| Notes |
Big Society Bank
MAGAZINE ARTICLE
BY: CHERYL CHAPMAN
7 JUNE 2011
Last month (May) the Big Society Bank, that will act as a wholesale investor for social investment and champion the sector to the public, stakeholders and investors, took a ‘momentous step’ forward. Francis Maude, minister for the Cabinet Office, gave his endorsement to outline proposals for its development. They were presented by the bank’s independent advisors Sir Ronald Cohen, former chair of The Social Investment Taskforce,and Nick O’Donohoe, former global head of research at JP Morgan Private Bank.
The Big Society Bank will invest capital in intermediaries so that they are able to invest in frontline organisations. It will also invest in developing a powerful infrastructure for the social investment sector. Over time it will be capitalised with an estimated £400m from unclaimed assets in dormant bank accounts, and £200m from the UK’s largest banks.
It was recommended that the Big Society Bank set up a charitable foundation capable of receiving charitable donations to support its mission, such as grants to venture philanthropy organisations whose purpose is to increase the investment readiness of strategic social organisations.
It represents a vital two-pronged approach to draw money into the social investment while helping create enough investment-ready organisations to use it.
The charitable foundation will receive philanthropic donations from third parties as well as profits from the Big Society Bank at the discretion of its board. However, it will not provide grants alongside investments made by the Big Society Bank.
Recent research commissioned by NESTA[1]to investigate the demand for social finance in the UK, carried out by consultancy and think tank New Philanthropy Capital, suggested investment is needed to make under-developed markets more efficient and sustainable. This sort of ‘market building investment’ will require subsidy and the charitable foundation could help here, rather than funds coming from the Big Society Bank that would erode its capital base.
The minister has directed the Big Lottery Fund to establish an interim Investment Committee to start making investments from this summer, comprising six experts in social and financial investment who will provide support to social investment organisations enabling them to increase their capability. They are:
John Kingston, director of CAF Venturesome and chair of the Investment Committee;
Chair of Big Lottery Fund’s England Committee or his/her nominee [to be appointed shortly];
Anna Southall, Big Lottery Fund;
Sir Ronald Cohen, independent adviser on the Big Society Bank;
Nick O’Donohoe, independent adviser on the Big Society Bank; and
Dawn Austwick, chief executive of Esmée Fairbairn Foundation.
The NESTA research investigated the demand for social finance in the UK in three markets: social finance, financial inclusion (focussing on affordable credit), and social housing.
It found that in both the social finance and financial inclusion markets there is a role that the Big Society Bank could play, and make a difference. However, the absolute amounts needed from a funder like the Big Society Bank total hundreds of millions, not—as some commentators have suggested—billions of pounds.
The research also found that the majority of demand is for soft capital. This means that the Big Society Bank should not expect to achieve commercial returns on many of its investments, it says.
If the bank prioritises commercial returns "it will fail to support those that it is set up to support and displace capital in investments that would otherwise have been provided by a commercial investor", the report says.
To find out more about the Big Society Bank project read the full reportby NPC, view a presentation delivered by NPC at the report launch, or visit NESTA's website.
Footnotes
[1]Understanding the Demand for and Supply of Social Finance, NESTA, April 2011, Authors: Iona Joy, Lucy de Las Casas and Benedict Rickey
http://www.nesta.org.uk/home1/assets/features/understanding_the_demand_f...
|