Q. What is Big Society Capital?
David Cameron has today fully unveiled an initiative that was softly launched two years ago. Although finer details have been modified, the principle has not: the Conservative party's flagship "Big Society" policy has conceived its own bank.
Deeming it a "novel approach", the European Commission approved Big Society Capital in December. The bank will be run independently of the government and chaired by private equity guru, Sir Ronald Cohen.
Q. Who will it lend to?
The first bank of its kind, Big Society Capital will lend money, via intermediaries, to charities and community groups across the UK. "Social" is the marker here - those who can indirectly borrow will include social enterprises, social impact bond groups and a wider variety of organisations that aim to acheive "social good"; this could range from tackling joblessness to maintaining playgrounds.
While the Big Society programme relies on individuals to invest their time voluntarily in aid of their community, the bank will offer start-up capital to the middle men - for example, Triodos Bank - who invest in co-ops and charities. Enterprises must be able to prove they can repay loans through income generation.
In the longer term, Big Society Capital could allow ordinary savers to take out an ISA in the bank.The minister for civil society, Nick Hurd, said social ISAs were "not too fanciful" an idea, and would allow wealthy individuals to use their money to make "a social impact on something [they] care about."
Q. How is Big Society Capital funded?
An initial £600m will capitalise the bank over the next five years. Two-thirds of this - £400m - will be taken from dormant British bank accounts that have been untouched for 15 years. High street banks Barclays, HSBC, Lloyds and RBS will provide the other £200m.
For comparison, investments in social initiatives were just £165m in 2011, according to Boston Consulting Group.
Q. What say Cameron and the bank's proponents?
The Prime Minister said the capital on offer would "allow society to expand". He continued:
Just as finance from the City has been essential to help businesses grow and take on the world, so finance from the City is going to be essential to helping tackle our deepest social problems . . . This is a self-sustaining, independent market that's going to help build the Big Society.
Cohen gave an example of who would benefit, saying the new bank's operations would,
. . . allow an organisation which today is trying to deal, for instance, with prisoners who are being released and ending up in unemployment then back in prison . . . to get the capital to increase the size of their organisation and to imrpove the lives of these prisoners.
Q. And the opponents?
New Philanthropy Capital, the charity thinktank, has expressed reservations. On this morning's Today programme, its chief executive Danny Corry said:
I think Big Society Capital is a good thing, but it is a limited amount of money and it is a bit of a drop in the ocean, given what is happening to the sector, with the deficit-reduction programme really hitting the sector. [This bank] will mask the real problem: voluntary organisations who really do need grants and won't be able to cope with risk capital.
Corry pointed further to the issue of repayment:
A lot of charities who are helping homeless people, for example, don't get any revenue [from it]. For most [charities], this is really quite irrelevant.
Cathy Pharoah from the Centre for Charity Giving and Philanthropy at Cass Business School highlighted the tension between social and economic returns:
As a private sector body, all-be-it with a "locked-in" social mission, Big Social Capital has to maintain long-term sustainability, and although its role is only to support other finance intermediaries who will carry frontline risk, ultimately there will be a bias towards safe lending . . . [This bank] will not be able to help small innovative social projects dealing with high needs and high risk clients or service areas where social returns may be high and economic returns low.
Rather than stimulate new types of investment, Big Society Capital could instead "[re-configure] mainstream public welfare provision", Pharoah warned.