The Charities Aid Foundation (CAF) has warned that Big Society Bank loans could be too expensive for many charities and social enterprises.
The details of the Big Society Bank have been announced this week by the government. It will have £300m of capital available in its first year, £200m of which will be capital lent on a commercial basis by high-street banks.
But CAF has warned that if the bank operates on a commercial basis from the outset there is a risk that it will not let charities and social enterprises access affordable capital.
Emilie Goodall (pictured), senior investment manager at CAF Venturesome, CAF’s social investment fund, said: “The concept of the Big Society Bank and the £300m of capital being made available is good news. However, we are concerned that if the funds are only made 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. 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.”
However, Jonathan Lewis, chief executive of Social Investment Business said although loans were a new concept for some charities, many were capable of using loans and paying them back with interest.
“It’s fantastic to see this government’s commitment to growing the UK’s social investment market," he said.
“Our experience is that there is huge unmet demand for social finance among civil society organisations. Loans are a new concept for some people in our sector but many charities, social enterprises and voluntary groups have shown they are perfectly capable of using loans to finance their growth, paying them back with interest. What they need is greater access to capital and support to help them become investment ready."
Writing in his personal blog Sir Stephen Bubb, chief executive of Acevo and chair of the Adventure Capital Fund, which is run by Social Investment Business, said the bank could be "revolutionary" for the sector:
"I have long argued the need for a bank and we will have to beware those that see this as just another grantmaking organisation. This is about loans. Access to capital for our sector. This above all could be the initiative that is revolutionary," he said.
"We know from the work of Futurebuilders that there is appetite and demand for loans. The new bank can be a trend setter, showing the high street banks that lending to third sector bodies can be profitable and is a new untapped market as service delivery opportunities open up."
