A concept I struggled to get my head around as an idealist at school was why people working in charities didn’t all do it for free. After all, charity was supposed to be about donations and volunteering, not getting paid!
Now that I’m working for a charity with bills to pay – but no less of an idealist – I feel that my views have altered somewhat.
Just as charity workers are not exempt from paying rent, the organisations they work for don’t exist in a financial vacuum either. There are overheads to cover, cash flows to manage, and projects to grow and develop. In essence, there is little difference between charities and businesses, except that their primary aim is to achieve social rather than financial returns.
But the difference in outputs translates into a limitation on how charities can raise capital. Most companies can unlock the value of their future cash flows but charity income is generated mainly from either grants, donations, fees or contracts. These are not always flexible enough however to finance, say, capital-intensive redevelopment projects.
That is why initiatives like Scope’s layered financing model, CityLife’s Charity bonds, or the Social Impact Bonds launched today are so encouraging. It’s products like these that are pioneering the development of a social investment market and opening up alternative asset classes to a broader supply base. (One day we might even have a charity version of Kiva…)
So how do we develop the social investment market? It’s not that there is a lack of diversity in charity financial products. Venturesome’s guide to financing civil society outlines a range of financial products that are available (p.15).
The issue lies in the accessibility of appropriate financing. According to NPC’s research on social investment (p.12), it has been a struggle to persuade philanthropists and investors to take up these products. For philanthropists, the very concept of interest-bearing loans smells immoral, and for hard-nosed investors, well, they’re just not all that concerned about blended value.
What we need for the social investment market to thrive is an attitude shift, so that the plethora of activities that charities engage in are matched with a range of financial products to fund these activities.
With cuts coming we need to develop the social investment marketplace. This can be combined with a vision of the Big Society where members of the community become shareholders who, instead of lobbying for financial value like their corporate counterparts, work hard with charities to generate blended social value from the bottom up.
Ladies and gentlemen, there’s a lot of good work waiting to be done!