UK: Malcolm Hayday, Chief Executive of the Charity Bank

Malcolm Hayday is Chief Executive of the UK?s first general charity to be authorised as a bank, The Charity Bank , and a board member as well as ex-president of the International Association of Investors in the Social Economy (INAISE) ? a global network of social investment institutions. He has also been both trustee and chairman of The Big Issue Foundation and a founding member of the Community Development Finance Association (CDFA).

On 17-18 April in Budapest, Mr Hayday will speak about the development of appropriate social finance during a workshop that will be held in the context of the Euclid conference on innovation and local development in Eastern and Central Europe. The conference, that will last two days and will bring together third sector leaders and local development experts from across Europe, aims to create a forum where best practices and experiences can be shared and the opportunity for partnerships to be created.

Venture philanthropy vs. microcredit. According to you, what is the most effective form of social financing for Eastern Europe?
I think that an ?either/or? is too simplistic. The development of economic and social needs in Central and Eastern Europe is pretty complicated and needs a number of interventions. If you are seeking to tackle the economic empowerment of small businesses, private individuals and small entrepreneurships then microcredit is one tool; if you are looking to develop sustainable organisations in the social enterprise and NGO sector then I think that the venture philanthropy model, particularly that practiced by Nesst is particularly effective.

But the challenge for those models is how you then upscale investment and activity and we are finding both as charity bank and as members of INAISE that a number of micro financiers recognise that if they are going to upscale to support bigger organisations or to have greater impact then they need to actually become more broadly based social banks rather than just micro financiers. So I think there are a number of interventions, a number of steps on the ladder: for a start, a lot of individuals and a lot of organisations need a lot of help to think about how they are going to finance themselves and not just fund themselves, so much capacity building needs to be done. You then move into the more patient capital that would be characterised by the venture philanthropy model but it is not just money, its skills and other resources too. And then perhaps in parallel with that, because it?s a different market place, there?s microcredit. They both come together under social banking, and then there are the other types of intervention: investment, maybe equity risk, ahead of moving on into mainstream financial organisations. So I think that this is what is needed if we are going to have an effective credit market for all these types of organisations.

Bill Gates claims that ?philanthro-capitalism? is the form of engagement most likely to succeed in solving the world?s problems. What do you think?
Well he would say that wouldn?t he! I think again, we mustn?t be forward in thinking there is a single solution. There are times around the world where aid is absolutely needed, it is the short term solution to some of the issues that confront us. As we move on into development then I think it is becoming increasingly clear that there is a role for what I call the enterprise approach to development rather than just the hand out approach to development. And in that sense if you can engage the financial power of the markets in supporting those types of solutions that?s great, but what you have to do ? and I think that?s what Bill Gates was saying ? is moderate your financial return expectations to recognise the developmental role, social return and other types of reward that a naked market doesn?t recognise. So if your talking about Deutsch Bank iFunds and other things that are being done, I think that these are very significant developments in a more human face to capitalism, but it is not and never will be the sole answer. What it does do is that it enables people to bring scale in the amount of financial resources they can apply to these problems and therefore hopefully engineer quicker solutions.

I think the challenge for aid is that there probably isn?t enough money to tackle problems and if you give aid you?re looking for quick wins whereas many of the problems of our society today are much deeper rooted and need much longer, patient solutions which investment, rather than giving can help achieve.

What are the most important challenges for non profit banks today?
If you had asked me this six months ago I would have given you a different answer! But in the light of the global credit crunch I think the biggest challenge is that we need to demonstrate that we are different to other mainstream financial services providers, that we don?t engage in speculative activity, that we are totally transparent in what we do, and that the investor, the depositor and the saver can be confident that their money is being used responsibly to tackle problems in society. That then leads us to having trust of people both to become investors in these banks and to deposit money with these banks so that they have enough money to meet their own onward investment needs that are growing every day.

And the other important challenge is, I think, people ? getting the right people into those banks who may not necessarily have been commercial bankers, they might have been micro financiers, development capital people and its about getting that mix of people who see value in people, rather than simply in the bricks and mortar of a project.

What do you expect from the Euclid meeting in Budapest?
An opportunity to meet other people, both amongst the speakers and the participants, and to hopefully start up a dialogue on what financial services are most appropriate for the needs for an emerging civil society financial market place. I think it is too easy to assume that everybody is at a similar stage of development and can readily assimilate classical banking services. My understanding of the market in Hungary is that it is not dissimilar to the UK except much smaller. There is a very flat pyramid in that there are a number of organisations who are very small, very fragile and who come and go and you have very few organisations that are relatively substantial and therefore can afford to be sophisticated in the financial services that they need. I think we have to be alive to that and not try and create ?one size fits all products? but more to invest time and effort in creating solutions for the different types of organisations.

And I hope that we can get that debate going and that we can get some practical resource and support, particularly in the context that at the moment many organisations are attracted by the lure of free funding for Europe ? but funding from Europe always comes with strings attached, it is transient in the sense that the UK is now waking up to the fact that European funding is disappearing and so you have to plan for the future and think about how you?re going to become sustainable organisations rather than funded projects.