UK prime minister David Cameron launched the much-trumpeted Big Society Capital (formerly known as the Big Society Bank) last week amid considerable plaudits and an almost equal amount of criticism.
Big Society Capital has £600 million, of which an estimated £400 million comes from unused cash in bank accounts that have been dormant for more than 15 years. The remaining £200 million will come from the UK’s four largest high street banks Barclays, Lloyds, HSBC and RBS, which are investing permanent equity in Big Society Capital as part of the ‘Merlin’ agreement. They will own a maximum of 40 per cent of shares (10 per cent each), but will always remain a minority shareholder with their collective voting rights capped at 20 per cent.
Big Society Capital will use this money to back, through social investment finance intermediaries, social enterprises that prove they can repay an investment through the income they generate. Sir Ronald Cohen, chair of Big Society Capital, says it will aim to achieve a 4-5 per cent return on its investments. Charity Bank, mentioned by Sir Ronald as a possible intermediary, describes Big Society Capital as ‘a significant step forward in the provision of finance for charities and community groups’. However, while most have welcomed a fresh source of funds for the sector at a time when the cupboard is becoming increasingly bare, there are fears that it will benefit only a few charities and that those organizations either too small to take on loans or ill-attuned to the language and ideas of social enterprise will be left out in the cold.
Social Enterprise UK has called it the ‘world’s first investment bank for social enterprise’ but its chief executive Peter Holbrook added that it needs to be accompanied by a review of the factors that are hampering social enterprises’ access to capital. There are fears, too, that small charities will be unable to afford the interest rates on social sector loans. Both Joe Irvin, CEO of Navca, and John Low, CEO of Charities Aid Foundation, have voiced this concern. Low also added a veiled warning that financial returns must not be allowed to push social returns into a poor second place. Big Society Capital, he said, ‘must be clear about the social impact its investments are having and sometimes this will mean accepting a lower financial return’.
Others see the move as taking away the loaf and offering crumbs in return – and crumbs that only a few will be in a position to eat. Professor Cathy Pharaoh of the Cass Business School said Big Society Capital will have a bias towards ‘safe lending’ and will not be able to help smaller charitable projects dealing with high-risk beneficiaries. Dan Corry of New Philanthropy Capital welcomed the fund but said in an interview on BBC Radio that it was ‘a drop in the ocean, given what is happening to the sector … It will mask the real problem: voluntary organizations who really do need grants and won’t be able to cope with risk capital.’
Describing the launch as an attempt ‘to breathe life into the exhausted corpse of his Big Society idea’ (a similar phrase was used by the Guardian newspaper), Sally Kosky of public sector union Unite echoed Corry’s words: ‘The £600 million funding of Big Society Capital … is a drop in the ocean when starkly set against the £4.5 billion that the not-for-profit sector will lose during the life of this parliament.’
Social Enterprise Press Release, The Guardian, Third Sector Online, Civilsociety.co.uk, Unite press release, Social Enterprise Press Release (all 4 April 2012)