How Social Investment Can Benefit Charities and Communities

WHEN it comes to funding, charities and trustees need to re-think the way they access finance to stimulate growth in the North East, as LUCY ARMSTRONG, a non-executive director of the North East Social Investment Company (NESIC) explains.

With fewer grants available, changes in commissioning and greater competition for public sector contracts, charities are having to explore new ways in which to generate funds and achieve their objectives.

To a private sector company needing to achieve its business plan goals, the solution would be clear; raise capital – and borrowing would be high on the list.

In fact, borrowing money is not in itself an innovative way to raise funds – it's always been available to charities – but historically they have steered away from it, relying instead on peripatetic grants and donations.

The funding climate, in the wake of the Brexit vote, remains uncertain, however, pressure on public sector budgets could offer real opportunities for charities and social enterprises in the North East to provide an engine for growth in the region.

The Third Sector can provide innovative ways of delivering crucial services to society. It generates economic benefits, creates employment and makes profit, but it also delivers social impact and outcomes.

And, while delivering social impact, charities and social enterprises are also established on a sound entrepreneurial foundation, where staff are rewarded and profits are generated to plough back into the business.

This marriage of economic and social benefits is already being hailed as an exciting solution to some of the challenges being faced by the contraction of funding from local authorities.

Key to this is social investment, which is simply a repayable loan given to a charity or social enterprise, formed to benefit the community in some way.

Of course, social investment isn’t appropriate for every organisation but, as a business model, there is no doubt that it works.

Trustees need to think like business people. They need to ask themselves if borrowing money will enable their organisation to do its job better, safeguard its future and enable it to meet its aims and objectives.

And, if the answer is yes, then they absolutely should think about borrowing.

The North East Social Investment Company was set up to provide an innovative, regional, strategic solution to developing the market for social investment. It was originally established with funds from Northern Rock Foundation, Big Society Capital, Esmee Fairbairn and the Joseph Rowntree Trust. The Community Foundation have now taken over the role of Northern Rock Foundation

We appointed Northstar Ventures to manage the first fund, the North East Social Investment Fund, which invests in voluntary and community organisations and social enterprises in the region and can help organisations achieve their goals. They have already made a number of really exciting innovative investments.