NFPs Address Finance Systems Inquiry

The way charities and the Not for Profit sector access capital is a critical component to the effective and efficient functioning of Australian economy, Not for Profit peak body, Community Council for Australia, has told a Federal Inquiry into the country’s financial systems.

In its submission to the Government’s Financial System Inquiry, CCA said there needed to be a freeing up of capital to support the Not for Profit  sector.

“CCA has taken a broad view of the financial system, but focused our submission on six specific issues impacting across the whole Not for Profit sector,” CEO David Crosbie said.

These include:

1. access to capital;

2. government financial systems;

3. taxation;

4. philanthropy and sponsorship;

5. mergers, collaboration and brokers;

6. technology and services.

“Unfortunately many banks and other financial institutions have difficulty engaging with or underwriting the Not for Profit sector as risks are not always as easy to identify and quantify,” the submission said.

“In an ideal world, there might be a ‘stock market for good’  where investors interesting in achieving various social outcomes and impacts could invest in the broad range of social programs, and organisations delivering better outcomes would be able to attract greater capital and deliver a greater social benefit.

“Concepts such as impact investing are in some ways only just beginning in Australia. New approaches in this area include government backed social development investment and social bonds, but we still have a long way to go if increased capital is be made more readily available to address social needs.”

CCA said it had identified four areas that were critical to improving the financial sustainability of the Not for Profit sector through diversifying the sources of capital:

1. the capacity of the sector to use existing capital and equity, and absorb new capital and investment, noting that the NFP and social enterprise sectors have different and emerging needs;

2. access to capital – how to increase access to long term capital for the sector including capital for construction of social infrastructure and growth of social enterprise. This includes considering the role of tax concessions and incentives in increasing access to finance over the longer term and building effective methods to measure impact;

3. strengthening the role of intermediaries and infrastructure to develop and support new markets; and

4. reviewing the structural barriers to appropriate investment including regulations, legislation and standard definitions that restrict new investment and leveraging of existing capacity within not-for-profit organisations.

“It is important to note when considering access to capital that many larger Not for Profit organisations have substantial assets in property and other holdings,” the submission said.

“While little definitive data is available, it is clear that this capital is not always well leveraged with many organisations in the sector taking an ultra-conservative approach to managing their assets.

“Work in this area is long overdue.  Governments cannot continue to meet the growing needs and expectations of our communities.  If the sector is to continue to grow, to offer more effective services and improve their efficiency, there needs to be a change in access to capital.

“Achieving this diversification of income sources will mean working with key players across financial systems to develop a broader range of investment vehicles that address the need for increased sustainability and access to longer term capital.”