Social investment bonds are a radical new way of financing successful charities, explains Toby Eccles.

Toby Eccles explores connecting capital markets to social need. The economic downturn is a present reminder of shocks that affect our society. However, there are many external influences that shape society such as globalisation, new technology, climate change and an ageing population. These factors present opportunities but also create new social problems. The social economy has been growing for several years and government's role is changing, commissioning more from third sector organisations which can be more agile in responding to changing social needs. However, the third sector's ability to respond effectively is inhibited by the way that it is currently financed. Investment capital is largely limited to grant funding and loans, both of which have their drawbacks. Grants are expensive to raise and tend to be restricted to funding current service provision. Loans, on the other hand, are generally only available where they can be secured against assets. This leaves little finance available for organisations to adapt, change and invest in their workforce or infrastructure. They also contend with uncertain revenue streams that are not always aligned with the organisations' social impact.