Focus: Finance and Governance - Outlook - The crucial role of social investment

John Kingston is the founder director of Venturesome.

When you purchased your first flat or house, did you save up 100 per cent of the purchase price, then buy? Or did you take out a long-term loan to help you out?

I have asked that question of hundreds of people in discussions and conferences in the five years since Venturesome was launched. Only once has a hand gone up for cash, and that was an investment banker returning to the UK from New York. The rest of us use a well-known financial mechanism (a mortgage) to help us acquire the property.

In the voluntary sector, however, we have traditionally saved up the money in cash. The iconic thermometer outside the church or village hall reminds us how far we need to go, and normally has to be increased more than once for building cost inflation because of the length of time it takes to raise the cash. And sometimes good, fundable projects never happen because no one actually believes the cash will be raised.

Social investment is all about using some everyday financial mechanisms to achieve social impact: a loan to buy a property, an overdraft to help with cash flow, investment capital to build capacity, buying shares in a business such as Cafedirect to achieve both social and financial return.

Social investment does not compete with grants. It is a handful of extra tools that work alongside the crucial contribution of grants and fundraising.

Grants and fundraising are fundamental both to covering recurrent costs and to the 'start-up' phase of innovation. We can and should challenge grant-makers to invest in building the capacity of innovative voluntary organisations and to contribute (handsomely) to core costs. We should fight against the dominance of project funding, but we should recognise the crucial role that can be played by grants and other forms of fundraising.

The social investment idea is not new - examples have existed in both the UK and the US for at least 20 years. What is new is the emergence of specialist providers such as Futurebuilders England, Charity Bank and Adventure Capital Fund, and the growing interest from mainstream banks in lending to charities. Grant-making trusts are also exploring using some of their resources through social investment (Northern Rock's loan fund and Esmee Fairbairn's support of Venturesome, for example).

The litmus test for the providers of social investment is whether they can help use a limited resource (money) to help achieve more social impact.

If not, they are wasting time and resources. If they can, they will help charities and other social enterprises to achieve more, and more quickly.

KEY POINTS

- Good projects sometimes don't happen because the money cannot be raised

- Social investment uses everyday financial mechanisms to achieve a social impact

- It does not compete with grants or fundraising

- Specialist providers have emerged in recent years.

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