A new social investment fund that allows philanthropists to ‘perpetually invest’ in creating more robust charities was launched by the Charities Aid Foundation (CAF) on Monday.

The CAF Social Impact Fund will offer loans to charities to help them build the capacity of their operations Repaid loans can be recycled as investment in other charities.

CAF aims to widen the potential pool of social investors beyond grant-making organisations, businesses and a handful of individuals to all major donors who want to use their philanthropic capital for a social return.

John Low, CAF CEO, said, “Charities often find it difficult to get finance from mainstream lenders. Yet finance is key to helping charities build a strong and stable position and grow to meet increased demand, or expand their services. 

”Major donors are becoming more interested in the innovative ways in which they can help charities and achieve a greater social impact with their charitable donations.  I hope that through the CAF Impact Fund hundreds of charities will be strengthened and donors will enjoy seeing their money help many more charities and social enterprises.”

Paul Cheng, of CAF Venturesome (CAF’s social investment arm) says: " The fund has been three years in the making and is the first retail social investment product in the UK that invests directly in charities and social enterprises. The Fund offers philanthropists a unique set of benefits: recycling capital for multiple impact, access to hard-to-find charities, convenience of having CAF perform all the due diligence saving donors time and expense, and regular update reports on the Fund's impact."

Donors who already hold, or open a CAF Charitable Trust will be able to make an investment into the fund of £10,000 or more for a fixed period of between three and six years.  When the term is completed CAF Venturesome expects the funds to be returned to the investor’s charitable trust in full for them to either reinvest in the CAF Social Impact Fund, or to donate to charities in the traditional way.

CAF estimates a £50,000 investment in the fund could result in over £150,000 being loaned to charities over three years, or more than £220,000 over five years, if tax reliefs were returned to the fund.

CAF Venturesome’s track record shows a less than 4% default rate on their loans across the risk spectrum.  The CAF Social Impact Fund will provide low risk loans.

Each application for a loan will go through a thorough due diligence process with an independent investment committee reviewing every application.  Before a charity formally applies, CAF Venturesome will also spend time with them ensuring they are both “investment ready” and that the investment will achieve a significant social return and has a clear charitable benefit. Investors will be sent regular reports describing the impact their money is having.

Since 2002, the Charities Aid Foundation has, through its social investment arm CAF Venturesome, provided over £22m in loans to over 280 charities, community groups and social enterprises.  The funds have provided working capital, underwriting facilities and bridging loans to charities, which traditional lenders are unlikely to provide because they are perceived as too risky. 

Donors and those Interested in the fund can find out more at: http://www.cafonline.org/socialimpactfund

Philanthropy UK focused on Social impact investment in the last issue of its magazine. In it  you can find out how to invest, about other funds and the opportunities available to philanthropists. Find out more.