In 2010, George Osborne placed every bet on austerity leading to economic growth. For some his argument is all too familiar: stick with the government’s tough fiscal plan and the prize will be a healthier economy for everyone, with attendant improvements in employment rates, living standards and so on.

The results were particularly stark for charities, with a dramatic fall in financial support from local authorities. Many have struggled, some have completely shut down. The funding squeeze goes on.

But economic growth has returned, albeit after a far longer delay than Osborne hoped. So will the voluntary sector be among those reaping the much-promised rewards?

A few big beasts in the sector certainly seem to think so following an announcement made on Wednesday. Big Society Capital (BSC), launched by the government in 2012 to develop the social investment market in the UK, is investing up to £14.5m in Charity Bank, the bank dedicated to lending to projects which help ‘improve and enrich the society we live in’.

Charity Bank’s Chief Executive, Patrick Crawford, gleefully echoed language we’ve grown accustomed to hearing from ministers: with this investment ‘Charity Bank is open for business in a way that it has never been before’.

So how much good news is there in BSC’s latest big-ticket commitment? There is, after all, a wider context to consider: the £1bn plus wiped off charity funding in the last year by government cuts, revealed by NCVO today, dwarfs this new investment.

Charity Bank has been frustrated by its limited capital base ever since the regulatory authorities tightened the rules, effectively stalling the Bank’s growth. So this injection of funding will enable it to increase loans five-fold, while acquiring more deposits, without falling foul of regulators. This should in turn help charities and their beneficiaries, who need a strong, sustainable bank to borrow from when high street banks say no.

CAF Venturesome’s recent report highlights the need for more lending to charities. We at NPC are all in favour of ensuring that simple products such as those offered by Charity Bank are available to help grow this market.

The additional scale should also help Charity Bank to move to a more sustainable size, and shift its historic operating losses from the red to the profitable black.

Nonetheless, the investment throws up questions. BSC will enjoy around 67% equity in Charity Bank which could be construed as a de facto controlling stake. How comfortable is this for either party? Will profitability be achieved in reality? What return on capital is Charity Bank aiming for, and does this meet BSC’s own targets? And, in due course, can it attract a wider group of investors than, dare we say it, a small group of committed investors whose names regularly crop up?

Triodos provides an interesting comparison. It has matured into a sustainable ethical bank that can route investors’ money to their social passions. It promises to avoid the sort of financial instruments popularly associated with the banking crisis, and get on with funding entrepreneurs to generate social impact. It has managed to grow a substantial balance sheet using a mix of retail and institutional investors.

I’m looking forward to the time when Charity Bank enjoys such a virtuous circle.

Meanwhile, BSC is in the fortunate position of not having to ration its capital. It doesn’t have to choose between opportunities—rather it has to provide momentum to bits of the market that need a prod. But this happy situation won’t last for ever, and BSC may find itself passing into an era when the opportunity cost of investments will be scrutinised.

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