The launch of Big Society Capital – the new £600 million institution – to grow the social investment market, has had a qualified welcome response from the sector.

NCVO: only one piece of the puzzle
Summing -up this qualified support, was Sir Stuart Etherington, chief executive of NCVO, who said: "It is fantastic to see Big Society Capital finally become a reality after what has been a long and arduous journey. We very much hope that it will lever in much-needed funds to a sector already starved of working capital.

"Obviously this is only one piece of the puzzle, and it will be equally important that the voluntary sector is investment ready so that it can benefit from this income stream.

"It is positive that the Prime Minister touched briefly on charities’ concerns on the impact of the tax relief cap on donations – we are glad that the door is at least still open on this issue and will continue to press the Government to exempt donations from the cap via the Give it Back George campaign. NCVO believes, as he does, in the need for more philanthropy, not less."

CAF: take many years
Equally qualified was charities Aid Foundation (CAF) chief executive, John Low, who said: “It is good news the Government has established Big Society Capital which will release much needed money to invest in charities and social enterprises.

“The money will be delivered to charities through a range of specialist social investment organisations, or ‘intermediaries’, who know the charities and social enterprises they invest in very well.

"Many of these social investment organisations have been operating for a long time and look forward to Big Society Capital stimulating the social investment market and giving them the chance to grow.

“Big Society Capital has already made a start by investing in some exciting projects aimed at helping the social investment market to become more diverse and robust.

“Many charities have be suffering due to the economic downturn and cuts in grant income. Some have been looking to alternative ways of delivering their services but they need investment. With banks unwilling to lend to them, social investment will provide a vital source of money.

"But this money must come with affordable interest rates otherwise charities will not be able to afford it. Equally as important, Big Society Capital must be clear about the social impact its investments are having and sometimes this will mean accepting a lower financial return.

“It may take many years, perhaps 10-20 years, for the social investment market to become fully mature and a patient approach is needed so that it can become sustainable, rather than just flooding the market with cash now. We hope that Big Society Capital will take a long term view and not be tempted to rush things.”

For the past 10 year, the Charities Aid Foundation, through its social investment arm CAF Venturesome, has been helping by making loans available to charities and other not-for-profit organisations. CAF Venturesome provides loans between £25,000 and £250,000 and has invested over £26 million in more than 300 organisations in the last 10 years.

Cass Business School: social and economic return tensions
Tensions between social and economic returns will challenge Big Society Capital fund, said Professor Cathy Pharoah, from Cass Business School’s Centre for Charity Giving and Philanthropy.

She said: “Big Society Capital, launched today, represents the most ambitious attempt so far to stimulate the growth of social enterprise. Though its capitalization is tiny compared with mainstream players, its funds of £600 million are significant to a small and still embryonic sector. But BSC will face the same fundamental challenge as other top-down initiatives in the history of social investment, namely how to deal with the tensions between social and economic returns.

“As a private sector body, all-be-it with a ‘locked-in’ social mission, BSC has to maintain long-term sustainability, and although its role is only to support other finance intermediaries who will carry frontline risk, ultimately there will be a bias towards safe lending.

"BSC will attract investors who want market rates of return while doing some social good, and its funding will go to projects with good track records in attracting substantial contracts from government or funds from the Big Lottery.

“It will not be able to help small innovative social projects dealing with high needs and high risk clients or service areas where social returns may be high and economic returns low. Its main value may be less in stimulating a new form of investment or asset class, but as a lever for re-configuring mainstream public welfare provision through helping new providers enter the market.”

NAVCA: cost of the loans
NAVCA also gave a welcome, with reservations. Joe Irvin, chief executive of NAVCA, said: “NAVCA supports this initiative as it will get much-needed finance to voluntary sector organisations. We have always campaigned for a mix of funding to enable a healthy voluntary sector. This mix includes grants, contracts, donations and loan finance.

“Although not suitable for all, loan finance has the potential to make a real difference for many voluntary organisations, including many small charities. But the loans must be accessible. We are concerned by the Charity Aid Foundation’s warning that the cost of the loans may mean they are out of reach for smaller charities. The interest rate level must reflect a fair balance between helping society and earning a financial return.”

Social Investment Scotland: the devil is in the detail
Alastair Davis, chief executive of Social Investment Scotland, said: "We welcome the launch of Big Society Capital. Not only it does it raise the profile of the third sector and the role it plays in providing vital community services across the UK, but the funding itself will help create growth within those communities.

"Scotland's third sector plays a significant role in Scotland's economy, contributing more than £4.4 billion a year, and should benefit greatly from the funding available through Big Society Capital.

"However, as with any new initiative, the devil is in the detail, and we now need to see the terms and conditions of this funding including the lending criteria, application process and turnaround times for distribution of funds.

"At Social Investment Scotland, we've been doing the job of the Big Society Capital for around 10 years. We provide social enterprises and community businesses with funding for projects that simply can't be provided by traditional lenders. These projects can range from wind farms generating income to create sustainable communities to local employment hubs providing jobs for the socially excluded.

"However, all of our customers are able to demonstrate a significant impact on their communities and they are all focused on repaying their investments through sustainable business models. This latter point is commonly misunderstood. Social investment is not just about funding worthy causes, it's about lending to organisations that are founded upon sound business principles but entirely focused on benefiting their surrounding communities."

Unite: a drop in the ocean
The most scathing criticism came from Unite. Its national officer, Sally Kosky said: “The £600 million funding Big Society Capital - much of it coming from dormant bank accounts - is a drop in the ocean when starkly set against the £4.5 billion that the not-for-profit sector will lose during the life of this parliament.

“The Prime Minister is being disingenuous, as this money can only be `lent', if there is a case made that a profit can be generated. So while the ‘bank’ is welcome, it ought to be additional to funding streams – and not a paltry replacement.”

“With 80 per cent of cuts to the sector still coming down the track, many more skilled third sector workers will lose their jobs and vital projects will go to the wall.

“We know that those suffering most are some of the most marginalised and vulnerable people in our society. Support packages are being cut and services closing, just at the time when demand is increasing due to the economic situation.

“This latest move by David Cameron to breathe life into the exhausted corpse of his Big Society idea is motivated by right-wing ideology, and not a genuine commitment to the long-term financial needs of the not-for-profit sector.”

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