Viva la Revolución

Over the last 12 months, much has been talked about the Big Society Bank (BSB) - not least by Nick Hurd, minister for Civil Society. There have been several occasions when, in answer to questions from charity leaders and journalists about what the government is going to do to help the sector cope with the cuts, the BSB has conveniently been provided as the answer. While Hurd has always been clear that this bank will be a wholesale bank and will not lend directly to charities, the impression has always been given that its funds will be of benefit to all.

Yet they will not be of benefit to all. Instead, the object of the BSB will be to provide loans to social finance intermediaries, which in turn will use the funding to support very specific social finance projects - i.e. those projects that deliver both a social AND financial return. This is a very niche form of funding that is not appropriate for, nor accessible by, all types and sizes of charities. It requires a shift in the mind-set, a different skillset and the ability to pay back a loan. While there will be some funding available through a separate foundation to help charities get investment ready, this is still not going to be right for everyone. What is good for the goose is not always good for the gander. (You can read more about social investment here)

However, despite its limitations, social investment does offer the sector (albeit a small proportion of it) opportunity. At yesterday's committee meeting for the All Party Parliamentary Group for Civil Society and Volunteering, Sir Ronald Cohen and David Hutchinson expertly argued that it has the potential to change the way charities are funded forever.

"We are on the verge of a revolution in the way social organisations are funded and the ways in which they go about improving society," said Sir Cohen, an advisor to the Big Society Bank.

David Hutchinson, chief executive of Social Finance, said: "We want to transform the resources available for social organisations. We are finding wider pools of capital that are structured in such a way that funds will be repaid and reused.

"Sometimes those driving social change need to be better connected to other resources and better ways of working. What is needed is a thorough rethink of the way the sector is rewarded for delivering outcomes. This has potentially huge economic value. I think it may open up exciting opportunities. Not just for social organisations but also for investors," he added.

In addition to monies being recycled and reused, social investment will be outcomes driven. This emphasis on performance - charities that deliver will receive repeat and additional funding - will help the sector get better at understanding and demonstrating its effectiveness, something that can only be a good thing for everyone: charity, funder and of course the beneficiary.

Social investment may also be what is needed to help encourage the wealthy to give, particularly those who are motivated more by the financial rather than social return. Although initially it is expected trusts and foundations will be the intermediaries supported by the BSB, David Hutchinson confirmed there was considerable interest from high net worth individuals.

"We have seen a lot of interest from private banks, much of which has been in response to questions from their customers. But they need a more refined product so we need to work on creating diversity of product; we need professional management of risk and there needs to be some principle of protection," he said.

So, the BSB will be providing big impact, multi-use funding that may even inspire the rich to give. This is exciting stuff. But don't get too carried away just yet. The BSB still has to get European Union approval before it can become fully operational. Only then can you go charging into the revolution with all guns blazing.

Related articles:

Investing for good

Big Society Bank gets ministerial approval

Reality check: The Big Society Bank

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