Charity Bank eyes growth after £14.5m social investment from Big Society Capital

Social investment bank Big Society Capital has announced it will invest up to £14.5m of ordinary shares in the social purpose bank Charity Bank, helping the organisation expand its reach and achieve its long-term goals.

The announcement represents Big Society Capital’s largest ever single investment. The investment will be made in three successive tranches between 2014 and 2016 – the first of which, a £4.5m investment, has already been made.

Charity Bank uses the savings deposited by individuals to lend to enterprises and organisations that have a social purpose. Over the last 11 years, it has arranged over 1,100 loans to charities and social enterprises. Charity Bank estimated in 2012 that 66% of the projects funded would not have happened without its support.

Research from the bank, published in September last year, demonstrates that there is a need for alternative finance in the sector. Almost two-thirds of survey respondents said that loans could help charities further their missions. However, less than a third of those who approach high street banks for a loan ended up taking one.

George Blunden, Charity Bank’s chairman, commented, “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.”

Big Society Capital’s investment is a 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. Patrick Crawford, its chief executive, explained that the organisation had seen a significant pick-up in enquires from potential borrowers and the new investment removed capital constraints.

In order to meet its target, the organisation will ensure that everyone in the sector knows its capacity to lend has increased. In addition, it has reopened its ISAs and savings accounts to new depositors.

Crawford said, “I think that savers benefit from the awareness of where their savings or deposits are going. We only lend to those with a charitable purpose so they know exactly where their money is going. We publish details of every loan we make, expect in very rare cases.

“We also invite depositors to go on our open journey days, when those that are interested can come and visit two or three charities, so they can see for themselves what their money is doing.”

Headlines around high street banks being involved in mis-selling to consumers have led to many considering the alternatives available to them. Coupled with the rising trend of socially conscious investors, the ethical finance sector is expected to continue growing and take a more prominent role within the market.

Crawford added, “We are seeing the movement towards ethical buying in consumer goods applying also to buying services and financial products and we hope to be a beneficiary of that and stimulate the interest in where savers money is being deployed and to what end it is being used.”

Further reading:

Charity Bank: a social purpose alternative to the high street

Charitable sector ‘emerging from recession’, says Charity Bank

Charity Bank to show customers the ‘journey’ of their money

Government sets out social enterprise support in Social Investment Roadmap

Investors to be given opportunity to invest in Big Society