The UK’s new social investment bank, the so-called Big Society Bank, will transform the lives of millions of people, believes venture capitalist Sir Ronald Cohen, who has been appointed adviser to the new bank, along with Nick O’Donohoe of J P Morgan. ‘This is the first move of this kind anywhere in the world,’ said Sir Ronald, a longstanding champion of such an institution, adding that it is ‘the boldest move that we are likely to see for some time’.
This ringing endorsement is likely to be greeted with relief in UK government circles, whose Big Society agenda has been under almost relentless fire since its introduction – especially as it comes from a former Labour donor. According to Cohen, at least £400 million of funds in dormant accounts will fund the Big Society Bank. A further £200 million of permanent capital will come from commercial banks.
As he said in an interview with Alliance in January, Cohen expects the bank to be able to use its capital to leverage three times that amount of investment: ‘If it has £250 million pounds of capital, we think it can attract another £750 million.’
‘The bank will help the sector to develop institutions which are going to be the pistons which power the social engine,’ he told Alliance. ‘If there are gaps which existing organizations cannot fill, the bank needs the ability to act directly and to use its own skills to help start organizations in those sectors.’
The bank needs EC approval under state aid rules before it can come fully into effect. In the meantime, an interim arrangement will be set up by the UK Cabinet and the Big Lottery Fund to undertake its functions. However, a degree of confusion and uncertainty remains. Details of how the new bank will operate were unveiled in the government’s paper Growing the Social Investment Market: A vision and strategy, published last month, which stated that the bank would be ‘financially self-sustainable from the outset and operating on a commercial basis’. Charities Aid Foundation (CAF) warned that such a position might run counter to its mission of ensuring charities and social enterprises have access to affordable capital. 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, suggests CAF. Sir Ronald Cohen, however, told Third Sector he was not concerned that loans had to be on a commercial basis. He said funds would be lent on useful, usable terms.
‘I believe this is a move that will be imitated in many countries around the globe,’ he said. ‘Already in the US, in Australia, in Canada, in Israel these concepts are being discussed for the same reasons that we are discussing them here.’ However, the bank, whatever its benefits, cannot compensate for ‘ten of billion of pounds of cuts’, he told Radio 4’s PM programme.
Alliance, 1 January 2011 http://www.alliancemagazine.org/en/content/interview-sir-ronald-cohen
The Guardian, 14 February 2011
Philanthropy UK News, 3 March 2011