In this blog, Ed Siegel, CEO of Charity Bank, shares how our customers have been a source of inspiration and how, as a social lender, we are adapting to meet the multiple challenges presented by the COVID-19 pandemic.
These are challenging times, to say the least. COVID-19 is impacting almost every single person, family, community, and organisation in the UK. Charity Bank is no exception. We are making adjustments to our business to both ensure the continuation of our own long-term viability and to respond to the evolving needs of our charity and social enterprise customers. It remains to be seen what long-term impacts the crisis will have on the social sector, which makes it more important than ever for us to be collaborative, use our resources effectively and play our part in making the right kinds of support available.
The advantage we have is that our current shareholders are all organisations led by a social purpose. As investors in a bank whose primary focus is on supporting other impact-led organisations, our shareholders join our borrowers in an ecosystem of mutual support and social value creation. Because of our unique ownership and purpose, we were able to increase our lending and support for the social sector during and following the 2008 financial crisis, while traditional lenders withdrew from the market. We continue to grow our support, once again at a time when the sector needs us most.
Responding to need
Our charity and social enterprise customers have been a great inspiration to us during this challenging time. One such organisation is the Kingsley Hall Church & Community Centre in Dagenham which has been responding to requests for help from local households with doorstep drop-offs of food and care packages to over 250 people, prescription collections and telephone buddying to more than 600 local residents.
With its day clinic temporarily closed, another Charity Bank customer, Age UK Herne Bay & Whitstable, for whom we are currently processing a new loan request, have adapted the way that they reach and support their community. Since the crisis began, they have delivered nearly 8,500 meals, made 576 shopping trips and 7,600 check-in calls, and helped with 840 loads of laundry and 96 dog walks for their customers.
As our customers have adapted to meet the needs of the people and communities they serve, we are adapting to meet the changing financial needs of our borrowers. Lockdown and other effects of the crisis are having a significant impact on many of these organisations. Within our own lending portfolio, sectors dependent on customer footfall – heritage sites, charity shops, community cafes and churches – have been hit the hardest.
We’re doing what we can to support our customers by fast-tracking forbearance requests and in some cases granting emergency funding. Over a quarter of our borrowers have requested and been granted some form of repayment holiday, although encouragingly some have already returned to regular repayment schedules as they have successfully adjusted their social business models in response to the impacts of the crisis.
Emergency loans and support
Our participation in the Resilience and Recovery Loan Fund (RRLF) has been a big help to both Charity Bank borrowers and the wider social sector. Social Investment Business and Big Society Capital did a fantastic job of rapidly securing Coronavirus Business Interruption Loan Scheme (CBILS) accreditation and developing and rolling out the loan programme to meet the specific needs of charities and social enterprises. I’m glad that Charity Bank was able to contribute to the development of RRLF, and even more pleased that we have been able to secure approval for over £3 million in loan funding for applicants in the first few weeks of the programme. Of course, for most social sector organisations, debt is not going to be the answer to the challenges presented by COVID-19, so we are also exploring sources of blended finance and in the meantime we’re signposting organisations to grant funding options via the COVID-19 Resource Hub on our website.
Adapting to the current environment
As a social lender and a regulated, deposit-taking bank, we are currently confronting on multiple fronts the challenges presented by the COVID-19 pandemic. The reduction of the base rate to close to zero represents a significant drop in income for us, and the strains that the crisis is putting on many of our borrowers has required us to increase our loan loss provisions. These factors will have a negative impact on our P&L which, in turn, weakens our capital position – the primary determinant of our capacity to grow our lending – at a time when our borrowers need us most.
In the current environment, emergency relief funding and support is what the sector needs most so in addition to prioritising RRLF loan applications, we are intensifying our work with borrowers in distress as a result of COVID-19. Indeed, much of our ‘business as usual’ lending pipeline has moved to the ‘back burner’ as trustee boards hold off on new investments and building projects slow to a halt. Once we emerge from the current situation, however, we expect to be faced with a surge in demand from loan applicants that have put projects on hold during the crisis, and from organisations in need of recovery funding. If we are to meet this demand to the best of our potential, we will definitely need to expand our capital base which, in the meantime, has been compromised by the effects of the crisis.
The need for investment capital
We came into 2020 aiming to raise a significant amount of new share capital to fuel our next phase of growth. Many of our customers value the fact that Charity Bank is owned by other charities and social purpose organisations. They like the idea that the interest they pay on their loans will ultimately benefit other organisations that have been set up to create positive social value. Accordingly, our capital raising efforts have been focused on this segment of social investors.
As an alternative to grant-making, an investment in our shares can be leveraged into new lending to organisations that are now more vital to society than ever, at a rate of about £8 lent for each £1 invested. Keeping our shareholding within the universe of impact-led investors was always going to have its limitations, though, and we are now finding this pool of potential capital to be even more constrained as charitable trusts and foundations shift their resources to providing direct emergency relief to frontline organisations in need.
We would argue, though, that as we emerge from the current crisis, the specialist financing and support that organisations like Charity Bank are able to deliver is going to be needed more than ever. . . and we’re quite sure that our customers would agree.
About Charity Bank
Charity Bank is the loans and savings bank owned by and committed to supporting the social sector. Since 2002, we have used our savers’ money to make more than 1000 loans totalling over £300m to housing, education, social care, community and other social purpose organisations.
Nothing in this article constitutes an invitation to engage in investment activity nor is it advice or a recommendation and professional advice should be taken before any course of action is pursued.