FAQs | Big Society Capital

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FAQs

Here are the answers to some of the questions you may have about Big Society Capital.

What is Big Society Capital?

Big Society Capital is a financial institution with a social mission, set up to build the social investment market in the UK, so that charities and social enterprises can access appropriate repayable finance to enable them to grow, become more sustainable and increase their impact on society. It is doing this by building a diverse social investment market: encouraging investors to lend or invest money to achieve a social as well as a financial return.

We have two roles:

  1. We act as a champion for the social investment market to increase awareness of, and confidence in, social investment.
  2. We are also an investor that provides capital to social investment finance intermediaries (such as fund managers or specialist banks serving the sector) that in turn provide finance and support to charities and social enterprises.

Since it was set up as an independent organisation in 2012, Big Society Capital has invested more than £250 million in specialist organisations who lend to charities and social enterprises. Over five years Big Society Capital will be capitalised with approximately £600 million, from a combination of English dormant bank accounts and the four main UK high street banks.

What is social investment?

Social investment is the use of repayable finance to achieve a social as well as a financial return.

There are lots of charities and social enterprises working hard to deal with some of the most challenging issues in the UK – such as youth unemployment, financial exclusion and homelessness. An increasing number of them want to use repayable finance to help them increase their impact on society, for example by growing their business, providing working capital for contract delivery, or buying assets.

To meet this need, a new social investment market emerging. It’s developing ways to connect socially motivated investors with charities and social enterprises that need capital so they can grow and make a greater impact on society.

We know that a diverse social investment market can generate significant social value for the UK. We have a clear vision for how to make this happen:

  • Improve access to finance for small and medium-sized charities and social enterprises: We want to ensure that every social organisation for which repayable finance is appropriate can access a range of simple, sustainable products.
  • Provide capital that allows the most innovative approaches to tackling social problems to quickly grow and replicate: We want to ensure social entrepreneurs tackling the most entrenched social problems can access the capital they need.
  • Build mass participation in social investment: We want ultimately to see millions of people contribute to social change through their personal finance choices – and thousands of grassroots organisations able to access the finance they need to support their local communities.
  • Bring far greater financial scale in the financing of social issues: We believe some social organisations can be larger, the social economy should play a bigger part in the overall economy, and mainstream financial institutions can play a greater role in providing and channelling capital to social causes.

Who does Big Society Capital invest in?

Big Society Capital was established by law as a “social investment wholesaler”. This means we cannot invest directly in charities and social enterprises. We invest in social investment finance intermediaries (SIFIs) such as fund managers or specialist banks serving the sector that in turn provide finance and support to charities and social enterprises.

Big Society Capital can only invest in SIFIs providing finance to “Social Sector Organisations”. Social sector (or third sector) organisations are defined by the Dormant Accounts Act as those that “exist wholly or mainly to provide benefits for society or the environment”. We have interpreted this to include regulated organisations such as charities, Community Interest Companies or Community Benefit Societies, as well as some profit-making companies or enterprises that have a clear social mission. These ventures need to be able to meet the principles set out in our Governance Agreement.

So far only 8% of our money has gone to profit with purpose organisation. The rest of the money that has been invested into frontline organisations has gone to asset-locked charities, community interest companies, community benefit companies, companies limited by guarantee and co-operatives.

We aim to demonstrate that the social investment model is sustainable through our own portfolio. By investing in intermediaries, rather than directly in charities and social enterprises, we’re looking to build a diverse market of finance providers without undercutting the existing providers of finance to the sector.

Where does Big Society Capital invest?

We invest in social investment finance intermediaries (SIFIs) registered in the UK that provide finance and other support to social sector organisations that primarily benefit people and communities anywhere in the UK.

We do not invest in SIFIs without a base in the UK or which provide finance and support to social sector organisations that primarily benefit people and communities outside the UK.

How is Big Society Capital funded?

Big Society Capital gets its funds from two streams:

  • English dormant bank accounts: It is anticipated that Big Society Capital will receive up to £400 million from the Reclaim Fund Ltd (a wholly owned subsidiary of the Co-operative Banking Group) which collects dormant bank and building society account monies from UK banks and building societies. After retaining reserves to cover possible future claims, the Reclaim Fund passes the money it receives to the Big Lottery Fund. The Big Lottery Fund (BLF) then allots the money to each of the home countries using a standard government formula. The English monies are invested by the Big Society Trust in Big Society Capital as equity.
  • The four main UK high street banks: Over time, Barclays, HSBC, Lloyds Banking Group and RBS each contribute additional capital in aggregate equivalent to two-thirds of the amount provided by the Reclaim Fund as an equity investment. The banks’ contribution is limited to £200 million over five years.

As at 30 June 2015 Big Society Capital had received a combined total of £330 million from the Reclaim Fund and the banks.

What is Big Society Capital’s governance structure?

Big Society Capital is an independent financial institution authorised and regulated by the Financial Conduct Authority.

The Big Society Trust acts as the majority shareholder (with 80% of the voting rights) in Big Society Capital to ensure that it remains true to its social mission to grow the social investment market in the UK. The Big Society Trust comprises: one of either the CEO of NCVO or ACEVO (on rotation); the CEO of SEUK; two social sector representatives, one finance sector representative and one business representative appointed following an open recruitment exercise; one appointment by the Cabinet Office; and the Chairs of Big Society Capital and Access (The Foundation for Social Investment).

Each shareholder bank (Barclays, HSBC, Lloyds Banking Group and RBS) can vote at shareholder’s meetings. Their votes are in proportion to their shareholding but each is capped at 5% of overall voting rights. The banks are represented on the Big Society Capital board by a bank-nominated director.

Who makes investment decisions?

The Big Society Capital Investment Committee makes investment decisions for all investments up to £10 million. The Investment Committee is chaired by the Chief Executive of Big Society Capital. Current members of the Investment Committee are: Harvey McGrath, Ronald Cohen, Aine Kelly, Geetha Rabindrakumar, Keith Starling and Jeremy Rogers.

Investment decisions above £10 million are made by the Board of Directors of Big Society Capital on the recommendation of the Investment Committee.

What is the cost of Big Society Capital’s capital?

We have been set up with the premise that the most social impact will be achieved by establishing a sustainable social investment market that is able to attract significant additional capital for the social sector. Across our portfolio we target returns in the mid-single digits, and find that this is an important level to attract co-investors. The cost of capital to charities and social enterprises will be higher than our expected return due to intermediary costs and expected write-offs.

Is Big Society Capital independent of government?

Big Society Capital is an independent financial institution authorised and regulated by the Financial Conduct Authority.

We are not owned or controlled by government.  The Big Society Trust acts as the majority shareholder (with 80% of the voting rights) in Big Society Capital to ensure that it remains true to its social mission to grow the social investment market in the UK. One of the eight Big Society Trust non-executive directors is appointed by the Accounting Officer for the Cabinet Office.

What is Access – the Foundation for Social Investment?

We know that charities and social enterprises struggle to access smaller loans and finance. The market has shown that appetite for first repayable loan finance is around £56,000. Many (although not all) fund managers struggle to offer unsecured finance below £150,000. To address this issue we worked with Cabinet Office, Big Lottery Fund and Big Society Trust to support the setup of a new, independent foundation, Access – the Foundation for Social Investment.

Access will deliver a wholesale blended capital programme to offer smaller and riskier investments to earlier stage ventures. It will also commission flexible, innovative capacity building programmes to support the social sector to become investment ready.

Does Big Society Capital 'Buy Social'?

We are keen to further integrate social organisations into our supply chain. We already use social enterprises for stationery supply, electrical safety testing, printing and design agencies. We are keen to work with more social enterprises in all areas and explore whether there is an opportunity for them to become a preferred supplier of goods or services.

Our new procurement policy reflects this. The key goals are:

  • We will give preference to suppliers who can demonstrate that they have or will implement practices to support the social sector and will meet all other supply conditions.
  • Wherever possible, Big Society Capital employees and contractors will pursue these goals and adhere to the specified principles when purchasing products and services.