Think tanks should not be afraid to borrow money

1 September 2014

This topic has come up a few times already in the Guardian’s Voluntary Sector Network: Why charities should not be afraid to borrow money?

Think tanks face a number of challenges when it comes to raising the funds their need to take over the reigns of their future. For the most part, they are constrained by funders’ funding choices and the funding mechanisms that they offer.

In many cases, think tanks in developing countries face far less advantageous deals than their peers in developed countries -where most of their funders are based.

In developing business and raising funds they face clear disadvantages. US or UK based consultancies, NGOs and development think tanks are much better placed to access funds from donors directly. They can visit them, invest in business development, networking, and even hire well-known researchers to develop new areas of expertise.

Few think tanks in developing countries have the financial capacity to do this.

I’ve argued that a possible solution may be shared reserve funds. Instead of funding think tanks directly, donors could set up a trust fund to serve a number of think tanks in a region or country. These think tanks would be able to draw funds from the trust fund for strategic investments: anything from a new office to developing a new area of expertise or addressing a cash-flow problem. The think tanks would return the funds with small interest rate to keep the trust fund going.

Alternatively, think tanks should be able to make use of the financial system:

  • Organisations that have been awarded multi-year grants or contracts could take these to a local bank in exchange for a loan that may allow them to make important investment in the short term.
  • Think tanks who own their offices could use the mortgage market to raise funds for important investments.

The Guardian’s article offers some reasons why charities (think tanks in this case) may not be as willing as for-profit businesses to borrow money:

  • Formal restrictions in the think tanks’ constitutions -or legal restrictions
  • Risk -or the risk that board members would face if the deal went bust
  • Lack of understanding of the options that they have. Unfortunately, this may have to be addressed on a country by country basis; but it could very well be explained by the board composition themselves. I’ve argued before that think tank boards must have a mix of members with experience and expertise on a range of issues, including finance.