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Should charities look to borrow ethically?

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Should charities look to borrow ethically?

Published: August 24, 2015

From sole traders through to global companies, utilising a line of credit provided by a bank is an accepted and rarely controversial means of expanding into new markets, launching new products and of course for startups, getting the business off the ground in the first place.

However, it’s often difficult for those who are unfamiliar with the internal workings of the industry to understand why a not-for-profit organisation such as a charity would need to borrow. After all, the key revenue stream is often public donations or government funding and as such the charity’s role is to use those sources of income for a designated positive social impact.

But if the impact of the charity can be enhanced and there’s positive social benefit gained from doing so, there’s a compelling argument in favour of the charity using credit to further its aims.

Ethical Borrowing

Whilst a charity is often dedicated to making a difference in one core area such as a specific aspect of the environment or in correcting a social failure such as homelessness, charities have a social obligation to do so without creating issues elsewhere. Reducing child labour issues in one nation, which directly causes the same problem to increase in another, could not be considered a positive result.

If we take a closer look at this in context of borrowing, a loan offered by any lender represents revenue for that lender, the profit of which will be used for whichever purpose the lender sees fit, whether or not this is ethical. A charity not using ethical loan facilities could be inadvertently supporting unethical activities.

It follows that if a charity decides to borrow for the purpose of enhancing the social benefit gained from their activity, any borrowing must be from a lender with an ethical commitment to ensure the overall social good gained from the loan is positive.