charity news and information

What do you need to thrive – capacity capital loans for charities?

Craig Connelly, Partner – Social Investment Advisory at Perpetual Limited (and former Ian Potter Foundation CEO) wants Australia’s philanthropic foundations to move beyond traditional grant-making and leverage their $18 billion balance sheets to support social change.

Current Guidelines governing both Public Ancillary Funds (PuAFs) and Private Ancillary Funds (PAFs) in Australia require foundations to deploy a minimum of 4% (for PuAFs) and 5% (for PAFs) of assets annually to charitable organisations.

Connelly said PAFs and PuAFs could use their assets to offer 10-year to 25-year interest free Capital Impact Loans. The funds are invested to deliver annual investment income to fund core operating costs in a manner determined by the charity.

In this way, Connelly said, charity leaders and change-makers can focus solely on scaling impact not “worrying where the next dollar would come from to achieve their ambition.” He said philanthropic funds need to ask – what do you need to thrive? – and allow staff to “lift their eyes”.

“We have an opportunity in Australia to maximise the impact of all our available charitable funds, so why aren’t we doing it?” Connelly asked. “Let’s be proactive to use not just the earnings from our wealth, but invest the wealth itself to elevate the voice of social change makers and social-purpose entrepreneurs.”

At the end of the loan term, face value of loan funds is repaid to the PAFs and PuAFs out of the funds invested by the charity.

better charity asked Connelly how Capital Impact Loans could work for small to medium charities who need capacity capital to diversify and grow sustainable income and scale their impact?

“My hope is to … showcase a few Capital Impact Loans (CIL) in the coming 6-18 months. They will inform all interested market observers of what a CIL actually is and then allow ANY NFP, small medium or large, to consider whether the impact loan can benefit them and whether they can then raise loan funds via their networks of supporters. Early impact loans will likely be large or medium organisations as we need to start somewhere.”

You can read Crag Connelly’s thoughtful and compelling article here.

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