THINKPIECE: An investment can pay off in different ways

JULIA UNWIN, OBE, is a charity commissioner

Like all of us, charities are looking for ways to make their money go further, and social investment is increasingly being explored as an avenue. These are not investments in the conventional financial sense: social investments are made directly in pursuit of the organisation's charitable purposes. So, although they can generate financial return, the primary aim for making them is furthering the charity's objects, not making money.

Social investment can take many forms, but the most common is providing loans or loan guarantees. For example, a grant-making charity whose aims include helping the poor or relieving unemployment might agree to loan a community group enough money to run a computer training course for the local long-term unemployed. This loan helps the community group, which might not otherwise have been able to get finance elsewhere, or only at less favourable rates. If the project succeeds the loan will be repaid along with any interest initially agreed. The money can then be recycled in other projects which the lending charity helps, and the charity will get not just a financial return but also a social one.

Although often associated with economic development, regeneration or the relief of poverty or unemployment, social investments can be used to promote any charitable purpose.

Sometimes, large sums are invested to allow the development of major projects. In other instances, much smaller amounts are made available for straightforward purposes, such as buying new equipment or renovating buildings. And sometimes loans will be provided alongside grants.

There is almost certainly scope for more charities to engage in social investments. If handled well, they can increase the help a charity can offer in the short to medium term since it allows funds to be recycled to support a greater number of projects.

Different charities will value different aspects of this type of investment.

Some will decide to support projects promising a good financial return because they feel greater benefit will be gained through the recycling of funds. Others might choose instead to support less certain prospects because they are innovative and, if effective, will deliver significant social benefits. Others might decide on a balance between the two.

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