Big Society Capital has bought almost 40 per cent of the shares in Charity Bank for £4.5m, and has committed to invest another £10m by 2016.
The investment is the largest to date from Big Society Capital (BSC).
BSC now holds a 38.7 per cent stake in the business. The previous major shareholder, the Charities Aid Foundation (CAF), will now own a 34.4 per cent stake. The remaining 19 shareholders, mostly charitable trusts, will own 26.9 per cent.
Patrick Crawford, chief executive of Charity Bank, said the investment is one of the first steps in the plan to grow his bank’s loan book from £55m today to £250m by 2018.
Crawford said the growth would allow the bank to become “sustainably profitable” by the end of 2016.
Charity Bank will also seek other investors to buy share capital, and is discussing the issue with a number of social investors.
“We hope the vote of confidence from BSC will encourage other investors,” Crawford said.
BSC will become the majority shareholder in the bank when it completes its investment, unless it also issues new shares to other investors in the meantime. Crawford said BSC and CAF were both happy to see other investors buy shares.
He said the bank aims to raise another £90 million in deposits from individual and institutional savers by the end of 2016, and another £100 million over the following two years.
Crawford said the decision to take on share capital had been made possible by changes in the bank’s legal structure a year ago, when it ceased to be a charity, and became a for-profit business.
The move was largely because the bank found it hard to meet both charity law and the requirements of financial regulators, but it has also made it much easier for the bank to attract investment.
He said the decision to seek large-scale growth was driven by a belief that the lending needs of charities were not being met.
“We believe we will have to become an enduring institution,” he said. “We do not believe that the kind of lending we offer our customers will be provided in the future by high street banks.”
Crawford said that the bank would continue to offer the same kind of investment as previously.
“We will mostly do secured lending, mostly asset-backed,” he said. “We will continue to make prudent, low-risk, responsible investments.”
While this is the largest investment so far for Big Society Capital, it is likely to make larger ones in future. It has already made an in-principle commitment to invest £15m in the Prism fund, being developed by Bridges Ventures with support from Sarasin, if that fund can raise an equal amount of capital elsewhere.
