EDITORIAL: Social investment offers charities a viable alternative

Lucy Maggs

The Esmee Fairbairn Foundation has announced that in addition to its grant-giving programme it has set aside £3 million to be used in loans to charities.

The move coincides with the launch of the Magic Roundabout report (see News in Focus, p12), which encourages charities to use their charitable funds to make loans to other organisations and individuals provided the money is used in accordance with their charitable objectives.

Programme-related investment, or social investment, as this is called, is a useful way for grant-making trusts to recycle money. At a time when many trusts are cutting the amount they hand out as the value of investments decline, this is a useful way to keep up project funding. Of course, making any investment is not without its risks, it is possible that the recipient of the loan may not be able to pay it back fully. But even if the charity only gets a small amount back, this can still be used.

For charities that don't give grants, it is a useful way of investing money at the same time as using their funds to achieve the charity's objectives.

Charities were using programme-related investment over a 100 years ago, but more recently many trustees have been convinced that they cannot invest in this way as they are restricted by a legal obligation to maximise investments.

However, according to the Charity Commission, this isn't a problem.

Conventional investments generate income but funds are not put directly to work in achieving the charity's goals. But programme-related investments are not restricted in the same way, and trustees need not comply with the obligation to maximise financial returns.

It seems a shame that such a simple, straightforward idea has not been exploited due to a misunderstanding. So let's hope this report gets the message across, and trustees start to take advantage of social investment.

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