Capital shortages 'hamper charities' work'

Venturesome report calls for better knowledge and investment

Charities are under-capitalised, averse to risk and do not have access to enough forms of finance or lenders, according to the Charities Aid Foundation's social lender Venturesome.

Its report, Access To Capital, was written in response to the government consultation on how to develop a social investment wholesale bank.

"It is increasingly recognised that lack of access to capital acts as a barrier to charities achieving their social mission," the report says. "However, there is no strong or coherent voice clamouring for access to capital."

The report, written by John Kingston, director of Venturesome, and Emilie Goodall, an investment manager at the lender, says more knowledge of capital financing in the third sector, more effective investment mechanisms and a more varied supply of finance are needed.

It says one reason why charities have traditionally been under-capitalised is that they fear the reactions of donors and funders if they hold high levels of reserves.

When organisations in the sector have tried to access capital they have tended to have access only to loan finance, chiefly to buy fixed assets, the report says.

"The handful of other mechanisms available - underwriting, unsecured loans, quasi-equity and equity - are barely used," it says. "Furthermore, where they are used, they are available in the short to medium term, over three to five years. "

The report says the limited range of mechanisms reflects an immature market and an aversion to risk by both borrowers and lenders. A reliance on grants, when there is enough of them to go round, has made the situation difficult for all organisations.

"There is a finite supply of charitable money and insufficient to go round - a situation that will only worsen in coming years," it says.

The sector does not have a "sufficiently resilient" supply of capital, with a lack of opportunity for philanthropists and the general public to get involved in social investment, it adds.

There are relatively few operators in the social investment arena, and a large section of the funds available for borrowing comes from one source, the report concludes. Almost half the funds come through Social Investment Business, the newly created organisation that runs Futurebuilders, it says.

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