Loans can be better than grants

At the start of this year I went on a field visit to western Kenya where, among other things, I saw the work being done by a Youth SACCO (Credit Union) which Mercy Corps had helped establish.

Young Kenyan entrepreneurs were able to get access to finance so they could set up businesses. I saw a shop which had been able to use finance to buy a drinks cooler making it the “go to” stop off place on a dusty road; a weaving workshop not dissimilar to Hebridean weavers I’ve visited and a building business now employing 16 people. All now profitable and repaying the loans.

In the UK we are seeing increasing numbers of funders offering loan finance to social enterprises. Charity Bank and Social Investment Scotland to name a couple.

The JESSICA trust established four years ago by the Big Lottery is succesfully developing a new type of combined grant/loan finance model available for social entrepreneurs and increasingly other social entities are offering innovative forms of social capital.

One of the biggest barriers to the development of any enterprise is the lack of ability to access finance. This is as applicable to social enterprises as it is to the rest of the business community.

There is no reason that individual philanthropists shouldn’t consider going down this route too.

Loan finance encourages good business practice and helps charity trustees run their enterprises along business lines. lt breaks the link between ongoing success and a dependency on grants which can’t always be relied on from year to year.

The model also allows the philanthropist to bring his own skill set to the enterprise, helping model the venture and fine tuning the business plan. It’s great to be able to use your wisdom as well as your wealth.

Finally you get your money back so you can use it all over again to develop the next one. How good is that.