Givfunds is incorporated as a Charitable Trust, which means that we cannot withdraw excess profits from the organisation. Even if we do eventually create a hybrid model, it will still be an organisation that will reinvest all profits to create greater impact. However, given our experience running non-profits in the past, we have learnt all too well the difficulties of continuously raising donations to cover our operations. More information on our cost structure can be found here.
Hence, we are adopting a financially sustainable route towards creating impact, by being a social enterprise ourselves. We will elaborate more on our two main sources of revenue below.
0-4% interest earned from charging borrowers:
Our loans are not interest free but are given at rates between 0-4% per annum, aiming for an average of 2%. These are much lower than the risk-free rate in many of the countries we operate in. For example, in India, putting your money in the bank could earn you anywhere between 6-10% interest. This means that our borrowers could theoretically borrow from us, put that money in the bank and earn money! (Of course, we ensure they do not do that.)
This decision to charge interest was not an easy one to make. We initially wanted to provide interest-free loans to social enterprises. It was after consulting with the social enterprises and donors on their opinions that we decided to charge this nominal rate to maintain a balance between our financial sustainability and to provide accessible capital for social enterprises.
Interest earned from float in bank:
We earn through our float in the bank. The concept of a float has existed since the earliest days of insurance. This is where premiums are gathered and invested in various investments. For Givfunds, we too have a float from our corpus/revolving fund (a pool of donations) which are put in a bank. While the majority of the assets under management (AUM) would be loaned out to social enterprises at any point in time, there remains a not-insignificant amount that stays relatively constant in the bank, which earns us interest. At interest rates between 4-10% in many of the countries we operate in, earnings from these funds add up significantly.
Breaking down moneylenders’ loan rates https://www.givfunds.org/post/breaking-down-moneylenders-loan-rates