So said David Carrington, the charity consultant and former chief executive of the PPP Foundation, in 2002. He was bemoaning an "investment orthodoxy" in the voluntary sector which was stifling the flow of funds into community development finance institutions - the loan funds that support community ventures in deprived areas.
Has much changed since then? Well, the government is certainly doing its bit. The Home Office-backed Adventure Capital Fund was launched in late 2002 to provide new forms of investment for community organizations. And Futurebuilders, the Treasury’s £125m fund to facilitate the voluntary sector’s involvement in public services, includes a large element of loan finance as well as conventional grants. But questions remain about whether big voluntary organisations are lending as much money as they could to smaller groups - such as social enterprises - whose aims complement their own.
Programme-related investment (PRI) - also known as social investment - involves charities using their funds to advance their charitable objectives by financially supporting other organisations while at the same time receiving a return on their investment. For example, a homelessness charity could invest in a smaller charity opening a refuge or an anti-poverty group could back a venture to provide employment in deprived areas.
Legally speaking, PRI is not an investment at all, since the normal Charity Commission rules on investment do not apply and charities are not obliged to maximise their financial return. Indeed, the prime concern is to further the aims of the charity making the investment.
But in a period of increased pressure on charity income, the financial benefits of PRI should not be overlooked, according to Keith Hickey, chief executive of charity finance directors’ umbrella body CFDG and co-author of the Magic Roundabout report on PRI for charities – which was enthusiastically endorsed by Gordon Brown on its launch in 2003.
"Charities have always had a duty use money wisely. This is a way of using it even more wisely by moving money on," he says. "If you give a loan, even if you only get 10 per cent back, you have 10 per cent you can use."
Help the Aged – where Hickey used to be finance director – and Age Concern pioneered PRI by backing Prime, a not-for-profit organisation which helps the over-50s set up new businesses when they can’t access finance from conventional sources.
Each charity made a loan guarantee of £50,000 to Prime, which enabled the organisation to secure a larger loan from Lloyds TSB.
PRI does represent a risk - the recipient charity could default on the loan and the investor might have to consider legal proceedings to recover the money. Hickey says that trustees should be prepared - as a worst case scenario - to lose everything they invest.
But compared to simple grant funding where the charity immediately writes off the entire amount, PRI could be seen as a better use of scant resources.
Charities are not banks and many may shirk from the administrative commitment of monitoring loan deals with other charities. But organisations that want to engage in PRI have the alternative of doing so indirectly through community development finance institutions.
There are now around 60 local CDFIs in the UK, handling more than £320 million of investment and some national ones such as Charity Bank.
Housing association the Peabody Trust deposited £500,000 with the Charity Bank to further its charitable purposes of "helping the poor of London".
"We have chosen to deposit a prudent portion of our reserves on a double bottom-line basis," says a spokesperson for the trust.
"We take 2 per cent return on our investment safe in the knowledge that our funds are being put to direct social use. Also, Charity Bank has a strong record of repayment so this is not only sensible from a social perspective, but it is an extremely low-risk investment."
Carrington, a member of the Social Investment Taskforce which called for encouragement of PRI by charities, says: "If charities use reserves and in better times equity capital for programme-related investment, it means more money in circulation for dealing with today’s problems, rather than being locked away in traditional investments for dealing with tomorrow’s problems."