Finance News: Funders put enterprises at risk

Social enterprises are being jeopardised by funders' failure to get to grips with the financial needs of the voluntary organisations that run them, according to new research by the Charities Aid Foundation.

CAF claims there is a "significant mismatch" in the expectations of private and public-sector financers and the not-for-profit groups they support.

CAF warns that unless these "inherent tensions and contradictions" in the different sector agendas are overcome, social enterprise will struggle to make an impact.

"Potential investors and funders need to get to grips with how social sustainability has developed, why volunteers and unpaid staff give extra time, how staff interpret their social mission, the unique knowledge and expertise the organisation has built up, and how all of this social capital needs to be nurtured and supported alongside the provision of finance," the report states.

Social enterprise has been widely praised as a win-all method of providing competitive loans that enable not-for-profit groups to operate schemes that benefit the community. The London Business School recently claimed 6.6 per cent of the UK population is involved in some form of social entrepreneurial activity.

But CAF's report, Social Enterprise in the Balance, which was produced after studying four projects over two years, puts the activity in a more critical light.

Cathy Pharoah, director of research at CAF, said voluntary groups remained too dependent on the whims of funders and weren't encouraged to take control of their projects.

"I was surprised by the findings," she said. "I didn't expect grants to still be playing such a big role. The social enterprise framework needs to be developed considerably if we are going to encourage and help charities generate more sustainable income.

"There is a great interest in the third sector playing a bigger role, but until we address its specialist needs it's going to be difficult for it to fulfil its capacity.

"It's a bit early to say social enterprise is failing - we are still learning. There has been a lot of interest surrounding it, but if the issues are not addressed we will not see significant levels of sustainable income in the voluntary sector," said Pharoah.

The report recommends establishing a clear definition of what social enterprise means, more long-term funding, and urges policy makers to recognise that enterprise depends on failure as well as success. "It's a very risk-averse culture," said Pharoah.

It also calls for better auditing to measure social returns and more support and training for staff on the ground. "One example might be to fund a minimum of three agencies to produce a pilot paper and web-based materials, and to conduct peer mentoring and training exercises," states the report.

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