Big Society Capital

Big Society Capital Limited (BSC) is an independent social investment institution in the United Kingdom, which provides finance to organizations that support front-line social sector entities to help them grow.
Synopsis.
Social investment is about lending or investing money to achieve a social, as well as, financial return. BSC was the world's first social investment institution of its kind, established in April 2012 by the Cabinet Office of the Cameron-Clegg ministry. It launched as an independent organisation with a £600m investment fund. The investment fund comes from dormant bank accounts via an independent Reclaim Fund and four leading UK high street banks. The institution was set up as part of the "Dormant Bank and Building Society Accounts Act 2008", which defined BSC as an organization that exists "to enable other bodies to give financial or other support to third sector organisations". A third sector or a social sector organisation is "a body that exists to assist wholly or mainly for society or the environment".
Big Society Capital is a "social investment wholesaler". This means that BSC does not directly invest in frontline organisations, but in Social Investment Finance Intermediaries (SIFIs). In turn SIFIs provide finance and support to social sector organisations. BSC receives funding from two sources: Four of the main UK banks (Barclays, HSBC, Lloyds Banking Group and RBS) have each agreed to invest up to £50 million in Big Society Capital.
Banks and building societies in the UK pay money from dormant accounts into the Reclaim Fund Limited. The Reclaim Fund keeps sufficient funds to meet reclaims from any account holders and passes surplus funds to the Big Lottery Fund. The Big Lottery Fund releases the English portion of these funds to the Big Society Trust to invest in Big Society Capital. BSC expects to receive up to £400 million from dormant accounts.
Mission.
Big Society Capital aims to make a transformative impact on the social investment market by supporting SIFIs to become financially robust and effectively channel capital to the social sector. Moreover, it aims to increase awareness of, and confidence in, social investment by promoting best practice and sharing information; improving links between the social investment and mainstream financial markets; and working with other investors to embed social impact assessment into the investment decision-making process. 
Formation.
As a wholesaler of social investment, it would support the long-term growth of a thriving third sector by working with investors and lenders at the ‘retail’ level. For example, it could:
Reactions.
The principle of Big Society Capital has met with criticism from diverse groups including banks and charities. Giving evidence to the Public Administration Select Committee, Thomas Hughes-Hallett, chief executive of the Marie Curie Cancer Care charity said: "it is potentially setting up a system to encourage vulnerable charities to borrow money." In January 2011 Banco Santander, who have major retail banking interests in the UK, withdrew from Project Merlin negotiations with the Government and is expected not to make any direct payments to the BSB.
The FT suggested that it was "a tiny acorn from which it is far from certain that a giant oak will grow. But there are some very exciting ideas ...which could help society and government tackle issues that have always struggled to obtain funding in the past"
Management Today said that "There's nothing wrong with the idea, or the model, or even the pot. But this plan still seems to lack some hard-headed commercial nous".
A heavier involvement with front line social sector organisations is something that others agree Big Society Capital needs to focus on. Others are equally worried about the direction of the social investment market overall, as they say that a lot of the noise around social investment has been from the perspective of investors rather than front line social organisations. Others point out that social finance will never be applicable to all of the social sector and Big Society Capital was established to make loans and not grants, a type of finance that will not necessarily be suitable for all.
Corporate governance.
Big Society Capital is an independent financial institution authorised by the Financial Conduct Authority. Independence is ensured by a structure which involves the Big Society Trust on whose board one Government representative serves. Big Society Capital is accountable to the Big Society Trust whose responsibility it is to ensure that Big Society Capital fulfills its mission.
Big Society Trust.
The Big Society Trust is the majority shareholder in Big Society Capital, controlling 80% of the voting rights at shareholders’ meetings. Its role is to ensure that Big Society Capital remains true to its mission. For important issues such as a change to the company's objects or removal of a Big Society Capital director, the consent of at least 75% of the Big Society Trust board is required. Big Society Capital reports regularly to the Big Society Trust on its financial performance, its investments and board and senior manager appointments. The Big Society Capital CEO is invited to attend the Big Society Trust board meetings as an observer. A Governance Agreement between the Big Society Trust and Big Society Capital details the operating and reporting arrangements.
Shareholder banks.
Barclays, HSBC, Lloyds Banking Group and RBS are shareholder banks. Each shareholder bank has committed to subscribe to up to £50 million of Big Society Capital's shares; their individual shareholding will always be less than 10% of the outstanding paid-in capital. The banks can vote at shareholders’ meetings. Their votes are in proportion to their shareholding, but each is capped at 5% of the overall voting rights. The banks are represented on the Big Society Capital board by a bank-nominated director. In addition to information provided to them by the BSC Director, the banks receive all Big Society Capital board papers and quarterly and half yearly reports. In certain circumstances the banks have the right to request a meeting with the senior management of Big Society Capital to discuss its performance.
Investment categories.
The investments made by Big Society Capital fall into these broad categories:
Investment activity.
Big Society Capital was set up to receive equity capital from dormant bank accounts of up to £400m and £200m from the shareholder banks (Barclays, HSBC, Lloyds Banking Group and RBS). During:
Big Society Capital has made allocations to charities and social enterprises. During: