Religion plays a very important role in the lives of humans and it is one of the topics that generate strong emotions when discussed. We are hopeful that this write-up does not lead the reader to the conclusion that the article is insensitive to the kind of importance attached to religion. The article takes a strictly financial view of the operations of the church with no consideration of the religious aspects. This article may carry a little controversy and we advise that the reader looks at it from a purely financial point of view.
Despite widespread minimal recognition as formal registered entities, churches and other religious bodies constitute considerably significant sectors of the economy. Several mega churches in Africa now make surpluses in the billions of dollars each year, and the smaller ones remain closely behind. From these surpluses some churches have been able to set up tertiary institutions and financed scholarship programs for the poor. With huge receipts during Sunday services, weekly and periodic programs and other associated activities, and in consideration of already existing debt-financing in churches, we make the case for equity financing as a cheaper and more inclusive alternative to providing the much-needed funds for church growth, evangelism and community development programs.
In recent times, the growth of churches in Africa, and Ghana in particular, has been spectacular. Over the last decade, churches like the Synagogue Church of All Nations (SCOAN) and Believers LoveWorld International (Christ Embassy) have ballooned into megachurches, with membership running into the hundreds of thousands. The older churches are not far behind; the Church of Pentecost reported over 2 million members in Ghana alone, which represented 8% growth for the year. The upsurge in evangelism has led to the rapid expansion of already existing churches, and the springing up of several others. As the Christian faith grows, so does the churches, and the financial muscle with which these organizations carry out new projects, expand further and undertake alternative business. Some churches have even ventured into undertaking commercial activities that will generate funds to supplement the church receipts. There have even been calls by financial experts for the creation of an economic sector that would allow for the contribution of churches to the economy to be measured.
Money generated by the churches are mainly used for the upkeep of the church and to support the pastoral team. The money is also used for the funding of welfare programs aimed at supporting the underprivileged in society, to provide the needed support for evangelism work to spread the churches message and to support the church’s infrastructure programs. Because the receipt of funds by the church mostly falls short of the things it intends to do there is a financial gap that must be filled.
Most churches currently use debt as a source of funding to fill the financing gap for church projects such as buildings, purchase of vehicles and for the organization of large scale programs such as conventions. Nonetheless, it has never been an easy task for churches to secure loans for whichever intent or purpose. The lack of a formally accepted managerial framework and the inability of bankers or business analysts to forecast church growth or future receipts means that churches are considered as high risk entities. This problem is further compounded for small churches, although it may be easier for churches that form a part of national or international organization such as the Presbyterian, Apostolic and Anglican churches in Ghana to secure loans for projects.
To fill in the existing financing gap, financial institutions have been very innovative in providing financing products to help churches in their expansion drive and in their bid to spread the word of God. These products have been tailored to church development and expansion. The UniChurch Loan (Unibank Ghana), Gospel Loan (First Allied Savings and Loans) and Church Growth Loan (IFS Financial services) are but to name a few examples of such schemes. These products are directed at complementing traditional sources of funds for churches such as receipts from harvest, tithe and donations. This is in a bid to help these institutions in their efforts to acquire church buildings, generators, vehicles and other assets used for the running of the church. As aforementioned however, since revenue generation is dependent on pastoral activities, church attendance and programs, it is difficult to forecast church growth and to predict receipts at a future date. This leads to a high cost for such forms of financing. The church will also be required to make mandatory interest and principal payments which poses a risk for these institutions. Even though there is little volatility in church receipts, the current rate of church growth leads to the need for more funds for expansion.
One advantage of debt financing is that it provides a tax advantage for the institution from the payment of interest; this is however, not the case for churches which are tax exempt. Therefore in financial terms, debt financing for churches does not provide savings to the institution. This leaves us with a second alternative of financing churches that is slightly different from debt financing.
Equity financing, or the issuing of shares to obtain funds for an organization, provides an alternative that could help eliminate the problems associated with debt. Along these lines, a company floats its shares to investors, who then become part-owners of the entity in proportion to their proportionate holdings in said entity’s total value.
In the next issue, we will publish a second part of this article that explains how this could be achieved.
Source: FirstBanc Financial Services
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