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Charities are very interested – but cautious – about innovative ways of funding development: New paper

Press release: 20 May 2024: In an era of growing humanitarian needs and tighter aid budgets, charities are increasingly interested in other ways to fund international development, alongside traditional grant giving, such as impact investing, development impact bonds and 'recoverable grants'.


However, while many can see the benefits of adopting such models of financing, including greater sustainability and increased impact, others are concerned about the risks – including the perception that they are 'making profits on the backs of the poor'.


That's the finding of a discussion paper, From Aid to Investment, subtitled Learnings for faith-based NGOs, foundations and other grant recipients, published by FaithInvest, an international, not-for-profit network serving faith-based investors, and Christian Aid's Salt Business Network. It is released ahead of a roundtable in London on Thursday 23 May entitled Social Impact Investment in Development, that will discuss the role of impact investing and other 'grant alternatives' by NGOs.


61% of NGOs 'very interested'

The discussion paper found that 61% of NGOs contacted were 'very interested' and 39% were 'moderately interested' in using grant alternatives alongside traditional grant giving. Grant alternatives are financial mechanisms that involve seeking social or environmental benefits alongside an expected financial return. In addition, 78% of respondents said it was likely or very likely that they will use such financing options within the next three years.

 

Although the sample size is relatively small – 25 development agencies, mostly faith-aligned – the paper is also based on discussions at a major conference, Liveable Futures, held last year by FaithInvest and Christian Aid. It was attended by more than 100+ delegates from faith-aligned development agencies, business networks and philanthropies, which together represented more than £650 billion AUM (assets under management) and projects supporting over £100 million people a year.

 

Ongoing income

The advantage of using grant alternatives is that unlike traditional grants, which once given are gone forever, they offer the possibility of ongoing income. Examples include impact investing, blended finance, development impact bonds, recoverable grants and many other “below market rate” vehicles and methods.


However, as the paper finds, moving in this direction and embracing models that include the idea of profit requires a shift in mindset in NGOs and development organisations.

For many NGOs, the gut reaction to profit is 'What? We're going to make profits on people's backs?' But when you explain you are creating a model that is profitable because otherwise the money is just gone, their mindset changes. – Dr Matthais Braenlick, Lutheran World Federation

Dr Matthais Braenlick, Global Partnerships Director for the Lutheran World Federation, explained: 'For many NGOs, the gut reaction to profit is 'What? We're going to make profits on people's backs?' But when you explain you are creating a model that is profitable because otherwise the money is just gone, their mindset changes.'

 

Stewart McCullock, CEO of Stewardship, added: 'A small profit reinvested regularly is something that can give huge amounts of leverage. Quite often a grant is given once, whereas with an investment, every pound could be used 20, 30, 40, 50 times.'


We started a small pilot impact investment fund of two million euros in 2016. Seven years later it is transforming our organisation. Last year our fund made a profit of €102 million. – John Weakliam, Vita Impact

 

And an investment fund can be a game changer for a charity, as John Weakliam, CEO of Ireland-based Vita, told the conference last year: 'We started a small pilot impact investment fund of two million euros in 2016. Seven years later it is transforming our organisation. Last year our fund made a profit of €102 million. Obscene profit! But what is that for? It is to benefit the community and they will benefit from 90% of that profit. There is such a thing as a win-win situation.'


However, there are also real concerns among NGOs, including the risk of investments failing, lack of staff expertise, internal culture/perception, and whether existing programmes are suitable for a more business-like approach.


The risk is you are jumping into bed with strange bedfellows.... You don't know if you can maintain your stand, your values, your ideologies and principles, or whether you will be co-opted. – Participant

As one participant commented: 'The risk is you are jumping into bed with strange bedfellows.... You don't know if you can maintain your stand, your values, your ideologies and principles, or whether you will be co-opted.'

 

The upcoming roundtable, Social Impact Investment in Development, on Thursday May 23 reflects the growing interest in grant alternatives for faith-based NGOs, and will serve as a platform to explore innovative strategies that harness the power of faith-based organisations and impact investment for the greater good.


The international development sector spends well above US$200 billion each year, and faith-based agencies are some of the biggest NGOs working to deliver transformational change for the world’s poorest peoples.


Instrumental actors

Samuel Williams, Christian Aid's Strategic Private Sector Partnerships Lead, said: 'Faith-based NGOs are instrumental actors in global development, driven by their convictions to address societal challenges.


'Impact investment plays a crucial role in supporting the activities of these organisations, enabling them to implement projects and programmes that promote social justice, humanitarian aid, and community development.'


Mathew Jensen, FaithInvest's Director of Faith-Consistent Investing, added: 'It is encouraging to see the strong interest in grant alternatives among faith organisations, providing yet another avenue for furthering faith-consistent investing to create positive change.'

 

By embracing the principles of grant alternatives, leveraging their unique strengths, and fostering collaboration, faith-based NGOs can play a pivotal role in advancing sustainable development and building a more equitable and compassionate world.


By embracing the principles of grant alternatives, leveraging their unique strengths, and fostering collaboration, faith-based NGOs can play a pivotal role in advancing sustainable development and building a more equitable and compassionate world.


  • Read the full paper by clicking below.



 

Notes for editor

FaithInvest is an international, not-for-profit network serving religious groups and faith-based investors. Founded in 2019 to help faith groups to invest in line with their values, FaithInvest supports the rapidly growing movement of faiths and faith-based asset owners actively using their investments to create a better world – for people and planet. FaithInvest does not provide investment advice or make investment decisions for faith groups. www.faithinvest.org

 

Salt is Christian Aid’s Business Network for business leaders committed to achieving a world without poverty. Our aim is to inspire, inform, support and equip each other to run better businesses and help eradicate poverty


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