PART TWO OF A TWO PART SERIES
Benedict Rickey, Iona Joy & Sarah Hedley
Social investment is a widely-mentioned concept that is seldom fully understood. This report sets out with admirable clarity what it is (the provision of repayable finance to charities and other social organisations to generate a social return) and the conditions under which it may be an appropriate form of finance.
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 this report notes that investment cannot replace the income that charities receive from donations and contracts, and that it involves significant risk. Therefore, 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.
The authors argue that charities need to meet six basic criteria before they can take on any form of social investment: they need a future income stream, a robust business plan, good financial management, good risk management, support and scrutiny from their board, and the right corporate structure. The report reviews the products offered by 11 social investment intermediaries and identifies five key types of social investment. The report also sets out the two main areas where things can go wrong: the investment might not achieve the intended social benefit; and the charity might not achieve the forecasted income levels needed to repay the investment.
For charities that have considered the risks fully and are confident of a future income stream, the report concludes that social investment can be an effective way to enable them to do more for the people they help.
New Philanthropy Capital: London, November 2011. 32pp. Free to download at: http://www.philanthropycapital.org/download/default.aspx?id=1175