Big Society Capital makes biggest investment yet in Charity Bank

Social investment bank Big Society Capital has made its largest ever investment, totaling £14.5m over the next three years, in Charity Bank - a bank that seeks deposits from socially-conscious individuals and lends solely to charities, social enterprises and other social sector organisations.

The investment will be made in three tranches between 2014 and 2016, with the first £4.5m having been invested at the end of last week.

The first tranche makes Big Society Capital the largest shareholder in Charity Bank, owning 39 per cent of the shares. If the next two investments, each of £5m, go ahead, and if there are no other investors and Big Society Capital is the sole provider of the finance, it will own 67 per cent. 

Although the bank is hoping for other investment during this period, which would reduce this percentage.  

There is no fixed date for the second two tranches yet, but it is hoped they will be made before December 2016. 

The funds will go towards Charity Bank’s goal of increasing the amount it lends to charities from £55m to £250m by 2018. 

Charity Bank is now poised to become a strong, meaningful force in UK ethical banking.

Independent research commissioned by the bank found that while charities increasingly needed to borrow money in pursuit of their mission, they were often unsuccessful in obtaining affordable finance from high street banks.

It found that 29 per cent of charities that approached high street banks for a loan had their application turned down, and 40 per cent were offered a loan but did not take it up because it was too expensive or the conditions were too onerous. 

Nick O’Donohoe, chief executive of Big Society Capital, said that Charity Bank had played a crucial role in ensuring charities and social enterprises could access the finance they needed to tackle some of the toughest problems in the UK for over ten years. 

“As a financial institution, Charity Bank is unique in its focus on lending to good causes, and its clear social mission that runs through all of its activities,” he said. “It is now poised to become a strong, meaningful force in UK ethical banking. This investment by Big Society Capital reflects our support for Charity Bank’s plans to increase its lending by continuing to meet the needs of its customers, particularly small and medium sized charities in the UK.”

George Blunden, Charity Bank’s chairman, said that as government funding remained constrained, social sector organisations must change and adapt. “Many are seeking to expand their activities and diversify their income streams,” he said. “In this environment loan finance can play a vital role. So the need for borrowing on a sound basis will continue to increase. “

He said that Big Society Capital was the first of what Charity Bank hoped would be a small number of significant new investors over the next five to ten years.

Patrick Crawford, Charity Bank’s chief executive, told Pioneers Post that the investment would become part of the bank’s general capital resource and would allow it to make more loans to charities and other social sector organisations. He said it had regional managers across the country who were on the lookout for credit-worthy borrowers and was now “open for business like never before”. 

“This first investment puts us in a strong position to start growing,” he said. “Big Society Capital was set up to support social finance intermediaries and so it was a natural choice for us to apply to them.”

Photo credit: Gaëtan Bourque