|Big Society Bank Vision Causes Concern|
As plans gather pace for the start of operations of the Big Society Bank in April, Charities Aid Foundation (CAF) is warning that the Bank’s remit of being “financially self-sustainable from the outset and operating on a commercial basis” threatens to run contrary to its mission of ensuring charities and social enterprises have access to affordable capital.
More details of how the Bank will operate as a wholesale lender and champion of social enterprises were unveiled in the Government’s paper Growing the Social Investment Market: A vision and strategy, published in February.
The paper states that the Big Society Bank needs to be “financially self-sufficient – that is, able to cover its operating costs and make investments in line with its core mission”. Therefore the Bank will not make grants, even to intermediary organisations, and in time it would be expected to cover its operating costs from the yield on its investments.
CAF is concerned that if the Bank can only make funds available on a commercial basis, the interest rates could be too high for many charities and social enterprises.
“The focus needs to be on social return over financial return,” says Emilie Goodall, senior investment manager at CAF Venturesome, the social investment fund. “This is a new market and from our experience of making loans, whilst there is a very high rate of loans being repaid, there are few social projects which generate a financial profit. Their main purpose is rightly to deliver a positive social impact.
“The emphasis of the Big Society Bank on helping charities and social enterprises to deliver public services may also exclude the bulk of the sector as most don’t do this but they still need access to capital. The result could be that the Bank doesn’t generate the wide-ranging positive impact that the Government and the sector wants and needs.”
Sir Ronald Cohen, who conceived the idea of a social investment bank when chair of the UK Social Investment Task Force in 2000, has been appointed an unpaid advisor to the Bank. He told Third Sector he was not concerned that loans had to be on a commercial basis, but that funds would be lent on useful, useable terms.
The Bank will be capitalised by an injection of £200m over two years from the largest UK banks, beginning this year. It will also receive all money available for spending in England from dormant accounts. It is estimated that the first year’s release in 2011 will be in the region of £60–£100m, with the total value of dormant accounts being around £400m. The Bank hopes to be able to make the first investments using dormant account money from mid-2011. These will be administered by the Big Lottery Fund while the Bank waits for approval from the European Commission under state aid rules.
The Bank will expand using the money it will receive each year from unclaimed assets, rather than from profit on lending, says Sir Ronald. "But the bank will also attract other capital," he adds. "We would hope for every £1 the bank invests, it could attract £3."
He believes that the social investment sector will soon adapt to the availability of more investment. "It's a chicken and egg scenario," he told Third Sector. "It's not a question of waiting until you have built more capacity before you inject more capital. Capacity building and capital building must happen at the same time."
The opinions expressed do not constitute investment advice and specialist advice should be sought about your specific circumstances.
Published on our website on Mar.9, 2011