Social finance works when building skills is included

Charities don't seem to be convinced of the potential social finance presents, writes Caron Bradshaw

Caron Bradshaw
Caron Bradshaw

The sector's interest in social investment has been described to me as being akin to a school playground discussion on sex: many more people are talking about it than doing it. As a mother, I'm pleased that's the balance in the playground. But as the head of the CFG, which seeks to promote effective and innovative approaches to financial management, I'm disappointed by the lack of action in the field of social investment.

Social finance is a potentially useful new source of funding for charities that want short-term working capital to get started, or for more established organisations that want to grow. But charities generally do not appear to be convinced of this potential. Our most recent Managing in a Downturn report said there was little appetite for repayable finance.

Three-quarters of the charities surveyed had not considered secured loan finance and 83 per cent felt the same about unsecured loan finance. Seventy-four per cent of those who said they had not considered loan finance said they didn't see the need, that they had no debt policy or that repayable finance was not suitable for a not-for-profit entity. There is an underlying aversion to the risks of this type of finance.

Yet the government is hooked. At this year's G8 summit, the Prime Minister, David Cameron, hailed the role of UK plc in leading the development of this market. This encouragement drives up numbers of potential new investors and entails the risk that supply will outstrip demand. I fear this could lead those anxious to prove their social investment credentials to make unwise decisions - backing social enterprises and charities for whom this type of finance is entirely inappropriate. This would be terrible in terms of both financial and reputational risk. Perversely, investments that should never have been made might be proof to some that the sector is not capable of managing finances, being innovative or delivering real impact.

Charities such as Scope have taken steps to support the development of social investment when, arguably, it didn't need to. This has demonstrated the merits of social finance and will give other charities confidence to explore it. Of course, we should be careful not to encourage debt for those for whom such risk is not in the long-term interests of beneficiaries. However, social finance clearly works when a social enterprise such as Sunflower Home Care - which I encountered this month in London at the Good Deals conference for investors and social entrepreneurs - can access genuinely new funds and, perhaps more importantly, support for business skills.

Social investors and intermediaries increasingly insist that potential recipients are investment-ready, with rounded management teams that can manage the funds they borrow. This need not be onerous and we should embrace it. Whether you're a social investor, an intermediary or an old-school grant-maker, you should consider and fund the building of financial skills. We should seek to leave a legacy of financial capacity, irrespective of how our social organisations are funded.

Caron Bradshaw is chief executive of the Charity Finance Group

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