The charity sector’s income from grants and donations will fall by 11 per cent in real terms over the next five years, but social investment mechanisms will be able to plug the gap, a report published yesterday predicted.
Cass CCE director of social finance Mark Salway surveyed 127 charities for his report, Social investment as a new charity finance tool, and found 60 per cent were positive about social investment, with 17 per cent saying it could be transformatory to their business models.
However, 33 per cent said they felt social investment would bring little change to their organisation and 7 per cent were against it because they thought that borrowing in charities was not appropriate.
The report, for which 120 face-to-face interviews were also undertaken, says charities are concerned about how they will create a revenue generating model to pay back any social investment.
Trustees more cautious
Trustees interviewed were on average 20 per cent more negative about social investment compared with their charity’s chief executive or finance director.
But, based on analyses of published figures, the report says income from traditional sources like donations and grants is falling in real terms and says 11 per cent more demand, equivalent to £4bn–6bn capital, for social investment or borrowing will be required by charities in the next five years.
The report says an opportunity for more charities to take on social investment may come from businesses becoming more concerned with the environmental, social and governance impact of their work.
It therefore says addressing trustees’ risk aversion towards social investment will be critical if social investment is to be successful.
Salway said: “We believe that charities need to be able to use both head and heart to overcome traditional reservations about perceived commerciality, and to develop robust financial models that will support social impact and the creation of a sector fit for the challenges ahead.
“Social investment can often seem overly complicated; however, the reality is that small-value loans are one of the most powerful investment tools to help charities grow and leverage their funding. A mix of grants, donations and social investment funding is now seen as the future for many.”
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Charities want more examples
At the report’s launch in London last night, Salway was told by one charity finance professional that more examples of successful social investment programmes were needed to convince more charities to adopt them.
Although the report does not include such examples, Salway agreed and said that was an area he was looking to work on next.
He also recommended the Good Finance website, which launched in April, as a useful resource for case studies.
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