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  1. 1. Community Finance in the UK and ART (Aston Reinvestment Trust) Dr. Steve Walker, Chief Executive ART 11 Th November 2009 University of Birmingham
  2. 2. What are CDFIs? <ul><li>Community Development Financial Institutions. </li></ul><ul><li>Independent Organisations – Different Forms, still a Young Sector. </li></ul><ul><li>Provide Loan Finance where others do not to Various Markets. </li></ul><ul><li>West Midlands in Top 3 Regions in UK by number. </li></ul><ul><li>CDFA, 2001, </li></ul>
  3. 3. Community Finance <ul><li>US experience CDF - 25 years. Community Reinvestment Act the driver. Worldwide - Grameen Bank - microcredit. </li></ul><ul><li>Small is Bankable 1998 – UK. </li></ul><ul><li>UK Public Sector Loan Schemes – research showed lack of outreach and success. </li></ul><ul><li>Social Investment Taskforce 2000. </li></ul><ul><li>Phoenix Fund – DTI/DBERR 2000-2006. </li></ul><ul><li>Regional Development Agencies 2006. (BIS) </li></ul><ul><li>Policy switch to personal finance -DWP </li></ul>
  4. 4. SMALL IS BANKABLE 1998 -Expansion of CDFIs <ul><li>Disadvantaged neighbourhoods typically have least access to capital. Those facing acute finance gaps include individuals, micro and small businesses, small housing associations and the wider voluntary sector. </li></ul><ul><li>Five distinct models of community finance now operate in the UK: credit unions; community loan funds; micro-finance funds; mutual guarantee societies; and social banks. </li></ul><ul><li>Community finance initiatives use a variety of non-conventional ways of delivering financial services which reduce risks and operational costs, and avoid recourse to above market rates. They have in general a good record on default and financial sustainability. In contrast, many public sector-led funds offering 'soft' (subsidised) loans have performed poorly. </li></ul><ul><li>The researchers conclude that there remains a mismatch between the scale of the problem, in terms of access to capital, and the current capacity of the solutions. Yet with adequate policy support , fee earning from investment activities and some subsidy, community finance initiatives could increase in scale and impact and become attractive partners to banks. </li></ul>
  5. 5. Markets <ul><li>Micro Businesses (1-9 employees) – Micro finance (loans up to E25000) + loans up to £50000. </li></ul><ul><li>Small & Medium Businesses - loans up to £50000. </li></ul><ul><li>Social Enterprise - loans up to £250,000. </li></ul><ul><li>Equity for small businesses. </li></ul><ul><li>Consumer/Personal Lending. </li></ul>
  6. 6. National Examples <ul><li>Charity Bank and Triodos Bank? CDFI Sector v Banks? </li></ul><ul><li>Cooperative and Community Finance (Formerly ICOF) </li></ul><ul><li>TSELF (Formerly Local Investment Fund </li></ul><ul><li>Bridges Community Ventures (Venture Capital targeted to disadvantaged areas) </li></ul>
  7. 7. West Midlands Examples <ul><li>ART (Aston Reinvestment Trust) </li></ul><ul><li>Black Country Reinvestment Society </li></ul><ul><li>Coventry and Warwickshire Reinvestment Trust </li></ul><ul><li>Impetus </li></ul><ul><li>Street UK </li></ul><ul><li>Fair Finance Consortium </li></ul><ul><li> </li></ul>
  8. 8. ART <ul><li>JOBS </li></ul><ul><li>OPPORTUNITY </li></ul><ul><li>GROWTH </li></ul><ul><li>INNOVATION </li></ul><ul><li>ENTERPRISE </li></ul><ul><li>Aston Commission Report 1989 </li></ul><ul><li>Research and development and attempts to raise funding support. </li></ul><ul><li>Established 1997 </li></ul><ul><li>CDFI, Mutual Society </li></ul><ul><li>Lends to businesses and social enterprises in Birmingham and Solihull </li></ul><ul><li>Funded by individual, corporate and public sector investment </li></ul>
  9. 9. Mission <ul><li>Relief of Poverty through Enterprise - </li></ul><ul><li>Local Jobs for Local People. </li></ul>
  10. 10. ART – Business Transformation <ul><li>EFG --------  BANK </li></ul><ul><li> BUSINESS/ BUSINESS LINK SOCIAL / DEVELOPMENT ENTERPRISE SUPPORT </li></ul><ul><li> ACCOUNTANTS-Advisors </li></ul><ul><li>Policy Guarantee </li></ul><ul><li>Funds -----------  ART </li></ul>
  11. 11. ART Loans <ul><li>Business Loans </li></ul><ul><ul><li>F or existing and start up businesses </li></ul></ul><ul><ul><li>U p to £50,00 0 </li></ul></ul><ul><ul><li>Now £10,000 upwards </li></ul></ul><ul><ul><li>At launch until 2006 £2,000 upwards </li></ul></ul><ul><ul><li>Up to 10 year loan period </li></ul></ul><ul><ul><li>Commercial rates of interest- 12/base </li></ul></ul><ul><ul><li>Compare Banks now post credit crunch. </li></ul></ul><ul><li>Social Enterprise Loans </li></ul><ul><ul><li>For existing and start up social enterprises </li></ul></ul><ul><ul><li>Up to £50,000 </li></ul></ul><ul><ul><li>Up to 10 year loan period </li></ul></ul><ul><ul><li>Commercial rate of interest </li></ul></ul><ul><ul><li>12/Base –compare national providers in sector. </li></ul></ul>
  12. 12. Lending Criteria <ul><li>Refused loan by bank and other sources. </li></ul><ul><li>Viable proposition - application form/business plan- </li></ul><ul><li>Social and Economic Benefits to area-usually jobs. </li></ul><ul><li>Evidence of desire and ability to repay </li></ul><ul><li>Financial track record – personal and business </li></ul>
  13. 13. Achievements <ul><li>Since start up in 1997 ART has lent over </li></ul><ul><li>£8 million to 400 +borrowers </li></ul><ul><li>enabling them to create or protect </li></ul><ul><li>3,500 jobs in the Birmingham area. </li></ul><ul><li>Experimented in other areas-Energy Saving and home improvement-reverted to core activity to support enterprise. </li></ul>
  14. 14. ART Achievements <ul><li>Pioneer of CDFI model in the UK – now replicated around the country. Some have used model for other purposes. </li></ul><ul><li>Contributes to local and national government policy relating to access to finance and support for small businesses including social enterprises. </li></ul><ul><li>Hosted visits by interested parties from around the world. </li></ul>
  15. 15. ART Achievements <ul><li>Revolving loan fund of circa £2.5m. </li></ul><ul><li>Current loan portfolio split: </li></ul><ul><ul><li>90% loans to businesses </li></ul></ul><ul><ul><li>10% loans to social enterprises </li></ul></ul><ul><li>Average loan £20,000. </li></ul><ul><li>Now covers over 90% of overheads, excluding bad debts , from earned income. </li></ul>
  16. 16. ART-Examples of Success <ul><li>KPM Turnkey </li></ul><ul><li>Purnells </li></ul><ul><li>Eagle Gold Security </li></ul><ul><li>Salon Express </li></ul>
  17. 17. Funding <ul><li>Investment by individuals and companies – from £250 to £20,000. Industrial and provident Society –Mutual. </li></ul><ul><li>Public and private sector support - capital and revenue. </li></ul><ul><li>Loans from Charitable foundations and banks. </li></ul><ul><li>Investments qualify for Community Investment Tax Relief. </li></ul><ul><li>(CITR). </li></ul><ul><li>ART is an independent organisation, aiming to be self-sustaining. It has championed the use of public sector funding for policy purposes to underwrite risk. </li></ul>
  18. 18. CDFA Latest Information. <ul><li>Since 2003 CDFIs have lent £500m. </li></ul><ul><li>Total Loans Made 2008/9 including Triodos and Charity Bank £113million (50% up on last year) </li></ul><ul><li>Portfolios now excluding TB and CB £98million.(£394m) up 19% in 2008/9 </li></ul><ul><li>Business Loans-total volume £33 million 08/09.Micro =35% by value 64% by number. </li></ul><ul><li>Tighter lending conditions. </li></ul><ul><li>Current major future issues funding and funding! </li></ul>
  19. 19. Lessons from the early years. <ul><li>SCALE </li></ul><ul><li>RAISING AWARENESS </li></ul><ul><li>REFERRALS </li></ul><ul><li>PARTNERSHIPS </li></ul><ul><li>BAD DEBTS/PRICING </li></ul><ul><li>MICRO LENDING </li></ul><ul><li>DIVERSIFICATION – Issues + or - </li></ul>
  20. 20. Lessons over the years <ul><li>Research - cannot always believe. </li></ul><ul><li>Finance + Support needed in disadvantaged communities - compare US. </li></ul><ul><li>Community Reinvestment Act- huge plus for US. </li></ul><ul><li>Sustainability is not everything. </li></ul><ul><li>CDFIs have a positive impact and can make a real difference…….NEF 2007. </li></ul>
  21. 21. Future Issues <ul><li>Public Sector v Mission of CDFI </li></ul><ul><li>Full coverage v targeted to areas of disadvantaged. </li></ul><ul><li>Regional Development Agencies? Future? </li></ul><ul><li>Banks? Are they fit for purpose -Small is bankable-is Bank right for small businesses? NEF -IOUK. </li></ul><ul><li>Banks appetite for the small business market? </li></ul>
  22. 22. Future Issues <ul><li>Solutions for Business- CDFIs can deliver but? </li></ul><ul><li>Policy guarantee funds-whose policy? </li></ul><ul><li>Issues with regional funding –local authorities –ERDF </li></ul><ul><li>Philanthropy and social investment. CITR use. </li></ul><ul><li>Evaluation of the sector GHK for BIS </li></ul><ul><li>Social Investment Wholesale Bank? </li></ul><ul><li>Community Reinvestment Act in UK or…? </li></ul>