Social investment is a relatively new form of funding, and has the potential to make a big difference to the way the charity sector is funded. However, it’s not for everyone, and there are risks and challenges involved. NPC’s guide to social investment is designed to help charities understand how it works and decide whether it is right for them.
Best to borrow?
This is an exciting time for social investment. Government, grant-makers and philanthropists are investing in the market, keen to generate social as well as financial returns. The loan portfolios of social investors in the UK are now worth more than £500m. Demand from charities is increasing as government cuts and dwindling voluntary donations hit them hard. Social investment could be a way out of this funding fix.
NPC’s guide to social investment aims to help charities understand the risks and opportunities social investment entails and the steps they need to think through before deciding if it is for them. The guide answers two essential questions: what is social investment and should my charity take on social investment?
Social investment has the potential to deliver real benefits for many charities: it can help them scale up services, develop new projects and smooth out uneven cashflow. But it is not the answer for all. Investment cannot replace the income that charities receive from donations and contracts, and involves significant risk.
Charities need to think carefully before taking on social investment: they need to understand the risks and take steps to mitigate them, and be clear how the investment will create social benefit and improve the lives of their beneficiaries. For charities that have considered the risks fully and are confident of a future income stream, social investment can be an effective way to enable them to do more for the people they help.
The social investment market offers us the opportunity to speak to a new network of prospective supporters and offer them an additional way of investing alongside traditional donations and philanthropic loans.