What does the Big Society bank mean for social finance?
Friday 27 May 2011By:
- Shelley Dorrans
The Big Society bank may have, in the past, been somewhat misunderstood. Last year, as the threats of ever deeper local government cuts loomed, some said to themselves, ‘Ah well, at least there’s the Big Society bank’, hoping that its dormant account funds would be big enough to make up for the shortfalls.
There was a misconception that the bank, much like a benevolent fairy godmother’s coffers, would be able to offer grants and loans directly to the precariously positioned voluntary and community sector (VCS) organisations that were set to lose local authority funding.
Recently, the Office for Civil Society approved an outline proposal for the Big Society bank, which is now set to open for business later this year. What is clear is that the institution that will emerge from months of negotiations won’t be able to plug all of the funding gaps, and will not even transact directly with front line organisations. But outline plans suggest the bank will have a valuable function in the long-term development of the social finance market.
What will the Big Society bank do?
So what do we know about the Big Society bank and how it will operate?
- It will not act as a direct investor, but instead will fund the work of intermediaries in the social finance market. These intermediaries offer structured financial products, such as social impact or community bonds, that connect private capital with VCS organisations.
- In its first two years, the bank should be able to count on £200 million from commercial banks, together with £60-£80 million through reclaimed dormant account funds. While these figures do not match some of the initial forecasts made, the bank will still offer a sizeable sum of money that, once it has worked its way through the system, should ensure continued survival, expansion and innovation for many VCS organisations.
- The bank’s mandate will include a special focus on initiatives to support opportunities for young people.
- The bank will also act as a ‘robust champion’ for the sector, signposting information and connections on social finance through a new online portal, advising government on opportunities to open services to social ventures, commissioning research into market development and opportunities, and sharing expertise and best practice in the sector.
If the Big Society bank is successful, the UK will have a thriving social finance market, in which socially driven products tempt investors away from standard commercial investments.
One of the challenges for VCS organisations in getting a slice of any future social finance market will be evidencing their impact and demonstrating that they are using scarce resources efficiently. OPM’s evaluation team regularly supports VCS organisations to measure impact and efficiency as well as wider social returns on investment. We look forward to continuing this work with social investors and the VCS to help them make the most of what the Big Society bank will offer.