The Big Society Bank will be independent of government and will have freedom to decide its own investment strategy, according to a new government social investment strategy launched this morning.
Growing the social investment market: a vision and strategy has also confirmed that the bank will act only as a wholesaler, meaning it will not make direct investments in organisations, and will not give grants.
The bank will be self-sufficient, will have the power to raise more capital on its own and will cover its operating costs with the yield on its investments, the strategy said. It is likely to start with about £300m of assets, including £200m invested "on a commercial basis" by the four high street banks.
The remainder will come from dormant bank accounts, expected to total around £400m but with between £60m-£100m available during the first year.
The document says the bank is expected to have some of its functions in place by April, with the first funds available by the middle of the year.
However the document outlined several hurdles that must be overcome before the bank can be launched.
A reclaim fund to channel money into the bank has still not received approval from the Financial Services Authority, and the government has still not secured necessary state aid guarantees from the European Commission.
The strategy says the bank is expected to make investments to front-line social funds, capitalise social intermediaries, and invest to develop new social finance products, such as the social impact bond and "social ISAs" for everyday savers.
The bank could potentially act as an underwriter or guarantor, reducing the risk of social investment products while potentially investing little of its own capital.
"The Big Society Bank will massively expand finance for social ventures, creating a new source of finance alongside philanthropy and public service contracts," said Francis Maude, the Minister for the Cabinet Office. "It’s unthinkable for businesses to grow and thrive without capital finance, but this has too often been the reality for charities and social enterprises."
The strategy also said the government would consider other methods of developing the social investment marketing, potentially including new tax reliefs.
It said that while much has been done to develop the social investment market it was still "embryonic" and "needs support".
The problems it highlights include the small size of most deals, a lack of investment readiness among social organisations and a fragmented deal flow with high transaction costs and a lack of information.