What is Social Finance

Up until this point the sector has always taken a cautious approach to debt. However, as philanthropic donations and grant aid opportunities have diminished, new forms of finance have been developed.

Social Finance is a provision of funds to the sector in a way that creates a positive social impact, a social dividend, along with an economic return.

As one of the core themes of the work of the Building Change Trust, £2million was allocated to encourage innovation and change in the local funding landscape.

Nigel McKinney, Building Change Trust, Director of Operations, said: “Social Finance is less well developed in Northern Ireland in comparison to other parts of the UK.

It is clear Northern Ireland community and voluntary organisations will need new types of financial products and investment to enable developments to take place".

Growing numbers of organisations across the UK are looking for ways to make their finances work more effectively for the sector. For some, this has meant ‘recycling’ their money, by investing financial returns into other social sector organisations.

For others, it has meant generating a financial return for their investors, which then goes back into the sector.

Social Finance can come in various models. We have outlined a few below:

Community Investing – This involves investments being made directly into disadvantaged communities by offering small loans to fund non-profit groups, affordable housing initiatives and small business start-ups.

Microfinance – This is a type of financial service that provides small loans, savings and insurance as part of a sustainable plan to encourage the holistic development of a community.

Social Impact Bonds – These are a form of outcomes-based contracts in which public sector commissioners commit to pay for significant improvement in social outcomes.

Social Enterprise Lending - This is a form of Social Finance which involves the practice of offering loans below current market rates to social enterprises and other organisations pursuing social goals.

Philanthropic Grantmaking – This is when grants are made to respond to important community needs.

Venture Philanthropy – This follows a similar format to venture capital finance for business, but focuses the end result on achieving social good.

To find out more about the work that the Trust is doing in the area of Social Finance, click here.