13 May 2011
Is it a bird? Is it a plane? Is it a Bank? Er, no, actually, the Big Society Bank won’t be a bank as it won’t get a licence.
A bit confusing, but otherwise Sir Ronnie Cohen’s and Nick O’Donohoe’s plans approved by the Cabinet Office this week look exciting. They answer some important issues raised by NPC’s research into the demand and supply of social finance to help inform the development of the Big Society Bank:
- That transparency is fundamental. We are never going to get anywhere developing this market if we can’t learn from the performance of funds and investments, and why would investors want to invest if they can’t see a track record? NPC would like greater transparency across the social investment sector – our own research was very hampered by poor availability of public financial data.
- Expect attrition of the Big Society Bank’s capital value over the next five years. The types of investment Big Society Bank will make to support the development of the market will be necessarily long term, not very remunerative, and risky. So its good to see the potential impact on its own balance sheet recognised up front.
- Independence. NPC is relieved the Bank won’t be hampered by government idiosyncracies such as the need to spend all your budget by the financial year end regardless of whether it would be prudent or worthwhile to do so.
- Investment in infrastructure. Intermediaries will be pleased to hear they will be in line for some serious investment. And Sir Ronnie Cohen should at least get some of the £250m he wants to develop social impact bonds from the Bank.
- Investment in capacity building. This was mooted, but I got a sense that most of the investment needed to help charities and social enterprises become investment ready will need to come from elsewhere, eg, grantmakers and foundations. It must come from somewhere though, otherwise developing the market will be slow. Profits channelled into the Bank’s own charitable foundation will come too late.
The Bank has a potentially exciting role as hub, sector champion, developer/supporter of best practice etc. NPC hopes that social impact measurement will be high on its agenda. The plans mention the need for social performance metrics, but somewhat in passing. NPC would have placed greater emphasis on this, as understanding social impact is central to growing the market successfully. If you are going to ask more investors to accept greater risks and in many cases sub-market financial returns by joining this market, they will want to know what social impact they are getting in return. Watch this space, as NPC has its thinking cap on.
