New bank allows savers to aid charities

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Britain's first not-for-profit bank, which will use savers' money to provide charities with affordable loans, is opening for business in September.

Deposits with Charity Bank will earn "modest" interest of up to 2 per cent a year. But the bank says investors will receive "greater social returns" by creating a pool of money which can be lent to small community projects and charities that fail to raise enough cash through fund-raising or grants.

As a first step, organisations will be able to borrow less than £5,000 and then graduate to larger amounts. Loans will not be made to individuals.

The Charity Commission and Financial Services Authority were toconfirm today that the bank could become a registered charity and a regulated financial institution.

The bank has evolved out of a social investment fund called Investors in Society, which was set up by the Charities Aid Foundation in 1996 and which has provided affordable loans to more than 200 charities.

Malcolm Heyday, the bank's chief executive, said: "Charity Bank intends to promote the acceptability of loan finance as a means of funding charitable enterprise, educate charities in the efficient use of such finance, and foster a spirit of self-sufficiency, initiative and independence within the charity sector."

About £5m of initial capital for the new bank will be provided by the Charities Aid Foundation and other private donors. As a registered charity, all operating surpluses will be reinvested in the charity sector. Simon Gillespie, director of operations at the Charity Commission, said the bank was a "novel and exciting" idea, which would benefit both the public and charities.