On foot of a proposal by finance minister Brian Cowen in his 2006 budget, the big Irish banks have agreed to contribute 25m to the Department of Finance's social finance initiative. The department is now moving ahead with plans to set up a fund that will provide low-interest loans for what it describes as "social investments that yield a social as well as a financial return that justifies undertaking the investment".

"In many ways social finance is complementary to public funding and grant financing, " said Paul O'Sullivan, chief executive of Clann Credo. Clann Credo is a social investment fund set up in 1996 by Presentation Sister Magdalen Fogarty and backed by several religious charities.

O'Sullivan said that, although it has raised funds from charitable organisations, Clann Credo's purpose is not to give the money away. Instead it provides low-interest loans, and in some instances equity finance, to support projects that it believes will help community-based groups and provide a small return on its investment.

"It will be modest.

Nobody is going to make massive capital gains by investing in social projects.

That's the nature of it and that's how it should be, " said O'Sullivan.

The idea is that the money is paid back at a modest rate of interest, so it can be redirected to other worthwhile projects. "The money gets used time and time again, " he said.

Clann Credo has invested 13m in some 130 projects over the last 10 years. Its recent disbursements include a loan to Vantastic, a Dublin organisation providing low-cost, accessible transport for the disabled. Clann Credo lent Vantastic the money to buy its modified vans.

The fund has also been involved in large-scale projects such as Rathmore Special Action Group's development of sheltered accommodation for the elderly in east Kerry.

O'Sullivan was involved in producing the 'In the common interest' report on social finance which led to the current Department of Finance initiative. "We felt we needed to get the state involved in social finance, " he said.

With the department's support, and now with 25m in hard currency behind it, O'Sullivan hopes to win broader support, and more money for social finance projects in the future. "It's a matter of moving it out to private individuals, socially responsible businesses and things like that, " he said.

To date Clann Credo has relied on charitable foundations for its fund but O'Sullivan envisages bringing private investors on board. "Maybe not today or tomorrow but certainly we think over the next couple of years that's the next stage that has to happen, " he said.

Pat Hehir, manager of St Columba's Credit Union in Galway, said there is already an appetite for investing in such projects. St Columba's provided an 8m loan to help develop an enterprise centre, library, clinic, apartments and retail units in the Galway suburb of Ballybane.

St Columba's made a modest profit on its investment in the development, after the sale of the retail and residential units, and has since backed several other social finance projects including a 2.5m incubation centre for small businesses.

"We've been invited by the city council to build, in Ballinfoyle, a regional sports centre similar in size to Tallaght or the basketball arena in Cork, " said Hehir.

St Columba's members approved the Ballybane investment unanimously, and having seen it come to fruition, are keen to put the credit union funds to work in other, similar projects.

"The fact that this is money harvested from the local community over 40 years and put back into the community. That's the beautiful thing, " Hehir said.

Liam O'Dwyer, chief executive of the Irish League of Credit Unions (ILCU), said the St Columba's example is not unique in the credit union movement. O'Dwyer said between 10% and 12, % or 500m of the Credit Union loan book, is accounted for by social finance investment, ranging from community projects to micro-finance for people moving from social welfare to setting up their own businesses.

"We don't regard this as charitable work. It's a social investment with a social return but it also has to have a financial return, " he said.

It is likely credit unions will play an active role in administering the government-backed social investment fund at a local level. The Department of Finance is looking for intermediaries and O'Dwyer said the ILCU has already registered its interest.

"The Department is looking at ways of releasing the investment into the community. We're very pleased to be a part of that.

It's very positive from our point of view. We see social finance as developmental."