBR Review Valentire Henrad, Income Inequality & Public Expenditure on social policy in Hong Kong (July 2011), Civic Exchange Waldemar Ingdahl, Real Virtuality (March 2007), The American E. T Jackon & Associates Ltd, Accelerating Impact: Achievements, challenges and whats next in building the impact investing industry (July 2012), Rockefeller Foundation R John & P Tan, Innovation in Asian Philanthropy, Entrepreneurial Social Finance Working Paper No. 2 (2013) Asia Centre for Social Entrepreneurship & Philanthropy (ACSEP), National University of Singapore Kam-Tong Chan, Creative Philanthropy: Development of Social Enterprise in Hong Kong, EMES Conferences Selected Papers Series (2009) H Koh, A Karamchandani, R Katz, From Blueprint to Scale: The Case for Philanthropy in impact investment (April 2012), Monitor Group & Acumen Fund C Letts, W Ryan, A Grossman, Virtuous Capital: What Foundations can learn from Venture Capitalists (March-April 1997), Harvard Business Review F Santos, A Positive Theory of Social Entrepreneurship, J Bus Ethics (2012) 111:335-351

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Durreen Shahnaz & Dr P Tan Shu Ming, Social Enterprise in Asia: Context and opportunities (December 2009), National University of Singapore, Research Paper Series LKYSPP09-018-CAG006 Kester Tay, From Financer to Enabler: Changing Governments Role in NGOs as the Way Ahead for Social Welfare in Hong Kong (June 2009), Civic Exchange A Tusi & E Chan, Dialogue in the Dark Hong Kong: A role model for social enterprises in the making (2012), A Case study, Richard Ivey School of Business A Tsui, Diamond Cab: Investment of a venture philanthropy fund (2013), A Case study, Richard Ivey School of Business U Villis, P Hardy, T Lewis, Creating Social Impact: Strategic Use of Resources in the Social Sector (December 2009). Boston Consulting Group A Westall, How can innovation in social enterprise be understood, encouraged and enabled? (November 2007) Office of the Third Sector, United Kingdom Cabinet Office D Wood, B Thornley, K Grace, Sarah Sullivan, Impact Investing: A Framework for Policy Design and Analysis (January 2011), Insight at Pacific Community Ventures & Initiative for Responsible Investment at Harvard University D Wood, B Thornley, K Grace, Impact at Scale: Policy Innovation for Institutional Investment with Social and Environmental Benefit (February 2012), Insight at Pacific Community Ventures & Initiative for Responsible Investment at Harvard University Terence Yuen & Josephine Lee, Social Entrepreneurship in Hong Kong: Perspectives, Trends & Prospects (November 2004), Hong Kong University paper Poverty Reduction in Asia and the Pacific (20 December 2012), Asian Development Bank The Social Protection Index: Assessing results for Asia & the Pacific (July 2013), Asian Development Bank Poverty in Asia and the Pacific: An Update (August 2013), Asian Development Bank Impact Investors in Asia: Characteristics and preferences for investing in Social Enterprises in Asia & the Pacific (November 2011), Asian Development Bank Social Development Index 2012: Major Findings (2012), Hong Kong Council of Social Services (http://www.socialindicators.org.hk/en/node/206) Views on Welfare Policy Agenda for 2004 and Beyond (November 2003), The Hong Kong Council of Social Service (HKCSS) Power of Good: Hong Kong Social Enterprise Landscape Study 2012-13, HKCSS-HSBC Social Enterprise Business Centre, published June 2013

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Youth Hong Kong: On poverty (March 2013), Hong Kong Federation of Youth Groups Quarterly Journal, Volume 5 Number 1 The London Principles: Draft for Consultation (July 2013), Impact Investing Policy Collaborative Impact Investments: Am emerging asset class (November 2010), J. P. Morgan The Innovation Bottom Line, Research report (Winter 2013), MIT Sloan Management Review and Boston Consulting Group Social Innovation: New approaches to transforming public services, Nesta Policy Briefing (January 2008), Nesta Policy and Research Unit Society at a Glance: Asia/Pacific 2011 (2011), Organisation for Economic Cooperation and Development [doi: 10.1787/9789264106154-en] Health at a Glance: Asia/Pacific 2012 (2012), Organisation for Economic Cooperation and Development [doi: 10.1787/9789264183902-en] Position Paper on the Reinstatement of the Commission on Poverty (August 2012), Oxfam Breaking the binary: Policy Guide to Scaling Social Innovation (April 2013), Schwab Foundation for Social Entrepreneurship, in collaboration with Insight at Pacific Community Ventures & Initiative for Responsible Investment at Harvard University Financing social impact: Funding social innovations in Europe mapping the way forward (2012), Social Innovation Europe http://ec.europa.eu/enterprise/newsroom/cf/_getdocument.cfm?doc_id=7048 Submission to the UN Committee on the Rights of the Child (January 2013), Society for Community Organisation (SoCO), Hong Kong Human Rights Commission & Childrens Rights Association Achieving social impact at scale: Showcasing new and innovative social investment mechanisms (3 May 2013), United Kingdom Cabinet Office https://www.gov.uk/government/publications/achieving-social-impact-at-scale

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B. Government & Legislative Council Papers


2013-14 Budget Speech delivered by the Financial Secretary, 27 February 2013 Chief Executive Policy Address 2013 Chief Executive Statement on the 2013-14 Budget, 27 February 2013 (i) Commission on Poverty Commission on Poverty, From Welfare to Self-Reliance Social Enterprise, CoP Paper 22/2005, 12 September 2005 Commission on Poverty Press Releases Social Innovation and Entrepreneur Development Fund: Current Landscape (June 2013), SIED Fund Task Force Paper No. 2/2013 Market Sounding Exercise: Engaging Intermediaries for the Social Innovation and Entrepreneurship Development Fund (July 2013), SIED Fund Secretariat, Efficiency Unit (ii) Home Affairs Bureau & Department Home Affairs Bureau, 2013 Policy Address: Policy Initiatives of Home Affairs Bureau, 21 January 2013 Home Affairs Bureau Presentation to Commission on Poverty, Enhancing Self Reliance Through District Partnership Programme, 13 June 2006 The Fifth Meeting of the Executive Committee on the Community Care Fund, 18 January 2012, Summary of Discussion The Fifth Meeting of the Steering Committee on the Community Care Fund, 20 February 2012, Summary of Discussion Home Affairs Department Press Releases Community Care Fund Press Releases (ii) Labour & Welfare Bureau / Social Welfare Department Policy Initiatives of the Labour & Welfare Bureau, 2013 Policy Address (21January 2013) Legislative Council Panel on Welfare Services, LC Paper No. CB(2)496/12-13(01) City University of Hong Kong, An Evaluation Study on the Outcome of the Community Investment and Inclusion Fund, Final Report (9 November 2012), Labour & Welfare Bureau Community Investment & Inclusion Fund Evaluation Consortium, City University of Hong Kong, Final Report (February 2006) & Integrated Summary of findings, critical success factors and recommendations (April 2006), Health, Welfare & Food Bureau
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Hong Kong Polytechnic University, Final Report on the Effectiveness of CIIF Projects in Social Capital Development in Tin Shui Wai (November 2012), Labour & Welfare Bureau Hong Kong Polytechnic University, An Evaluative Study of the Partnership Fund for the Disadvantaged (February 2012), Social Welfare Department (SWD/Q076/2009) Hong Kong Polytechnic University, An Evaluative Study of the Partnership Fund for the Disadvantaged in promoting and sustaining partnership between NGOs and Business Corporations (June 2008), Social Welfare Department Lump Sum Grant Independent Review Committee, Review Report on the Lump sum Grant Subvention system (December 2008) Social Welfare Department, Guide to Enhancing Employment of People with Disabilities through Small Enterprise Project, December 2005 Social Welfare Department Item for Finance Committee, Enhancing employment of people with disabilities through small enterprise, FCR(2011-12)65, 13 January 2012 Social Welfare Department, Lotteries Fund Manual, January 2013 Social Welfare Department Press Releases

(iv) Legislative Council (LegCo) Papers


[All LegCo. Papers retrieved from: http://www.legco.gov.hk/database/english/policy.htm] House Committee of the Legislative Council, Report on the work of the Commission on Poverty and the Steering Committee on Population Policy, LC Paper No. CB(2)845/1213(01), 22 March 2013 Legislative Council Subcommittee on Poverty, Injection of HK$15 Billion into the Community Care Fund, LC Paper No. CB(2)1154/12-13(01), 24 May 2013 Legislative Council Panel on Welfare Services, Implementation of Partnership Fund for the Disadvantaged, LC Paper No. CB(2)937/12-13(05), 16 April 2013 Legislative Council Panel on Welfare Services, 2013 Policy Address. Policy Initiatives of the Labour and Welfare Bureau, LC Paper No. CB(2)496/12-13(01), 21 January 2013 Legislative Council Panel on Welfare Services, Development of Social Enterprises: Administrations Response to Follow-up Action Required, LC Paper No. CB(2)1848/1112(01), 25 April 2012 Legislative Council Panel on Welfare Services, Background brief prepared by the Legislative Council Secretariat for the meeting on 10 December 2012, Community Investment and Inclusion Fund LC Paper No. CB(2)290/12-13(04) Legislative Council Panel on Welfare Services, Injection of Funding into the Enhancing Employment of People with Disabilities through Small Enterprise Project, LC Paper No. CB(2)455/11-12(01), 12 December 2011
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Legislative Council Panel on Welfare Services, Background brief prepared by the Legislative Council Secretariat for the meeting on 12 December 2011, Enhancing Employment of People with Disabilities through Small Enterprise Project, LC Paper No. CB(2)490/11-12(03) Legislative Council Panel on Welfare Services, Improvement Measures for the Enhancing Self-Reliance through District Partnership Programme, LC Paper No. CB(2)972/10-11(04), 14 February 2011 Legislative Council Panel on Welfare Services, Background brief prepared by the Legislative Council Secretariat for the meeting on 14 February 2011, Enhancing SelfReliance Through District Partnership Programme, LC Paper No. CB(2)972/10-11(05). Legislative Council Panel on Welfare Services, Minutes of meeting 8 May 2006 (including progress report on Community Investment & Inclusion Fund), LC Paper No/ CB(2)2264/05-06 Legislative Council Panel on Welfare Services, Background brief prepared by the Legislative Council Secretariat for meeting 16 April 2009: Community Investment & inclusion Fund, LC Paper No/ CB(2)1231/08-09(04) Legislative Council Panel on Welfare Services, Proposed Injection into Community Investment & Inclusion fund, LC Paper No/ CB(2)290/12-13(03), 10 December 2012 Legislative Council Panel on Welfare Services, Background brief prepared by the Legislative Council Secretariat for meeting 10 December 2012: Community Investment & inclusion Fund, LC Paper No/ CB(2)290/12-13(04) Legislative Council Public Accounts Committee public hearing on Director of Audits Report No 55 Chapter 11 The Community Investment & Inclusion Fund, 30 November 2010 Public Accounts Committee Report No. 55 Chapter 3 of Part 8 (Report on the Audit Commissions review of the Community Investment & Inclusion Fund), February 2011 http://www.legco.gov.hk/yr10-11/english/pac/reports/55/55_rpt.pdf Labour & Welfare Bureau response with Annex to the Public Accounts Committee letter of 25 November 2010 re Director of Audits Report No. 55 on the Community Investment & Inclusion Fund, 29 November 2010 Legislative Council Panel on Home Affairs, Community Care Fund, LC Paper No. CB(2)485/11-12(01), 9 December 2011 Legislative Council Panel on Manpower, Employment assistance to persons with disabilities, LC Paper No. CB(2)1773/08-09(01) Legislative Council online archive, Question LCQ15: Employment of persons with disabilities, with reply, 9 May 2012

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Legislative Council online archive, Question LCQ10: Employment situation of persons with disabilities, with reply, 24 October 2012 Legislative Council online archive, Question LCQ12: Employment of persons with disabilities, with reply, 1 February 2012 Legislative Council online archive, Question LCQ1: Lotteries Fund, with reply, 21 April 2010 Legislative Council online archive, Question LCQ3: Social enterprise, with reply, 31 October 2007 Legislative Council Press Releases

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C. Data sources for Figures & Tables


(i) Audit Commission Figures from Lotteries Fund, Report of the Director of Audit (26 October 2012), Audit Commission (ii) Census and Statistics Department Social Welfare (general) http://www.censtatd.gov.hk/hkstat/sub/so390.jsp Social Welfare Services: Figures http://www.swd.gov.hk/doc/res_stat/swd%20in%20fig2012_21x10cm%20(4%20row)%20( with%20cover).pdf Hong Kong 2011 Population Census thematic report (June 2012) (iii) Government Hong Kong Budget Speech The 2013-2014 Budget (actual expenditure 2011-12 & revised estimates 2012-13) http://www.budget.gov.hk/2013/eng/speech.html Head 170: Social Welfare Department Budget http://www.budget.gov.hk/2013/eng/pdf/head170.pdf Appendix B Analysis of Expenditure and Revenue http://www.budget.gov.hk/2013/eng/pdf/e_appendices_b.pdf (iv) Government Hong Kong: Fact Sheets Public Finance http://www.gov.hk/en/about/abouthk/factsheets/docs/public_finance.pdf Social Welfare http://www.gov.hk/en/about/abouthk/factsheets/docs/social_welfare.pdf Statistics http://www.gov.hk/en/about/abouthk/factsheets/docs/statistics.pdf (v) Government Treasury Bureau Hong Kong GDP and financial data: Financial Results of the Government of the HKSAR (31 May 2013) (vi) Hong Kong Invest Tax data & rates: Hong Kong Invest website, accessed June 2013

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(vii) Legislative Council All data for annual expenditure and statistics relating to Government Social Funds was compiled from Legislative Council Questions, LegCo papers and update reports on each specific fund, and Legislative Council Press Releases (viii) Social Welfare Department Estimates of Expenditure under Social Welfare Department 2013-2014 (actual figures 2011-12 & revised estimates 2012-13 http://www.swd.gov.hk/doc/finance/201314%20SWD%20Estimates%20of%20Expenditure%20(English%20Version).pdf Lotteries Fund expenditure & results 2011-12, Social Welfare Department, accessed June 2013 http://www.swd.gov.hk/en/index/site_ngo/page_lotteriesf/ Social Welfare Department website: General information and statistics on Social Funds, including annual expenditure and projects supported (viiii) Miscellaneous Community Chest Annual Reports 2011-12, 2012-13, Community Chest website accessed July 2013 http://www.commchest.org/en/about/about_05_01_1213.aspx http://www.commchest.org/en/about/about_05_01_1112.aspx Community Chest 2013/2014 Allocations Report (2013) http://www.commchest.org/en/support/pdf/Allocations_1314.pdf Hong Kong Jockey Club Annual Report 2011/2012 http://corporate.hkjc.com/corporate/operation/english/annual-11-12.aspx OECD social expenditure data: aggregated social expenditure data & reference series http://stats.oecd.org/Index.aspx?datasetcode=SOCX_AGG http://stats.oecd.org/Index.aspx?datasetcode=SOCX_REF Property data: Knight Frank HK Property Market & HK Office Market reports (2013) St James Settlement Annual Reports 2011-2012, accessed June 2013 http://www.sjs.org.hk/tc/publication/annual/2011-2012eng.html World Bank Gini Index http://data.worldbank.org/indicator/SI.POV.GINI

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D. Interview schedule

Interview Number
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Candidate classification*
Govt. Official 1 NGO Director 1 Govt. Advisor 1 NGO Director 2 Govt. Advisor 2 Govt. Advisor 3 NGO Director 3 University Academic 1 University Academic 2 University Academic 3 Govt. Advisor 4 Govt. Social Fund Manager 1 University Academic 4 University Academic 5 Govt. Official 2 Govt. Social Fund Manager 2 Govt. Official 3 Govt. Advisor 5

Date of interview
(1) 8 January 2013 (2) 10 June 2013 20 February 12 April 2013 25 March 2013 26 March 2013 26 March 2013 28 March 2013 17 April 2013 17 April 2013 17 April 2013 17 April 2013 22 April 2013 17 April 2013 17 April 2013 18 April 2013 18 April 2013 (1) 19 April 2013 (2) 24 May 2013 (1) 22 April 2013 (2) 24 April 2013 (email) 23 April 2013 26 April 2013 26 April 2013 29 April 2013 29 April 2013 29 April 2013 13 May 2013 13 May 2013 13 May 2013 13 May 2013 14 May 2013 15 May 2013 21 May 2013 23 May 2013 30 May 2013 30 May 2013 30 May 2013 5 June 2013 7 June 2013 11 June 2013

19 NGO Director 4 20 NGO Director 5 21 Non-Govt. Social Fund Manager 1 22 Govt. Advisor 6 23 Private Fund Investor 1 24 Policy Think Tank Director 1 25 Govt. Official 4 26 Govt. Official 5 27 Govt. Social Fund Manager 3 28 Govt. Social Fund Manager 4 29 Govt. Official 6 30 Policy Think Tank Director 2 31 Govt. Official 7 32 LegCo Member 1 33 Private Fund Investor 2 34 NGO Director 6 35 Govt. Official 8 36 LegCo Member 2 37 LegCo Member 3 38 University Academic 6 * Please refer to Table 1 on page 4 for classification definitions

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