Charities have historically relied heavily on "cap-in-hand
fundraising and grants. It can make them dependent on a single source of vulnerable income. And it has produced a culture of dependency that sits uncomfortably in the competitive contemporary world.
But how do you break the dependency culture? The good news is that opportunities that only a year or so ago might have been derided or disbelieved are now opening up.
One is the emergence of a breed of not-for-profit financial services companies (Community Development Finance Institutions), which combine commercial and social returns. They lend in markets under-served by banks and other financial companies. They also offer charitable trusts and foundations, as well as larger charities, the opportunity to invest and anticipate a return while furthering their charitable purpose. Investments are in turn lent to smaller charities and community organisations. The surplus is used to pay back the loan and cross-subsidise other initiatives. Everybody wins.
The move towards new forms of social investment stems from recommendations made by the Social Investment Task Force set up by the Treasury. They include a recommendation for greater latitude for charitable trusts and foundations to be involved in community development initiatives. This was immediately supported by new Charity Commission guidance on the use of charitable funds to provide equity finance and loans. The Commission confirmed that programme-related investment is an acceptable component of a charity's investment strategy.
The guidance makes clear that charities can use their money proactively to accrue social and financial benefits that contribute to the achievement of charitable purpose. Community development finance initiatives, social venture capital funds, micro finance, loans, grants and guarantees are all ways to make funds go further. The biggest barriers are mindset, risk aversion and lack of knowledge. Charities must add the words earn, enterprise and invest to their vocabularies.
The prize is great - a diverse funding base that provides sustainable resources to achieve our charitable objectives. The only thing stopping us is the attitude of charities themselves.