23/11/11

By Andrew Holt

Social investment is growing in popularity amongst charities looking for new ways to fund their services and a think-tank says government cuts and a decline in donations is making more charities consider new types of funding, but advises them to think carefully before taking on social investment.

New Philanthropy Capital (NPC), which works with charities and funders, is today launching a new practical guide for charities and social enterprises, called Best to borrow?

The guide explains the risks and benefits of this new type of investment.

"Social investment is an exciting new way of funding charities, especially important as the Autumn Statement is unlikely to see more resources coming the sectors way," said Dan Corry, chief executive of NPC.

"But it is no silver bullet and charities need to consider whether it is right for them as there are risks involved."

NPC estimates that over £500m of social investments have been made so far in the UK, and more new products are coming on the market.

As charities see donations fall and budget cuts hit frontline services, many are looking at social investment for the first time.

Hundreds of charities, including Barnardo’s, Scope and Turning Point have already used it to set up innovative new services and redevelop existing ones.

The disability charity Scope recently launched a £20m bond scheme to expand its fundraising programme and charity shops.

"Maximising the finance we can raise is essential if we want to continue and grow our work with disabled people and their families," said Geetha Rabindrakumar, director of finance at Scope.

"The social investment market offers us the opportunity to speak to a new network of prospective supporters and offer them an additional way of investing alongside traditional donations and philanthropic loans.

"However it was important that we had the processes, skills and experience in place to manage these investments effectively."

The government has committed to supporting this emerging market with the announcement of a new £40m Social Impact Bond to support chaotic families and the launch of Big Society Capital, a new wholesale bank that will begin investing in 2012.

NPC’s guide says many charities will benefit from this new source of investment, but warns that they must be aware that they are taking on a loan and have a plan for repayment.

Failing to make repayments may put a charity under real financial pressure.

Organisations are advised to think through the risks involved and take steps to ensure they are ready to take on social investment.

"This report comes at a critical time for the voluntary sector," said Gemma Rocyn Jones, senior associate at the Young Foundation.

"If charities are to benefit from the increase in social investment Big Society Capital is expected to release next year, it is essential that they are asking the right questions today."

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