The launch of Big Society Capital and the resultant debate about the potential contribution that social finance can make to developing charities are in danger of creating an unnecessary division between small and larger charities. It's time for some rebalancing of this issue and the debate.
The fact is that many charitable organisations, including local community groups, could benefit from investment for a variety of reasons, including: financing improvements to existing premises, or even acquiring new premises; enhancing capacity and funding development programmes for staff, volunteers and trustees; creating new fund-raising revenue streams; and enabling them to contract with the public sector and finance upfront bid and cash-flow costs.
Of course, the majority of small charities deliberately choose not to contract with the public sector. And even where charities do contract, they may prefer and press for payments systems that do not over-expose them to long gaps between their spending and receipt of payments. And those charities that do contract have to be careful to receive payments and fees that cover full cost recovery plus investment funding, however it is financed.
Not every voluntary and community organisation will wish to 'risk' taking out a loan that will have to be repaid. Some will not have the appetite for this; some will be opposed in principle; some will not have a mandate for investment; and some will not have the balance sheet or the expectation of future revenues to persuade investors to loan to them.
When organisations can secure voluntary charitable income and/or grants to finance investment decisions, not to consider a loan would be a prudent decision.
Some people in the voluntary sector argue that it is wrong to pay interest which is then returned to an investor (public, private or third sector) - if they take out a loan. Such an attitude is prima facie understandable but perhaps not always right. Much social investment is patient and makes low returns compared with other investments however investors are still taking risks so there will be some cost for such capital.. Of course, it should be remembered that most if not all fund raising costs money and involves some risks.
Much of the current debate appears to focus on debt rather than investment - and I think this is significant. Is it derived from an overly risk-averse mindset or a realistic assessment of the advantages and disadvantages of taking out a loan? There may be benefit in considering each instance on case-by-case basis rather than generalist statements.
And in any case, have programmes such as Community Builders demonstrated that loan-based investment can work for many small community organisations, whilst accepting that it will not be the choice of them all?
Still, when considering a loan to finance investment, trustees and executive leaders have to be satisfied regarding a number of factors, including:
•confidence that such investment is not incompatible with their mission and values
•the business case stacks up - that the risks are manageable and that there is a realistic prospect of being able to repay the loan with interest
•the value and benefit of taking a loan to finance investment outweigh the costs
•there exists the necessary commercial skills and capacity - or that they can secure this as part of the preparation for taking on a loan
•there is no other cost efficient/lower risk method of funding such investment
•the investment can be sourced competitively and from reliable sources
Of course, even if they can satisfy themselves on all these points, it may be the case that many smaller organisations will still be unable to justify or be comfortable with pursuing this approach because of their size, their capacity and their ability to bear a loan on their balance sheets.
Therefore, it is essential that the public sector, including local authorities, do not assume that grant funding or contract prices which allow for building up development funds are no longer necessary.
Similarly, philanthropic corporate and individual donors must be encouraged to continue to fund charity investment projects.
Much of the recent coverage and promotion of The Big Society Capital and other social investment opportunities have, perhaps inevitably, focused on the larger social enterprises and charities.
However, surely now, consideration also needs to be given to arrangements that could allow smaller organisations to seriously consider such investment. There are several options that could be explored including:
•specialist investment funds that would be willing to take greater risks by investing in small organisations with small balance sheets and/or possibly looking for longer term repayments and lower interest rates
•developing hybrid funds that would involve different balances of investment capital and grant
•intermediaries facilitating the above and providing grants and specialist expertise to support the development of the necessary capacity for organisations to be investment ready and, post-investment, to manage the arrangements
•small organisations forming co-operatives to build capacity and share resources
•local infrastructure organisations brokering such arrangements where there is a demand
•local infrastructure organisations working with local businesses, public bodies and the public to raise investment funds that could support and invest in local organisations.
The current social investment incentives and initiatives are far from perfect and are certainly not a panacea for the charity and social sector - but they can make a difference in the right circumstances. They should complement, not replace, other funding - and must be seen as capital and not revenue funding. However, it would be an error and a lost opportunity if they were so designed such that they discriminated against smaller organisations.
All of the social and charity can benefit from investment - it just has to be the right type of investment for each organisation.