Over a decade ago at 11 Downing Street, Gordon Brown – then chancellor of the exchequer in Tony Blair’s Labour government – cut the ribbon on a bank that had just secured approval from the regulators.
This article originally appeared in The Guide to Sustainable Banking 2013.
In Brown’s own words, though, this was “more than just another bank”. It had, he said, “an emphasis on financing, not just fundraising; investing, not just giving; fostering a new spirit of self-sufficiency in the voluntary sector and changing the way people see their own communities.”
At the time, Bank of England governor Sir Edward George said, “I can’t over-emphasise the importance for all of us in both economic and social terms of bringing those on the outside into the mainstream.”
The bank in question was Charity Bank. Whereas Brown has elevated to and descended from the frontline of British politics in the 11 years since, Charity Bank has transcended from a small start-up to an increasingly popular option for socially-conscious individuals looking to exit the stranglehold of the mainstream banks.
Lending solely to charities and social enterprises using money from investors and depositors, it is now one of the leading alternative options away from the high street. Its 2012 report says that two-thirds (66%) of the projects it has funded would have been untenable without its financial backing. Meanwhile, 95% of borrowers claim that Charity Bank’s loan had made a “major or significant” contribution to the fulfilling of their core mission.
In March 2013, the bank underwent a fairly fundamental change. Having launched as a registered charity and an authorised bank in 2002, the organisation announced its intention to cease to be a charity. New banking regulations had begun to make it difficult for Charity Bank to operate simultaneously as a regulated bank and a charity. The move to change its status, it said, would enable the bank to raise capital from a wider community of social investors, helping to boost its lending to the charitable and social sectors.
“Not one depositor withdrew money from Charity Bank on the ground of our change in status”, says Patrick Crawford, the bank’s chief executive.
“A few raised questions, to which we responded, but we’re not aware that significant concerns were expressed to the Charity Commission either. We felt that by setting out the rationale and background, and by providing reassurance that our mission and our approach to the mission would not be changed, our supporters could feel confident that we would stay the same safe, social purpose bank that they had invested in or deposited money with.”
Having spent 26 years at Deutsche Bank, and also working in fund management for Africa with a number of European aid agencies and as a civil servant, Crawford replaced former chief executive Malcolm Hayday in November 2012.
The decision to drop Charity Bank’s charitable status was made prior to his arrival.
“What borrowers will see is an ability to make bigger loans and to make more of them”, he told Blue & Green Tomorrow in March, adding that the bank’s emphasis will remain on making relatively small loans.
“They will be the beneficiaries of what will be a rather larger bank with more firepower to lend to the sector. We will remain a mission-driven and impact-focused bank and our ability to grow means that we will achieve financial sustainability. We haven’t achieved this yet because of our relatively small size, but it is in the interests of the sector.”
Crawford’s three-year vision for the organisation includes helping the bank to grow and raise new capital to support this growth – something helped by its new status. And research conducted in 2013 suggests the need for a bank like Charity Bank is as strong as ever, with 69% of charities saying they had been unsuccessful in getting loans from one of the big banks.
“All the evidence that we have is that there are continuing market failures in the provision of debt to smaller charities and smaller social enterprises and that the original vision that led to the creation of the bank in 2002 holds good”, says Crawford.
“The board is clear that in order to respond to that demand, we should grow and ensure that we’re an enduring institution that can be available to respond to the needs of the sector, that is within the sector, understands the sector and is committed to enabling the sector to achieve the impacts that our borrowers wish to make.
“The mission is quite simply to do more of the same on a bigger scale, so that more beneficiaries can benefit from the activities of our borrowers and help them to achieve their purposes on a stronger and better basis.”
But with growth comes greater responsibility. Charity Bank currently runs open days – this year held in London and Manchester, with plans to expand that reach as its customer base expands – which allow borrowers, savers and investors to congregate and talk about what their money is doing, and it also puts on Different Journeys events where savers can visit charities have received one of its loans.
For Crawford, this is an aspect of his bank that he wants to retain: “It’s quite important for us to retain that sense of personal contact. Savers can see and talk to the bank’s management, they can share a table with a borrower and bank staff, and they can feel part of a community with a shared interest. We think there is close alignment between the savers, the bank, its board and staff, and its borrowers and that this is a distinctive feature of the bank.”
Keeping this personal touch – the ability for customers to meet the people looking after and investing their money – is crucial if Charity Bank wants to remain a haven for socially-conscious individuals. Particularly at a time when one of the major failings of the mainstream banks – according to numerous independent surveys – is the impersonal treatment they hand out to customers.
“The government is keen to promote the challengers to the large banks and therefore, there is support for new forms of delivering financial products to SMEs or to the social investment sector be it through crowdfunding platforms or through alternative forms of social purpose banks.
“There is also ample evidence that the ethical consumer market is growing in this country, and banks such as Charity Bank that combine a financial return with a social return are responding to this growing movement, which has been reflected by consumer attitudes in lots of other walks of life.”