Social Investment - what is it?


Most charities will probably have heard of Social Investment, but it is highly likely that many don't understand how it works. Hopefully these blogs (this the first in a series of 3) will help to clarify what it is and if it is something that could be relevant to your charity.

Put simply, Social Investment is a repayable investment (loan) into a social organisation (charity) to help it undertake its charitable actions. The investment comes from those who want to use their money to produce better social outcomes whilst also securing a financial return rather than just putting it into a bank or into an unethical investment.

Social Investment can take many forms. A very simple example of Social Investment is where a local charity approaches a social investment organisation for a loan. In Scotland there are a number of social investment organisations with the sole purpose of providing social finance to charities and other third sector organisations. A loan can be in the form of:

  • a mortgage to purchase a building or another asset
  • it can be a bridging loan to be used whilst waiting for a grant to be paid
  • it can be a loan to start work on a project before a payment of a contract invoice or
  • it can be a loan to assist the charity to develop a new project or new and better ways of working

In Scotland, perhaps the most visible and successful social investment format is Community Shares. This is where local people (investors) lend money (capital) to local organisations to purchase community assets or set up community businesses e.g.g Portpatrick Harbour or Glenwyvis Distillery. The money will be repaid after a specified period of time and in many cases investors will also get a % return on their capital.

Although the idea of borrowing money is difficult for many charitable trustees to comprehend or accept, the reality is that it is becoming an increasingly normalised way of operating for many charities. Against a backdrop of declining grant availability, reducing government funding at all levels, and a decrease in charitable donations as a result of a fall in public confidence in charities, many organisations have started to look at social investment as a way of delivering services.

Social Investment is not for every charity, but provided that the charity has a viable way of repaying the money, social investment can free up organisations to undertake what it wants to do rather than what grant funders want it to do. In many cases the paperwork required for a social investment can be less onerous than applying for a grant or indeed less work than organising a fundraising event. So, it might be worth your while to consider it as an option for your organisation.

Pauline Hinchion is the Director of the Scottish Community Re: Investment trust (SCRT)

Written by: Pauline Hinchion