Profit Contingent Loans for Social and Community Investments in Economically Disadvantaged Regions

It is argued in this paper that an externality might exist for economically disadvantaged areas, and this might take various forms. If this is the case, it is argued in the paper that public sector intervention of various types could be required. The important contribution of the paper lies in the outlining of a different approach for the public sector, involving as its key feature, the provision of income (profit) contingent loans, similar in concept to the operation of the Higher Education Contribution Scheme. It is explained that such an approach to the financing of investments needs to involve three parties: the financial institutions, the public sector and the specific social or private enterprise. We analyse a particular form of this partnership, the way in which the scheme might be instituted and potential areas of failure.