Is it a bird? Is it a plane? No…. its the Big Society Bank. Excuse the terrible pun, but the opening of the Big Society Bank later this year could well feel like a superhero bursting through the clouds. Unlike a superhero, the Bank can’t expect magical powers to help achieve its mission – it just needs to choose carefully how it invests its money.
At an event yesterday, three reports gave us a first glimpse of what the Big Society Bank might actually look like. The event, hosted by NESTA, launched three reports that provided critical insights into how it should best invest its money, estimated at £400 million. Sitting in the audience, listening to the three presenters, I think many of us started to understand the role this Big Society Bank should play.
Firstly, the Bank should provide soft, patient capital and subsidy. NPC’s research into demand for capital from the social investment market found that what it needs most is capital at sub-market rates. This money should be provided to intermediaries to lend on. But it should also pay for intermediaries to do critical work to build the market – help social ventures get investment ready and develop products that are attractive to investors.
Secondly, the Big Society Bank needs to invest in the development of products that appeal to investors. Fairbanking and Ipsos MORI’s research suggests that wealthy individuals would be interested in putting their money in social investments, and most wouldn’t take it from their ‘philanthropy pot’. All very promising. However, the social finance products (say, for example, a social bond) have to be designed in a way that motivates investors. The report found that engaging with the charity or social enterprise they’re investing in is a top priority for many investors. Giving investors the products they want is critical to building the social investment market.
Thirdly, when it invests, the Big Society Bank should act like a ‘development bank’. NESTA’s report on its Big Society Finance Fund found that social investment is an emerging market. It needs the Bank to act as a strategic investor whose aim is to develop the market. This means it should ensure organisations at all stage of development have access to capital. It means helping develop new products that social finance intermediaries can use to raise capital. It means developing market infrastructure, like measurement systems or IT platforms, so that this burgeoning sector, well, burgeons. The Fund found that if you invest like a development bank, this is unlikely to deliver ‘market’ rates of returns. So the Big Society Bank shouldn’t expect to be making top dollar on its investments.
So what should our hero of the day-the Big Society Bank-look like? A development bank that invests in the development of the social investment market and invests most of its money at sub-market rates. It will have its eye on the long-term development of the sector not short-term financial gain.
What will the Big Society Bank look like? We won’t know for sure until it breaks through the clouds later this year and shows us what its made of. Lets hope its digested these three reports.
NPC conducted research into the demand for and supply of social finance for NESTA. This research was part of a wider project NESTA is doing to inform the design of the Big Society Bank; details of all three reports published yesterday can be found on NESTA’s web-site.