|Charity Leaders’ Exchange|
The economic challenges of recent years have meant charities have had to look beyond traditional methods of funding and a market of products based around social investment has developed. But a lot of charities are seemingly still reluctant to consider, let alone use, any form of repayable finance.
Allia is a charity that supports organisations dedicated to making a positive social impact. Director of Social Finance Phil Caroe acknowledges that there was too much hype, especially in the early stages of the emerging market, around social investment (SI) and for many it was seen as a cover for cuts.
“There was understandably a degree of disillusionment and frustration over the amount the government was putting into support for SI while cutting other areas. This wasn’t helped either by the voices claiming that philanthropy was old-fashioned and unsustainable, while social enterprise and finance are the future. But the debate is becoming more mature. SI won’t always be the answer but there’s growing recognition that it can be one useful tool to enable growth and deliver more social impact.”
While acknowledging that the concept of ‘debt’ is still often perceived by charities as something to avoid, Caroe believes that attitudes are slowly changing.
“For those of us who are trying to build the SI market however, we need to be patient. Yes, trustees can be over-conservative, but they are also risk averse for good reason.”
Caroe also highlights the importance of Allia itself being a charity. “The SI market has hugely benefited from people who’ve come out of the mainstream finance sector to use their skills for social good. But inevitably that leads to some mismatches in culture and expectations. Being a charity ourselves avoids those issues.”
Allia’s social finance programme seeks to develop the infrastructure that will enable investment to flow to social ventures. Last year it launched Retail Charity Bonds - an issuing platform enabling larger charities with strong credit worth to raise medium term debt finance on the retail bond market.
Caroe accepts that the direct beneficiaries of the platform will be a small number of the largest charities, but says the aims of the platform are much bigger. “Retail Charity Bonds brings SI to mainstream investors as a familiar financial product that meets their normal investing criteria. And if we get can get investors more interested in creating social impact through their investments we can shape and grow the overall market. Building profile and culture around SI will benefit all social organisations seeking to raise investment.”
Caroe concludes that new markets don’t emerge overnight and Retail Charity Bonds is helping to showcase charities who have used loan finance successfully.
“For some time the talk was largely theoretical, very much ‘how loan finance could help you’, but positive examples are growing and we need to highlight those successes.”
By seeking to develop not only the infrastructure but also the culture for both investors and charities around SI, Allia’s hope is that loan finance will be increasingly utilised and effective in creating greater social impact over the coming years.