Charities to offer interest-paying bonds via new platform
Retail Charity Bonds Plc will enable charities to issue listed retail bonds for the first time.
Specialist charity bond provider Allia has launched a new service to help UK charities raise money.
Retial Charity Bonds Plc (RCB) will enable charities to issue retail bonds and list them on the London Stock Exchange for the first time.
The new bond market will allow investors to support a worthy cause while receiving an income for the money they lend.
How it works
A bond is a debt agreement where the issuer agrees to pay a fixed rate of interest each year over a set term. At the end of the period the issuer repays the capital.
The new charity bonds will be issued by RCB. Any money raised will be advanced under a loan agreement to the charity, which will be responsible for meeting repayments.
The platform will enable leading charities with a strong credit history to borrow money over five to ten years at a cheaper rate than they could get from a bank, but at an attractive enough rate to attract investors.
Bond investors could earn between 4% and 5% annually which can be held in an ISA or a SIPP.
Around six charities are expected to launch bonds each year and raise between £5 million and £10 million each.
The first bond to be issued via the new platform will be announced later this month.
Important development
Charities are increasingly using bonds to buy property or fund further development. However, up until now charity bonds have not been listed on a trading exchange because of the costs, which means they haven't been easy to buy or sell for investors.
But now the new RCB structure will allow charities to raise relatively small amounts without the usual associated costs. And as the bonds will be listed on the London Stock Exchange’s Order for Retail Bonds (ORB), investors can buy and sell on the secondary market.
For investors the platform will provide new social investment opportunities that could provide competitive returns, while charities will have an alternative to borrowing with the banks where rates are higher.
The risks for investors
The bonds issued by Retail Charity Bonds Plc won’t be covered by the Financial Services Compensation Scheme (FSCS).
So any money you invest is at risk and you may get back less than you put in.
However, RCB says the bonds will only be issued for credit-worthy charities that demonstrate suitable criteria such as significant assets .
An independent board of non-executive directors from the financial and charity sectors will decide which charities will be able to use the platform.
Other ethical investments
Another way to boost the return on your money ethically is to use peer-to-peer websites.
They link savers willing to lend with borrowers in need of finance. The idea is both sides get a better rate as the process cuts out the middle-man in the shape of banks and building societies.
The websites minimise risks by spreading your money across borrowers, as well as offering provision funds in case things go wrong, but like charity bonds your money is not protected under the FSCS.
RateSetter is currently offering a 6.1% return over a five year term, which beats anything you can get in a traditional savings account.
You can find out all about the big names in peer-to-peer in: Peer-to-peer: what return will you get on your money?
More on savings:
June 2014's Premium Bonds winners
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