Big Society Bank set to give loans to Scottish charities in months

Big Society Bank set to give loans to Scottish charities in months

Third Force News


CASH from dormant bank accounts that could amount to £40m in Scotland is expected to be available this summer, the Cabinet Office said this week.


An announcement is also expected on the opening of the Big Society Bank (BSB), through which Scottish charities will be able to apply for loan finance.


The bank will be funded with a £200m investment from the UK’s four biggest banks and the £400m that is due to England and Wales from dormant bank accounts.


Dormant bank account money in Scotland will be distributed through the Big Lottery Fund Scotland separately.


The Scottish Government has directed that the £40m is spent supporting children and young people, tackling health inequalities, bridging the gap between older and younger people, and supporting employment across Scottish communities.


However, a spokesman for the Cabinet Office this week said that third sector organisations in Scotland will be able to apply for loans from the Big Society bank on the same basis as organisations in England and Wales.


“It will be up to the bank as an independent organisations to decide what investments are made,” said the spokesman.


Speculation as to the terms of the loans that will be offered to the third sector mounted this week as Cabinet Office minister Oliver Letwin revealed no agreement has been reached between the government and the four main banks.


However he said that the bank is still expected to be open within the next few months, when the Reclaim Fund – the body set up to handle dormant bank account money – delivers the money to the bank.


“The timing will be decided by the Reclaim Fund when it can assess the amount likely to be reclaimed by depositors,” he said


It is expected that the bank will lend between £60m and £100m in its first year.


The government said previously that loans would be made on commercial terms, however it is not known whether this would be a normal commercial return or whether some return that is lower than the usual commercial one would be acceptable.


A study from the National Endowment for Science, Technology and the Arts (NESTA) this week suggested that the BSB would fail if it offered loans on the same basis as high-street lenders.


The study revealed that the overwhelming demand from charities and social enterprises is for “soft” capital not commercial loans.


“The BSB should not expect to achieve commercial returns on many of its investments,” says the study of the potential market. “By far the majority of demand for capital is for soft capital – patient, semi-commercial capital and grants. By patient, we mean capital which takes many years to return to the principal.”


The report also suggests that charities and social enterprises need support in creating business plans, which adds a cost to potential funding.


As a result it concludes that the BSB might “have to make a trade-off between building the market and maintaining [its own] capital.”


“Market-building activity largely requires investments that make low or no financial returns. This in turn will reduce the BSB’s funding pot.”


The study urges the government to clarify the role of the bank.


“Is it to help social enterprises and charities to access capital, in order to enable them to deliver greater social impact? Or [is it] to invest for financial returns?


“If the former, the consequence of this role is that a significant investment providing non-commercial capital will be needed.


“If the BSB does not allow for this and prioritises commercial returns, it will fail to support those that it is set up to support, and displace capital investments that would otherwise have been provided by a commercial investor.”