Charity bonds, the UK equivalent of community bonds, have taken off rapidly in recent years. From 2012-2020, the charity bond market grew by a remarkable 62x! The size of the market is now estimated to be around £337 million – an astronomical leap from the mere £5.4 million in 2012. More than 30 organizations have seized the opportunity to issue charity bonds and raise capital from their communities of supporters.
In this article, we explore the immense growth of charity bonds in the UK and what this could mean for community bonds in Canada.
Let’s start off by understanding the similarities and differences between charity bonds in the UK and community bonds in Canada.
- Interest-bearing loans, with a fixed interest rate and a fixed term
- Used to finance socially and/or environmentally impactful projects
- Organization issuing the bond must have a source of revenue that will enable them to repay investors
- More flexible than bank financing because terms are set by issuers and funds are raised from supporters
- Engage a variety of investors (individuals, foundations, trusts, etc.)
- Can be held in tax-advantaged accounts
The table below highlights key differences between charity bonds and community bonds:
|Charity Bonds||Community Bonds|
|Issued by charities and social enterprises||Issued by non-profits, charities, and co-operatives|
|Usually unsecured loans (no asset to back investment)||Usually secured loans (asset to back investment)|
|Tradable on the London Stock Exchange||Not tradable|
|Typically unrestricted funds||Typically restricted funds|
A market to trade charity bonds
In 2014, the first charity bond was publicly listed on the London Stock Exchange, and many have since followed suit. Being able to list on a public market has provided charities and social enterprises with access to a bigger market, allowing them to reach their investment target more efficiently.
Organizations do not issue their charity bonds directly on the stock exchange. Rather, they go through a “special purpose vehicle” called the Retail Charity Bonds Plc. (RCB). RCB is governed by an independent board of directors who reviews applications from charities and social enterprises. Upon approval, RCB issues the charity bonds on the London Stock Exchange, and then investors can buy and trade the bonds in the secondary market just like any other bond or stock. Fun fact: most organizations can raise their required financing within 1-2 weeks after they launch an offer!
Community bonds are not yet tradable in Canada, however, as the market continues to grow rapidly, we are hopeful of such initiatives. Based on the UK experience, it’s clearly a win-win for investors and social purpose organizations.
Building confidence has been critical
In 2014, Big Society Capital launched the Charity Bond Support Fund, in collaboration with Rathbones. The purpose of the fund was to co-invest in campaigns alongside retail and institutional investors when campaigns were not fully subscribed. This had a dual purpose – to give confidence to issuers that they would reach their targeted investment goal, but also to give confidence to investors. The initial fund was £30 million, but has since grown to £163 million with a diverse array of investors engaged.
The emergence of sales platforms has helped the community investment market to grow
Many community investment platforms have been developed in the UK to a) encourage organizations to use social finance tools and b) encourage individuals to invest in social finance tools. For example, Ethex is a non-profit community investment platform that connects social purpose organizations with investors. In 2020, Ethex and Energise Africa raised a total of £100 million of people-powered finance to benefit over 200 community-oriented projects.
Such sales platforms have brought charity bonds into the mainstream by making the investment process simple yet professional. It is now easier than ever to invest with impact in the UK.
By learning from partners, both near and far, we at Tapestry continue to foster community bonds as a mainstream form of financing and an avenue to invest in society.
About this Blog Series
Hi, my name is Jasleen Bahia, and I was once an Intern at Tapestry Community Capital. I am now completing my degree in business with a focus on social finance, and I’m currently doing a semester abroad in Europe. While here, I am Tapestry’s Ambassador to the UK. This blog series documents my adventure abroad learning about the social finance ecosystem in the UK and connecting it to our growing community investment marketplace in Canada. I am eager to find out what we can learn, replicate and share!