Commercial loans raise charitable status question

The Charity Commission is to reconsider the charitable status of community development finance institutions because their provision of commercial loans might not meet new public benefit rules.

Of the 74 institutions that are members of the sector's support body, the Community Development Finance Association, 10 are charitable industrial and provident societies. These are currently classed as 'exempt charities', which are not regulated by the commission, but they will come under the regulator's control in 2009 under new Charities Act rules.

The basis of the commission's query is that industrial and provident societies lend to commercial enterprises, which use the money to make a profit.

"If an organisation's governing document allows it to make loans, whether or not they further a charitable purpose, it raises the issue of whether the organisation is furthering a purpose that the law recognises as charitable for the public benefit," said a commission spokesman.

Bernie Morgan, chief executive of the CDFA, told Third Sector that her organisation was still at an early stage of discussions with the commission and the Financial Services Authority.

"I understand why some people could find it confusing, but there's no doubt in our minds that this is providing a public benefit," she said. "If organisations like this had to stop being industrial and provident societies, it would take away the essence of what they are."

The public benefit question will be an added blow to IPSs, which have been warned that they could lose charitable status because they issue shares, which is not permitted under charity commission rules (Third Sector, 19 March).

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