The findings come from two years of in-depth research involving 120 face-to-face interviews, a large social investment symposium and an online questionnaire.
60% of all charities surveyed were positive about social investment, with 17% saying it could transform their business models. The research estimates this shift towards social investment will account for approximately 11% of funding, equivalent to around £4bn–6bn capital for the sector. On the other hand 7% were openly negative about social investment.
Report author Mark Salway, Director of Social Finance and Social Investment at Cass CCE, says: “Social investment can be a powerful tool to help address social issues and fund the charity sector, especially where there is clear alignment of motivation between charity and investor. But it is not suitable for all charities; it is not a silver bullet to ease all funding issues, and it takes time and effort to implement.
“We believe that charities need to be able to use both ‘head’ and ‘heart’ to overcome traditional reservations about perceived commerciality, and to develop robust financial models that will support social impact and the creation of a sector fit for the challenges ahead.
“Social investment can often seem overly complicated; however, the reality is that small-value loans are one of the most powerful investment tools to help charities grow and leverage their funding. A mix of grants, donations and social investment funding is now seen as the future for many.”
The market for social investment continues to build at a rate of 20 to 30% per annum and has reached around £1.5bn capital, according to the latest figures from Big Society Capital (2016).
However, one of the main barriers for charities using social investment as a funding tool is its lack of understanding about it. Some charities feel conflicted or uneasy about using borrowing or investment tools and others have ethical concerns.
In contrast to general trends, the report found that many charities would not borrow for working capital, fundraising or even for property. Charities are also concerned about how they will create a revenue generating model to pay back any such investment.
Interestingly, trustees were positive on almost all aspects of charity finance strategy, but were 20% more negative about social investment compared with the CEO or Finance Director. Addressing trustees’ risk aversion towards social investment will therefore be critical if social investment is to be successful.
Salway says: “Our research shows that if organisations understand social investment, they are more likely to use it and think positively about it. We need to develop training and mentoring for the sector, and especially the capacity of finance professionals, who often focus on finance to the exclusion of impact.
“There is huge inquisitiveness and eagerness to learn within the sector and we now need to build the social investment market thoughtfully and purposefully for the future.”
The report is available for download for free here