Bank loans are not enough to grow a big society

Like many social enterprises I'm eagerly awaiting the launch of the much heralded Big Society Bank. In case you've not heard, this new institution will be launched by the government this year with 400 million pounds that is slushing around in dormant bank accounts, with the intention of growing the big society by enabling the provision of loans to social enterprises and community groups.

As good as an idea as this sounds there are a number of drawbacks. Not least that the proposals so far indicate that the Bank will not actually directly invest money, but will instead help to grow the social investment market by underwriting other investors and encouraging new financial products from existing lenders that provide competitvely priced options for social start ups. This sounds overly bureaucratic to me and seems to fly in the face of the big society's crusade to minimise red tape. Plus given the track record of the banks doing anything the government wants them to I cant help but be sceptical that we'll see anything of real value to social enterprises come out of it, but let's wait and see.

The big issue I have is the government's assumption that a loan based model is the best way to grow the big society. Of course I get the whole focus of discouraging grant dependency for some organisations as this is key to sustainability in the longer term. However what the government fails to appreciate is that many social enterprises, and community groups that are run on a self sustaining basis, don't actually make much of a profit - in fact a significant percentage just about break even. Therefore the prospect of them being able to repay a loan with interest, no matter how competitive the rates are, is pretty unlikely and I suspect the Big Society Bank will feel the same.

There are of course a many examples of successful profit making social enterprises that are essentially commercial businesses with social priorities. And for these a loan model makes great sense, but the chances are that if they have a successful business model they will have little trouble securing finance from a traditional bank.

But equally there are a lot of organisations that are run for community benefit driven by the passion of their founders who are not necessarily motivated to make big profits, but who nevertheless don't want to be bogged down by the bureacracy of running a charity or be tied to the whims of a majority grant maker. I'm one of them and like many others I've met during my five years we do it because we want to change the world, because we love it and because we value the idependence of doing it in our own way - so long as we make enough money to maintain this we're generally happy.

But we want to have the opportunity to expand our work too and so we need to be able to access capital and an interest based loan model is unlikely to help. Instead what we need is access to interest free loans or small development grants that enable us to get things moving so we can self sustain beyond the funded period and thereby create new initiatives that hlep communities but which don't necessarily yield big surpluses. For us having just another lending institution, not unlike the existing Charity Bank, does not really fit the bill.

The Big Society Bank will enter what is already a well populated market of traditional investors. Sadly there are few institutions willing to take a punt in the way that I've described with the obvious exception of the wonderful UnLtd Foundation, which is the embodiment of how small grants can grow sustainable social action. Set up in 2000 with a £100m endowment from the Millennium Trust and free from political control, it has helped thousands of social entrepreneurs like myself by investing modest sums into new and often unproven ideas. It has since seen these investments grow substantially in terms of community benefit and impact - which is ultimately the key measure of success for any social investor.

Tragically, despite its name, UnLtd's capacity to grow its work is limited by the amount of funds it has available and the size of grants it can give. If the government really wants to grow a sustainable big society instead of creating yet another bureaucratic institution perhaps they should consider giving the £400m to UnLtd who've been doing just this for over ten years and who have a proven track record to boast of - something which the banking sector is sorely lacking.