CAF has launched a new social investment fund which it hopes will allow major donors to finance loans to charities.

The CAF Social Impact Fund will take investments from philanthropists and use the money to provide loans to charities. Once repaid, these funds will then be recycled and loaned to other organisations.

Until now, according to CAF, most social investment capital has been provided by grantmaking organisations and businesses, along with “a handful of individuals”.

CAF’s social investment arm CAF Venturesome, which will administer the fund, is offering reassurance to investors by stressing that it has a default rate of less than 4 per cent on its other charitable loans.

Furthermore, the CAF Social Impact Fund will only provide loans to the least risky of these charities, though if the charity does default on its loan, the investors will not get their money back.

£10,000+ investments

Donors who hold or open a CAF Charitable Trust will be able to make an investment into the fund of £10,000 or more for a fixed period of between three and six years.

As a result, CAF estimates that a higher-rate ta payer investing £50,000 could result in over £150,000 worth of charitable loans over three years, or £220,000 over five years.

Investors will not have a say in who their money is loaned to, but every application from a charity will go through a due diligence process by an independent investment committee.

Venturesome will also spend time with the charity to ensure it is investment-ready and to make sure the investment will achieve a significant social return.

John Low, chief executive of the Charities Aid Foundation said: “Through CAF Venturesome, the Charities Aid Foundation has for many years been at the forefront of innovation in social investment.  

“The CAF Social Impact Fund marks a new stage of development in this area, by enabling some of our major donors to invest their philanthropic capital, many more charities and social enterprises will have access to affordable loans.”