Lending money to charities was virtually unheard of 15 years ago. Investing in voluntary sector organisations, in ways other than one-off grants, was a new idea 10 years ago. But the interest in social investment is escalating, on both sides of the Atlantic. Here in the UK, for example, the government is designing the Big Society Bank to build the market.
But are we seeing the infancy of a new and profitable asset class that is available to mainstream commercial investors? Or is the fundamental role of social investment to increase social impact through building charities' financial resilience?
In the red corner stands a new report, Impact Investments: An Emerging Asset Class, from JP Morgan and the Global Impact Investing Network. This estimates the size of the global social investment market to be about $1 trillion over the next 10 years. It also puts the potential profit on said investment at a staggering $667bn.
And in the blue corner are charities and investors, such as CAF Venturesome, that ask this question: if there are profits to be made, where do they come from? The report's figures are based on estimates of emerging markets in developing countries, and the opportunities for commercial investment in areas such as microfinance and green technology. The report indicates there are fewer opportunities for profits in the domestic social investment market.
The enthusiasm from potential investors is understandable - who wouldn't want to make money and do good? - but it sits uneasily with the needs of civil society in the UK. Many charities are facing huge uncertainties about where the money will come from that will pay for their services, which are in increasing demand. There is a need for access to capital - to help with buying assets, support cashflow and take advantage of growth opportunities - but it cannot make up for a basic lack of income. It is part of the solution to charities' funding needs, rather than the solution. And now, more than ever, that capital needs to be affordable.
There are good reasons why commercial investors have shied away from this sector, not least because the perceived risk outweighs the potential financial return. But for those motivated by social change, the returns they seek are not primarily financial. The risk might be high, but the social returns might be greater.
Social investment has its roots in the sector. If it is serious about being 'social', such investment must remain demand-led, needs-based and affordable. Then we can make money work hard to achieve positive change.