What comes to mind when you hear the word "philanthropy"? Is it something only the ultra-wealthy do? Is it a noble pursuit or is it elitist? Is it altruistic or is it about ego and self-promotion?

Whatever your feelings on philanthropy, it is certainly on the rise. In recent years there has been a growing recognition that, despite some of the fine achievements of the welfare state (and perhaps as a result of some of its failings), there is an important role for private initiatives that deliver public benefits.

The defining feature of a philanthropist is not simply how much they give away to charity, but the vision they have for improving the world. Jamie Oliver's campaign for improved school meals is perhaps one of the most effective philanthropic campaigns in recent years. It would have been far easier for him to fundraise for one of the well-known national children's charities, but he took the more challenging approach, mobilising his knowledge, passion and celebrity to promote improved diets for children and families.

In this new age of philanthropy, there is a growing emphasis on tackling some of society's biggest challenges by building stronger and more vibrant community organisations. Dynamic, vigorous and sustainable communities need creative people working together, assets to support their aspirations and agencies and local people collaborating on an agreed plan. Channel 4's Secret Millionaire shows how powerful giving something back to a community is, not only for the community but also for the donor.

It is this philosophy that underpins the Somerset Community Foundation. Over the past few years the foundation has been quietly making a difference to thousands of people's lives. Although far from being a household name, the foundation has distributed over £2.5m in small grants to local charities and grassroots voluntary organisations since 2002. It is one of a strong and well-established network of community foundations in the West Country.

Local community organisations are exceptionally important in a county like Somerset. On the surface, it is a beautiful county with low unemployment, low levels of crime, high quality of life and more than its fair share of wealth. But scratch away at the surface and the myth of the rural idyll is shattered:

Children from Somerset's poorest households had the worst GCSE results in England in 2009.

33,000 older people live in fuel poverty.

Life expectancy can vary by up to 10 years depending on where you are born.

15 per cent of children are growing up in households dependent upon benefits.

Thousands live in isolation, remote from important services and support.

Community organisations are created and run by local people who understand better than anyone what their community needs, from a well-run village hall to a self-help group for people with mental illness. They do not need to be told what to do or how to respond, but they do need support to make a difference. If we are to make Britain a better place, and meet the challenges we face over the next few years, we should start by making sure these organisations not only survive, but thrive.

Take Sedgemoor Community Partnership as an example. It operates out of Morland Hall in Highbridge in one of a few areas in Somerset that is recognised in official statistics for its high levels of deprivation. It's not a grand Edwardian pile as its name might suggest, but a slightly shabby wooden building surrounded by security fencing.

It's not the quality of the building that matters; it's what goes on there. Almost every hour of every day, there is an activity for local residents: a toddler group, an exercise class for the elderly or a first aid course. On Fridays they run a superb affordable lunch club, bringing together people of all generations from the local estate. They have moved on to rejuvenate the garden, growing fresh food and using it to promote healthy eating. Ninety per cent is due to the vision and tenacity of a few individuals and 10 per cent to the funds that oil their wheels.

The problem for anyone committed to investing in their local community is finding out about appropriate organisations. After all, how does a small group like this, running on a shoestring budget, compete with national charities who employ professional fundraisers, spend thousands on campaigns, send us unsolicited mail every day, stop us on the High Street and run TV campaigns?

So even the most determined donor who wants to make a difference on their doorstep can find it difficult to reach local organisations, let alone research their effectiveness, their impact, their accountability. Many are not even registered charities.

At a time when donations of all sizes are beginning to be squeezed (donations from individuals dropped by 10 per cent between 2008 and 2009), and when many public-funded small grants programmes are under threat or have already been cut, Somerset Community Foundation provides a much-needed link between donors and local organisations. Some donors create their own funds within the foundation, but increasingly we are using our local knowledge and partnerships to develop new philanthropic programmes through which anyone can target their giving to causes that matter most to them.

That is not to let the public sector off the hook. It is all too easy to cut small grants programmes that have traditionally supported local organisations. Grassroots groups may not have a loud enough voice to influence decisions in the town hall, let alone Whitehall, but without them we cannot change society. They are the glue that holds communities together – we all need to strengthen them, not abandon them.

Nor is it to say philanthropy is always good. There is a danger that we slip back to distinguishing the deserving and undeserving poor, a sure way to divide communities, break down social cohesion, and push people to margins of society.

Nonetheless, there is something very powerful in the idea that by working together, donors can make a lasting difference within their community. At its best, community philanthropy is at the heart of building a stronger and more resilient society.