Iona Joy, Lucy de Las Casas and Benedict Rickey

London: New Philanthropy Capital in association with NESTA, April 2011. 53pp. Free to download at http://www.philanthropycapital.org/download/default.aspx?id=1143

 This report was commissioned by NESTA (the National Endowment for Science, Technology and the Arts, whose mission is to support innovation), in order to investigate the degree and type of demand for social finance in the UK. NPC finds that in both the social finance and financial inclusion markets, there is both a demand for capital, and organisations that are capable of using such capital effectively, and it is estimated that hundreds of millions of pounds could be utilised. However, the report notes that the Big Society Bank must provide the right type of capital. For example, interviews with intermediaries and umbrella bodies find that the majority of demand is for soft capital, which means that the Bank should not expect to achieve commercial returns on many of its investments. The report also argues that markets are underdeveloped, therefore investment is needed to make them more efficient and sustainable. This sort of ‘market building investment’ will require subsidy, which might be provided from another source. However, the authors note that if the Bank wishes to invest in developing the market for social finance, such costs would erode its capital base, and judgment would be required to ensure the correct trade-off between building the market and maintaining capital.