Focus: Finance and Governance - Outlook - What we really mean by 'investment'

Julia Unwin is a former Charity Commissioner and now works as a consultant in the sector.

It has become commonplace in debates about the funding of the voluntary sector to talk about investment - it somehow sounds better than grants, more businesslike and perhaps more grown up.

We tend to use the term loosely - and variously - to mean funding that is long-term, helps organisations to develop and doesn't have too many strings attached.

We also use it to mean funding that is a loan, not a grant, funding where you have to demonstrate a return on the investment and funding that somehow 'feels' different from what is dismissively referred to as 'old-fashioned grant-making'.

But what are we really trying to describe? Have we just adopted language from another sector and used it in our own way?

In the private sector, investment means the use of capital to create a return; it will often mean ownership. Most small businesses have limited investment in this sense. The owner might have invested start-up capital and might be able to access bank overdrafts and loans. The latter are credit products, not strictly 'investments'; the bank is judging if it will get its money back, not whether its capital can grow.

Sometimes a small business can benefit from an injection of capital from someone who thinks the business has potential and is willing to take a risk. In time, such investment capital could come from other sources, such as specialist investors or the capital markets.

When this happens, a business ceases to be owned by the individuals who set it up; instead it is owned by the institutions that invest in it.

Ownership and profit are not drivers of return in our sector. We are driven by social impact - that's our 'return'. We want to invest in order to deliver more social impact. So can that help us to use the term 'investment' more consistently?

We are not investing when we fund recurrent expenditure, but we are when we provide finance that helps build stronger organisations. The notion of 'investment' is driven by intention.

Given that, I think we can define 'social investment' in two ways. First, by impact - funding intended to build capacity over the medium to long term. This could include grant-making, but would exclude a short-term working capital loan facility. Second, by mechanism - any form of funding where there is a combination of social and financial return. This would exclude long-term engaged giving, but would include any form of loan or recoverable grant.

The former is closer to how the private sector sees investment, although we do not have the convenience of a purely financial measure. The latter is probably the way the term is most commonly used in our sector.

We need to be cautious about our language, really precise about what we mean and really honest when we don't understand it.


- The word 'investment' has become popular in relation to the funding of the voluntary sector

- However, the term is often used loosely and has different meanings in the private sector and the voluntary sector.

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