Demystifing the funding process
Financial investments are often complex and opaque transactions. This lack of transparency can make the process of fundraising seem mysterious or even confusing.
In this step, we will share a few examples along with a glossary of terms to help demystify the process.
As educators, we worked together to identify a funding source for the creation of this program on FutureLearn. We applied and received a small grant (20,000 GBP) from the British Council. In our grant proposal we created a budget with the entire project costs, which included a request for funding from the British Council as well as the contributions we would make from our institutions. We successfully received the British Council grant and received funding for direct costs such as transportation costs for interviews, video editing and production costs, and costs to promote the program through digital marketing. We received 70% of funding up front and 30% after a 6 month progress report.
SMV Wheels, a social enterprise in India, is working to improve the lives of bicycle rickshaw drivers. You can follow their funding journey in the following case study.
Glossary of Terms
Angel Investor: An affluent individual who provides capital for a start-up enterprise, usually in exchange for some stake in ownership equity.
Collateral: Item of value that a lender can take as compensation if a borrower fails to repay a loan. Borrowers generally are required to secure a loan with personal property as collateral. On mortgage loans, the property serves as collateral. For microloans, collateral can vary from fixed assets (a sewing machine) to cross-guarantees from peers.
External Audit: A formal, independent review of an institution’s financial statements, records, transactions and operations. The external audit process is key to transparency, and is usually performed by professional accountants to lend credibility to financial statements and management reports, ensure accountability for donor funds or identify internal weaknesses in an organisation.
Interest: The fee charged by lenders for extending credit, usually a percentage of the loan amount. Responsible lenders adjust interest rates according to their level of risk in a loan.
Impact Investing: Investments made into companies, organisations, and funds with the intention to generate social and environmental impact alongside a financial return. Impact investments can be made in both emerging and developed markets, and target a range of returns from below market to market rate and premium returns. Although often associated with risk capital for small-scale, early stage enterprises, an investment is considered “impactful” provided the investor is committed to achieving a social or environmental benefit and to tracking and reporting progress.
Line of Credit: Agreement by a bank that a company may borrow at any time up to an established limit.
Liquidity: the degree to which assets are held in cash or in a form that can easily and immediately be converted into money. Liquidity can also be defined as the ability of an institution to meet its current financial obligations.
PRI: Program-Related Investment. An investment made by a U.S.-based foundation that qualifies as a charitable expense under the tax code, allowing the foundation to include the investment as part of the 5% of assets it must distribute philanthropically each year to maintain its non-profit status.
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