The government hopes that the Big Society Bank will be the institutional basis to underwrite the move away from centralised state provision of services and utilities. It will provide the financial means to tap into the power of the civil society and will breathe life into the government’s agenda of mutualism and localism by giving community organisations greater access to capital. However, it is already running into problems, and we have to ask whether it is capable of shouldering the burden of the move towards social finance as an alternative to state provision.
Recently, a number of problems have been highlighted which call into question the integrity of the plan. The banks have reacted angrily to the negligible commercial returns they can expect in the first five years of the bank’s operation. The demand from social enterprises and voluntary groups is largely for soft capital, rather than commercial loans, which takes years to provide a return on investment. The Big Society Bank will have to position itself as either a market builder in social investment, or as an investor for financial return, which would undermine its core mission. Some from the voluntary sector have argued that even if it were to be successful on its own terms the Bank would only have a tiny impact on the £1bn funding gap they are facing. The bank actually needs to stimulate a sustainable market, to create revenue and channels for reinvestment. But this requires larger injection of capital than the Big Society Bank can provide and would necessitate funding from a variety of other sources. If it is to be sustainable the Bank needs to be commercially viable, and somehow it needs to combine this with investment for social impact. A recent NESTA report warns that semi-commercial loans may place intermediaries in a difficult position if they are expected to please investors and investees. It also warns that a trade-off must be made between the perpetuity of the Bank and its market building capacity in social finance.
The pitfalls of the Big Society Bank relate to a range of difficulties in social finance that we have highlighted before, particularly the problem of aligning financial and social impact. The government will have to play an active role if banks are to be made more socially useful and to reconnect with civil society. A good place to start would be to examine innovations in other countries. For example, greater deal of transparency in the sector, which highlights the social impact of banking activity, is legislated for in the Community Reinvestment Act in the USA. The CRA requires certain banks to disclose their lending data and they are given a rating which assesses the impact of these investments. A similar regulation should be considered by the UK government. The CRA is widely believed to have increased access to credit and capital as well as encouraged relationships between banks and community investors. In the UK, the Commission on the Big Society has recommended that banks commit to invest at least 1% of their pre-tax profit in social ventures and there is a strong case for the extension of initiatives such as the Community Investment Tax Relief scheme.Nevertheless, one wonders whether the institutional focus on the Big Society Bank can really hope to meet the ever more pressing needs of citizens whilst tapping into the diverse strengths of civil society. There is a need for immediate capital, for income-generating investment, as well as for grants and unsecured loans, for example. In order to maintain the integrity of social finance it will be necessary to ensure that a variety of investment mechanisms are available. Charities and social/community enterprises must have the capacity to articulate their needs and to grow in partnership with their members and financiers. Civil society groups need to be able to access and navigate the market effectively, which means an awareness of their needs and options. It also means that financial institutions actively engage and are sympathetic to those needs. Neither the scale nor ambition of the Big Society Bank suggest such a sea change is in the offing.