Nearly half of voluntary organisations not interested in social investment 4

Finance | Vibeka Mair | 20 Sep 2012

Just under half of voluntary sector organisations say they are not interested in social investment finance as charitable money should be spent on delivery, not repaying loans, according to new research for the Big Lottery Fund.

The research, which was conducted by ClearlySo and New Philanthropy Capital, surveyed 1,255 voluntary, community and social enterprise sector organisations (VSCEs) on social investment and investment-readiness.

It found 43 per cent were not looking for and not interested in repayable finance, with three-quarters of this group feeling that charitable money should be spent on delivery, not on repaying loans.

Some 21 per cent of the 1,255 VSCEs surveyed had successfully secured repayable finance, while 15 per cent were seeking social investment such as loans or equity. Survey respondents are most interested in investment between £10,000 and £100,000.

However, there is a mismatch between the types of finance that organisations have actually received and what organisations that are looking hope to secure – only 7 per cent of respondents have secured a mixed funding product combining loans and grants – but 49 per cent of those currently looking are interested in securing this type of finance.

Challenges with investment-readiness

As part of the survey, NPC and ClearlySo also interviewed 40 investors and social investment intermediaries. It found investors reported significant challenges with investment-readiness, particularly noting the lack of suitable financial skills among potential investees as a critical barrier.

Investors also noted a general lack of understanding of the concept and the appropriateness of social investment; and the relatively complex deals available for relatively small sums of finance sought.

Social investment intermediaries spoke of the challenge of changing mindsets from the traditional charitable model to a business model.

The research indicates potential demand for investment-readiness support from the VCSE sector to be about 70,000 or more organisations in the next five years.

The research will help to inform BIG’s future social investment support.

Directory: Big Lottery Fund | New Philanthropy Capital

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Belinda Linn
21 Sep 2012

The purpose of this survey seems to be misguided. Social investment is to seed new, more financially sustainable models for social change. It's not about replacing existing charitable donations into charities. Of course charities who have always relied on traditional donation would prefer money that they don't have to give back...

[Reply]

Alistair Heron
21 Sep 2012
Response to [Belinda Linn ]

But you seem to imply that 'charity' and 'social innovation' are incompatible concepts. From a purely accounting perspective it will always be preferable to secure income that comes with no finance cost (traditional grants), although arguably there's a price to pay in terms of stifling creativity, ambition and vision.

That aside,I don't have a gripe with grant income per se, I just find it unbelievable that Trustees/Directors would object to loans on a point of 'principle' - "charitable money should be spent on delivery, not on repaying loans".

[Reply]

Alistair Heron
21 Sep 2012
Response to [Belinda Linn ]

I think it goes without saying that income with no cost of finance attached is preferable in pure accounting terms (although there are arguments to be had about the effects of grant dependency on the organisational culture).

My only dispute is with those charity leaders (be they Directors or Trustees) who object to taking loan finance on a point of 'principle' - "money should be spent on delivery, not on repaying loans".

[Reply]

Alistair Heron
21 Sep 2012

I find it so frustrating that in this day and age many charity leaders are still hung up on how money is spent rather than the measurable outcomes delivered.

I can understand certain groups taking the view that loan finance can't be made to work within their business model, but it's worrying that it would be dismissed on a misguided point of principle. Charities are about making a difference - full stop.

[Reply]

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