Access to finance
September 2009
Stephen Bubb shares his vision for the Social Investment Bank and how he sees it working in practice
Following the government’s announcement in this year’s budget, a consultation on the Social Investment Bank is now underway.
The problem
There is a growing consensus in the sector as highlighted in the DWP/ ACEVO third sector taskforce report [1] that for the sector to be able to fulfil its potential in delivering services to its beneficiaries and promoting community cohesion, it needs access to capital on a level which is currently not available.
This lack of access, is a direct result of the marketplace in which third sector organisations operate. On the demand side, many third sector organisations are poor at articulating an investment case or are not ‘investment-ready’. On the supply side, brokerage and financial instruments to link third sector needs with mainstream private capital are underdeveloped, meaning that much of the sector is reliant for investment capital on an embryonic set of ‘social investors’. These social investors have relatively little capital to invest, and the range instruments they offeris underdeveloped.
We need a Social Investment Bank which supports growth and development of this marketplace. The Social Investment Bank should address the problems in the marketplace for third sector organisations by making more investment capital available to the third sector, and ensure investment is supplied and used in a strategic way that builds long-term capacity. The result would ultimately be a stronger third sector, better able to play the crucial role it has in society. A great strength of this model is that money is recycled: rather than taking the form of one-off grants, it can be invested, paid back, and invested again.
In action
The Social Investment Bank must be independent from the government. To be effective it must be insulated from short-term political considerations, enabling it to develop the market over the long-term. Equally it needs to be accountable to stakeholders, but not in a way that makes it hamstrung: the bank needs to be fleet of foot, able to take risks, and able to achieve its purpose of transforming the marketplace – a process which may upset individuals and organisations along the way.
Not only does it need to be able to attract the best of the financial and social sectors, but it must have credibility in the eyes of existing social finance intermediaries, the government and the commercial financial sector.
To have the credibility in the eyes of these stakeholders, and to fulfil its functions, the bank would need to be well capitalised. As the Commission on Unclaimed Assets and the ACEVO/DWP Third Sector Taskforce argued, it should have an initial capital endowment of £250m, with an annual revenue stream of £20m for the first four years of its existence. The capitalisation of the bank should be the first priority for the assets released through the Dormant Banks and Building Societies Account Act 2008. In the event that these assets take a long time to come on stream, or that they are used for other ends, the bank should be capitalised with funding from the Exchequer – but, crucially, in a way that does not compromise its independence from the government.
With the services of the third sector more in demand than ever in a recession, the consultation must move swiftly. We need to convince the government and the wider financial community that now is precisely the time that the Social Investment Bank should be established.
[1] www.dwp.gov.uk/newsroom/ministers-speeches/2009/04-02-09.shtml
Author: Stephen Bubb
Sir Stephen Bubb is chief executive of the Association of Chief Executives of Voluntary Organisations and chair of The Social Investment Business.
In 2007 he became secretary general of EUCLID, the European Third Sector Leaders Network.
He has had major national roles in the TGWU, NUT and the AMA (Association of Metropolitan Authorities), as well as being a founding director of the National Lottery Charities Board
www.thesocialinvestmentbusiness.org
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