Big Issue raises £10m for community groups

The Big Issue is to launch a £10 million loan fund later this year to spearhead social investment in deprived areas.

BIGinvest, which is receiving "six figure" start-up investment from the Bank of Scotland's community banking arm, will invest in community development finance institutions, large social enterprises and development trusts.

With plans to make loans of between £100,000 and £500,000, BIGinvest will raise capital from banks, companies, trusts and foundations, and individuals. It hopes to build a fund of between £5 million and £10 million.

As well as its start-up contribution, the Bank of Scotland is considering investing a further sum, this time in "seven figures", into the loan fund.

John Bird, founder of The Big Issue, said: "The Big Issue is Britain's leading social business and we want to use the leverage of our brand to raise finance to help other social businesses develop."

The fund will take advantage of the 5 per cent community investment tax relief, which was introduced by Chancellor Gordon Brown in last year's budget, and is intended to stimulate investment in community development finance institutions.

There are around 60 such institutions in the UK, such as the Aston Reinvestment Trust, the London Rebuilding Society and Developing Strathclyde. They make loans to social enterprises and community projects.

Charles O'Malley, BIGinvest project manager, said the creation of a national community development finance institution could help bring in extra investment to the UK's network.

"Most institutions are locally or regionally based. This is great in terms of accessing local businesses, maintaining loans and keeping good relations with borrowers, but not great in terms of developing sufficient scale nationally for cost efficiencies," he said.

"By creating a national brand, we hope to leverage more money for the sector and then farm it out to local organisations."

BIGinvest promises "tailored" lending products to borrowers. "The typical bank approach to small- and medium-sized enterprise finance is a small business loan with fixed interest rates," said O'Malley. "When you take out the loan you immediately start repaying it. A more appropriate model would be a repayment holiday."

BIGinvest will operate separately from The Big Issue, although the magazine will be represented on the board and own a minority of shares. Back office and credit assessment will be taken on by an "existing player" in the sector.

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