Submission to HM Treasury & Office of the Third Sector
Unclaimed Assets distribution mechanism: a consultation
The cdfa is the trade association for the UK’s CDFIs (Community Development
Finance Institutions). Launched in 2002 as a result of a recommendation made to
the Chancellor by the Social Investment Task Force, it now represents over 95% of
the UK’s CDFIs. The cdfa is currently introducing a Code of Practice and a
performance framework to drive up standards throughout the sector and increase
stakeholder confidence in its activities.
The cdfa has 81 member organisations from across the country and over 30
affiliated organisations and individuals who support and promote the work of the
CDFI sector. Please see Appendix A for a full list of our members and supporters.
The CDFI sector
The CDFI sector is new and emerging in the UK. CDFIs provide finance to people
who, and businesses which, cannot access it from mainstream sources. They work
to fill gaps in, and complement, existing provision by giving their clients a track record
which will enable them to move into the mainstream sector.
CDFIs provide finance for individuals, micro-enterprises, small to medium size
businesses and social enterprises based in, or serving, disadvantaged areas and
communities. They tend to specialise in one or two of these markets. Some CDFIs
target their services at communities of interest such as BME groups, women, over
On 30 September 2005 (the latest date for which figures are available), CDFIs had
£181m on loan. They had financed nearly 18,000 businesses and households. They
have created 11,000 jobs and sustained 88,000 more. They have also levered an
extra £285m into the businesses and households they serve. They had also used
Community Investment Tax Relief to raise over £38 million of private finance.
Early analysis from 2007 survey returns suggests the community development
finance sector has seen significant growth again. Results from available figures
show that portfolios have increased sharply with some CDFIs achieving more than
300% growth between September 2005 and March 2007. With a sector average of
more the 50%, this suggests the community development finance will have grown to
more than £270 million when analysis is completed. Early analysis also suggests
that CDFIs are deploying more of the capital they have available than ever before
and an increasingly significant proportion of their capital for lending is raised from
investments rather than grants. Analysis of a subset of the membership suggests
that for every £1 raised in grant in the 12 months to March 2007, CDFIs raised £2 in
investment from social and commercial sources.
Response to Treasury consultation questions
1. Are the principles underpinning the distribution of the available surplus
assets the right ones?
The Commission on Unclaimed Assets, an independent body which was set up to
examine the issue of releasing funds from dormant bank and building society
accounts to be re-invested in society, produced a report in March 2007 which called
for a Social Investment Bank to be established. A Social Investment Bank would be
an independent and entrepreneurial institution which could use the funding from
unclaimed assets to invest in the third sector and thereby invest in communities
across the country.
The report from the Commission, entitled ‘The Social Investment Bank: Its
organisation and role in driving development of the third sector’ was published earlier
this year and has been widely consulted upon. There has been widespread support
and agreement regarding the conclusions and proposals of this report; that the third
sector could be transformed by a large scale investment of capital to strengthen its
systems and infrastructure.
The cdfa and its members strongly support the concept of a development bank that
can deploy and grow a variety of third sector lenders. The cdfa and its members
believe that social investment should be on at least an equal footing with the other
priorities identified in the consultation.
CDFIs are ideally placed to handle capital from a Social Investment Bank due to their
existing experience and ability in providing financial services to communities across
the country. There is also a link between unclaimed assets being released from the
country’s banking system and then re-use to provide inclusive financial services to
communities that are excluded from mainstream banking services.
Loan finance would be the ideal method to distribute and re-invest unclaimed assets
in the community because of its ability to be re-cycled and used numerous times to
assist a greater number of people and organisations. With the majority of capital
being provided as loans and investments, not as grants, there is the additional
incentive for third sector lenders to be entrepreneurial and enterprising in their use of
With the release of the current unclaimed assets from the banking system, and then
subsequent amounts released each year as accounts reach the agreed age of
dormancy, this funding pattern would enable continuing growth and coverage and
support increasing levels of self-sustainability.
A diverse, strong and effective third sector would be able to work with more people
living in a range of communities across the country and assist in the transformation of
those communities to flourishing and vibrant places. For this to occur, the third
sector needs an investment of capital to build internal capacity, develop systems and
procedures, buy in professional support, and design and develop new services and
products. Funding from unclaimed assets would suit this need for large scale capital
investment which could then be recycled to be invested in more community and
voluntary groups thus multiplying the impact of the funding.
2. Where is the greatest need for finance and funding for third sector
organisations that is currently not being met in the market?
Within the community and voluntary sector there is a lack of understanding about
investment and finance, in addition to a gap in suitable financial products. Without
access to suitable financial products, the third sector remains dependent on short
term grant funding, which stifles the sector’s ability to grow and invest in new ways of
working and delivering services.
If funding from unclaimed assets were to be released as capital to invest in the third
sector, then there would need to be a concomitant responsibility to build the
knowledge and capacity of community and voluntary groups and social enterprises to
understand investment products and services. This would ensure that any funding
from unclaimed assets invested in the third sector would be utilised effectively to
seek maximum return, both financially and socially.
At present there is a need for third sector organisations to invest in their scale, impact
and sustainability – areas that grant funding does not usually cover as the focus for
this type of funding is normally on delivering specific, ring fenced projects. Third
sector groups and social enterprises which need to invest in capacity building,
professional development and strengthening systems could access financial
services, advice and products, via a Social Investment Bank, and develop
programmes and projects to strengthen their organisation according to their needs
and requirements, rather than fit the funding profile of a grant application. A stronger
and more effective third sector could then develop greater capacity and scale to
grow, which in turn could have a larger positive impact on the people and
communities that they work with.
3. Is there a need for a specialist social investment wholesale institution?
The cdfa and its members believe that there is a need for a specialised institution,
like a Social Investment Bank. The SIB could operate as a de novo organisation or
under the umbrella of an existing organisation with a track record such as the cdfa.
An SIB should operate as a wholesaler of funds to existing finance intermediaries,
such as CDFIs. A banking wholesaler provides capital to a variety of retail
institutions (such as CDFIs) that then directly on-lend the money received to their
clients and customers. Wholesale capital deals tend to be large and at a lower cost
than the retailer then lends at. Deals can be structured as debt, equity, quasi-equity,
returnable grants or grants. They rely on the wholesaler being able to make credible
judgements about the risk/return profile represented by the retail institutions they lend
to. In turn, wholesale capital allows retail providers to access appropriately designed
and priced capital to help increase the scale of lending and investing.
The creation of a wholesale SIB would enable CDFIs to extend the market by on-
lending the money to third sector groups and social enterprises for organisational
investment. They would also serve micro and small businesses that drive local
economies and householders that are currently reliant on high-cost lenders. An
institution such as a Social Investment Bank would need to be an independent, risk
taking body with the ability to make strategic decisions and shape the market. A
Social Investment Bank would be able to work with current finance intermediaries to
build their knowledge, market share and sustainability.
4. Is this the best means of increasing the investment available to
sustainable third sector organisations?
Yes, we believe that a Social Investment Bank would be the best means of
increasing the supply of finance to third sector organisations, and consequently
increasing the scale of investment in local communities, by;
• working with existing financial intermediaries, like CDFIs, to build their
capacity to lend, business support systems, and market position;
• assisting financial intermediaries to raise additional funds from private sector
• helping to develop and shape the market, i.e. assisting in the design of new
financial products and services that are required by third sector
• enabling the growth of investment readiness support by providing finance for
this function to intermediaries;
• and ensuring that any gaps in the market for finance are filled by innovative
A wholesale provider of funds, such as a Social Investment Bank, would be a key
protagonist in developing the social investment market, stimulating demand for
finance and working with both financial intermediaries and third sector organisations
to develop and grow the sector.
5. If so, what kind of activities should the wholesaler focus on?
The wholesaler should focus on developing and shaping the market, assisting
financial intermediaries to increase their capacity and market share, and assist in the
design and innovation of new products.
A Social Investment Bank would need to grow delivery vehicles and capacity in the
sector, as well as drive financial engineering. Some of the products for consideration
could include the following, as well as more commercially orientated loans and
• Capacity building and technical support grants
• Investment readiness and market support programme
• Grants to meet shortfalls from generated income
• Products to develop CDFI balance sheets, including product diversification
and asset acquisition
• Guarantee funds
• Long term, subordinated and/or unsecured lending
• Equity and equity-like products structured as bullet (a single final payment, in
contrast to payment in instalments) and balloons (a large, lump-sum payment
scheduled at the end of a series of considerably smaller periodic payments)
with elements that can share risk as well as upside such as turnover or
The cdfa can provide further detail on the likely balance needed between these types
of products and the risk/return yield they represent.
Currently there are market gaps in the provision of financial products to third sector
organisations, including the availability of equity, quasi-equity, patient capital and
debt products. These different types of financial product need to be available to
community and voluntary sector organisations so that they can receive the right type
of funding package, and also additional support in investment readiness and financial
6. Is the proposal to use the Big Lottery Fund as the primary UK-wide
distribution vehicle for the available surplus assets the right one, based on
the principles for distribution outline in this document?
The consultation document, at 6.12 Powers to delegate to specialist bodies, specifies
that the Big Lottery Fund will be able to delegate its distribution functions to other
specialist bodies and ‘should enough assets be available to deliver this and other
priorities in England, BIG would be able to use the proposed powers of delegation to
select a body to manage the distribution of a proportion of assets for the purposes of
boosting the social investment market’.
The Big Lottery Fund is not equipped to conduct financial services and product
provision; therefore we believe strongly that a specialist institution, like the Social
Investment Bank – working with a consortium of specialists from the financial and
community sectors - is best placed to ensure that unclaimed assets which it receives
are invested wisely in the community via CDFIs and other financial intermediaries.
However, a governance relationship between the SIB and BIG should and could be
maintained through, for instance, representation on the board.
The SIB will also need to work with current financial intermediaries and experts from
the fields of social investment, finance, third sector and community development to
ensure that a key range of skills and abilities is available for the Social Investment
Bank to utilise when establishing and developing itself as an investment institution.
7. What are the different approaches that the Big Lottery Fund could take to the
distribution of the available assets to ensure they deliver maximum benefit to
communities? How should BIG best work with other intermediaries and
delivery partners to ensure the best outcomes?
We believe that the Big Lottery Fund should; delegate part of its distributive function
to an autonomous Social Investment Bank that can act as a wholesale provider of
social investment funds; work with the Social Investment Bank to make sure that
available assets are utilised as investment finance, not revenue funding; and ensure
that the supply of capital to the Social Investment Bank is replenished each year as
more accounts in the banking system attain dormancy status.
8. Do you agree with the proposals for how legislation will work in relation to
the distribution of these assets?
A Social Investment Bank could report to the Big Lottery Fund, or to parliament, to
provide a direct line of accountable and transparency in relation to its policies and
procedures. The Social Investment Bank could be regulated by an existing authority,
i.e. the Financial Services Authority, to ensure that its finance investment work
adheres to all current relevant legislation and best practice.
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ABI Associates - Faith in Business Ltd
Aspire Micro Loans for Business Limited
Aston Reinvestment Trust (ART)
Birmingham Community Loan Fund
Black Business in Birmingham (3b)
Black Country Reinvestment Society Ltd
Blackpool Moneyline (IPS) Limited
Bradford Enterprise Agency Ltd.
Bridges Community Ventures
Bristol Enterprise Development Fund
Business Finance North West
Capitalise Business Support Limited
Centre for Employment and Enterprise Development
Change - London and Quadrant Housing Trust
Charity Bank Ltd
Community Money CIC
Co-operative and Community Finance
Coventry & Warwickshire Reinvestment Trust (CWRT)
Cumbria Community Asset and Reinvestment Trust Ltd
East Lancashire Moneyline (IPS) Ltd (ELM)
East London Small Business Centre (ELSBC)
EBDC - Ethnic Mutual
Enterprise Loan Fund Ltd
First Enterprise Business Agency (FEBA)
Futurebuilders England Ltd
Gloucestershire Development Loan Fund
Goole Development Trust
Innovative Finance (Hastings Turst)
Key Fund (South Yorkshire)
Local Investment Fund (LIF)
London Rebuilding Society
Merseyside Special Investment Fund Ltd
Moneyline Yorkshire (IPS) Ltd
Norfolk & Waveney Enterprise Services (NWES)
North London Enterprise Credit Union
North Staffordshire Risk Capital Fund plc
Pembrokeshire Lottery Fund
Plymouth Small Business Fund
Project North East (PNE)
Sahara Communities Abroad (SACOMA)
Salford Money Line (IPS) Ltd
Sandwell Advice & Moneylink Trust
Shoreline Housing Partnership
Social Investment Scotland (SIS)
South Coast Money Line
South West Investment Group (SWIG)
Spirit of Enterprise Loan Fund
The Enterprise Fund Ltd
The Five Lamps Organisation
The Isle of Wight Lottery
The Prime Initiative
The Prince's Trust
The West Yorkshire Enterprise Agency Limited
Train 2000 Limited
UK Steel Enterprise
Ulster Community Investment Trust (UCIT)
URBAN Partnership Group
WEETU - Full Circle Fund
Wessex Reinvestment Trust Group
Supporters (organisations only)
Advantage West Midlands
Bank of Scotland Community Banking
Barclays Bank plc
Community Enterprise in Strathclyde - CEiS
Community Finance Solutions
Cylch - Wales CRN
East Midlands Development Agency (emda)
Esmee Fairbairn Foundation
Finance Wales plc
Global Finance Research Group
Harley Reed Consulting ltd
Head for Business Finance Limited
Inclusive Finance Community Interest Company
Micro-Finance and Community Development
NatWest & The Royal Bank of Scotland (RBS)
New Economics Foundation (NEF)
Shorebank International Ltd