Big Society Capital has made its largest ever single investment – up to £14.5m of ordinary shares in Charity Bank in three successive tranches between 2014 and 2016. The first tranche of £4.5m has been invested.
The Big Society Capital investment represents a significant step towards Charity Bank’s goal to increase the amount it lends to charities from its current level of around £55m to around £250m by December 2018.
Charity Bank, which seeks deposits from socially-conscious individuals and lends solely to charities, social enterprises and other social sector organisations, took the decision in 2013 to grow substantially because of the unmet borrowing needs in the social sector. Independent research commissioned by the Bank* has shown that, while charities increasingly need to borrow money in pursuit of their mission, they are often unsuccessful in obtaining affordable finance from high street banks.
This research, published in September 2013, showed that, while almost two-thirds (65%) of respondents consider that loans could help charities further their mission, less than a third (31%) of those who approached high street banks for a loan ended up taking one, 29% had their application turned down and 40% were offered a loan but did not take it up because it was too expensive or the conditions were too onerous.
“There are a large number of charities, social enterprises and other social sector organisations that are creditworthy but who cannot secure finance from traditional sources. As Government funding remains constrained, social sector organisations must change and adapt. Many are seeking to expand their activities and diversify their income streams. In this environment loan finance can play a vital role. So the need for borrowing on a sound basis will continue to increase.
“Charity Bank’s Board of Directors is clear that, in order to respond to this demand, we should grow and be an enduring institution that can be available to respond to the needs of the sector. Big Society Capital is the first of what we hope will be a small number of significant new investors over the next five to ten years.
“The Directors of Charity Bank are pleased that Big Society Capital has responded to our need for capital and growth. We are grateful for the unwavering support the Bank has enjoyed throughout this process, especially from the Charities Aid Foundation (CAF) and our other shareholders.”George Blunden, Charity Bank’s Chairman
Nick O’Donohoe, Big Society Capital’s Chief Executive, says: “For over ten years, Charity Bank has played a crucial role in ensuring charities and social enterprises can access the finance they need to tackle some of the toughest problems in the UK.
“As a financial institution, Charity Bank is unique in its focus on lending to good causes, and its clear social mission that runs through all of its activities. It is now poised to become a strong, meaningful force in UK ethical banking.
“This investment by Big Society Capital reflects our support for Charity Bank’s plans to increase its lending by continuing to meet the needs of its customers, particularly small and medium sized charities in the UK.”
Nick Hurd, Minister for Civil Society, says: “This is an important step to support the growth of the social investment market and exactly why we established Big Society Capital – to help ensure that social ventures have access to the finance they need to grow and increase their social impact.
“Charity Bank has a decade’s worth of experience lending to social ventures and this will allow it to put this expertise into practice on a much bigger scale, providing finance opportunities for many more organisations working in a sustainable way to do social good.”
Patrick Crawford, Charity Bank’s Chief Executive, says, “Our business is lending to small and medium-sized charities, social enterprises and other social sector organisations. We fund this by attracting deposits from individual and institutional savers who want to see their money working for the benefit of society.
“Our aim is quite simply to do more of the same and make Charity Bank an enduring and financially sustainable institution. Big Society Capital’s investment sets us on the road to achieving this. Charity Bank will always remain the bank for charities and other social sector organisations: the greater their need for loans, the greater our determination to serve them.
“Charity Bank is open for business in a way that it has never been before. We have funds to lend to prudent and creditworthy organisations, and I invite them to come and talk to us.”
Notes to editors
About Big Society Capital
Big Society Capital is a financial institution (authorised and regulated by the Financial Conduct Authority) with a social mission, set up to help grow the social investment market, so that charities and social enterprises who want to borrow money, or take on investment, can access the finance they need to do more.
There are lots of charities and social enterprises working hard to deal with some of our most challenging issues in the UK – such as youth unemployment, financial exclusion and homelessness. Lots of these organisations receive donations to support their work, but some also need to borrow money – and it is often not possible for them to get this from traditional sources such as mainstream banks.
Big Society Capital has been set up to make sure that charities and social enterprises that need to borrow money, or take on investment, can get what they need. It is doing this by building the social investment market: encouraging investors to focus not just on financial returns, but also to think about whether the organisation borrowing the money is also doing something good for society.
Since it was set up in 2012, Big Society Capital has committed £140 million in investments to specialist organisations who lend to charities and social enterprises, and are showing every day that social investment can work.
Over five years Big Society will be capitalised with approximately £600 million - £400 million of public funds from English dormant bank accounts, and £200 million from the four main UK high street banks.www.bigsocietycapital.com
*About the research
The research, conducted by Technology Trust in July and August 2013 and published in September, polled 258 charity workers across the UK. Survey respondents were typically trustees/directors (27%), senior managers (32%), managers (24%) or other experienced non-managers (15%).
Technology Trust is an impartial, non-profit-making organisation which provides the charitable sector with information technology and support services including hardware, software and support for e-mail marketing and online payments systems. Technology Trust currently works with over 16,000 charities. Formed in 2001, Technology Trust is the only UK registered charity devoted to improving the operational efficiency of charities through the use of information technology.