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General

  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, www.cdfa.org.uk </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>www.fair-finance.net </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>

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