Cathy Pharoah: The funding revolution will be harder in the most deprived communities

There is a danger the sector will get trapped into a 'one-size-fits-all' discussion about funding, warns our columnist

Cathy Pharoah
Cathy Pharoah

As I see it, the new funding environment (do I hear "what funding?") is aimed as much at changing the entire shape of civil society as at finding new ways of funding existing structures and services. It's a battle of ideas.

Financing big society is not about new types of finance, but about new ways of doing business. It is not about reducing grant-dependency, but about reducing the need for grant-funded social projects. It is not about funding social enterprise, but investing, preferably for an economic return, in entrepreneurial approaches to social challenges.

But there is a danger the sector will get trapped into a 'one-size-fits-all' discussion about funding, involving the merits of debt or social investment finance over grants, or of earned income over donations. We need to be precise about how the diverse existing elements of civil society will experience different financing challenges in the new era. New entrants will be in the happy position of configuring products and services specifically to suit emerging social market opportunities, and there are many successful examples of this.

Existing civil society organisations will have to reconfigure to survive. The main challenge for those engaged in government contracting will be market competition. For the successful, social lenders could help. Private procurement consultants and investors are snapping at the heels of this market space. Balance sheets are strong and considerable commercial capital is already borrowed. The diverse funding base of service-providing fundraising charities helps: such organisations have maintained a broadly equal balance between statutory and other funding for the past three decades. The evaluation of Futurebuilders, the £215m government capacity-building fund that offered loans and grants, found a low loan default rate (only 3.3 per cent). Success, however, was related to market opportunity, and it concluded: "Local procurement markets played an important part in shaping the success of investments." Local authorities will clearly be the key players in this market space.

But financing the smaller, less marketable and more government grant-dependent element of civil society (its largest constituency) remains a challenge. The business cases and market opportunities in the most deprived communities and among needy beneficiaries are not clear. There is still a dearth of real evidence or intelligence to develop robust and practicable new approaches as old funding models are abandoned in the wake of 'smaller government'.

- Cathy Pharoah is professor of charity funding at Cass Business School

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