Stephen Lloyd says the newly-launched Big Society Capital offers a welcome alternative to gift capital, but won't reduce giving.

The £600m Big Society Capital (BSC) fund launched by Prime Minister David Cameron will be another important tool in a charity’s financial armoury. 

The fund will be financed with £400m pounds from unclaimed bank accounts which have been dormant for more than 15 years and Britain's four biggest banks which will contribute £200m pounds over the next five years as part of their commitment to expand lending.

The fund will put money into social investment funds, such as Charity Bank and Big Issue Invest, which in turn will provide loans to social enterprises or charities. The capital investment provided is expected to create self-sustaining businesses, with wider community benefits, which can pay back the money.

The good news is that BSC will bring new money to the sector – money that was unexpected, arguably at a time when it is needed most. It will give charities and social enterprises easier access to loans and long-term capital they would not have had otherwise. Charities have usually relied on gift capital so this fund opens up another avenue for them in addition to donations, state money and traditional bank loans.  

BSC will act as a wholesaler – funding social sector intermediaries which will themselves invest in social sector organisations.

To qualify for investment, charities and social enterprises will need to prove their business success. This selection criterion means the fund is more likely to be accessed by larger rather than smaller charities.

Unsurprisingly, smaller charities have already voiced their concerns about the fund. They have stated that the rates of interest charged by individual social investment funds may be prohibitively expensive. They have also expressed concerns they may be crowded out by this new fund – with people choosing to invest in charities and social enterprises instead of making donations in the future.

However, I can’t see this being the case. Britain has a long tradition and history of philanthropy and BSC won’t change this. People will still donate money and raise funds for the charities they support. Secondly, there are no tax breaks to support social investment currently and thirdly, BSC will only put up 30 per cent of investments funds and will look to other investors to provide the rest. As such, it will be a keystone investor but it won’t be the only investor.

Also, its impact won’t be felt immediately. The funds will not be invested overnight and certainly not without careful diligence. It will take time to develop. Importantly, the fund won’t replace donations or grants it will just be another tool in the fundraising box. 

We hope that in the long-term – say over the next five years, we will see that BSC will have made a mark on the sector, creating a spirit of entrepreneurialism and playing a big role in the development of charities and social enterprises.