Putting 'community' back into banking

The banks may have retreated. The flow of credit to SMEs may have reduced to a dribble. Local economies may be suffering. But all is not lost, argues Ben Hughes.

by Ben Hughes
Last Updated: 09 Nov 2012

Community Development Finance Institutions (CDFIs) lend to businesses in neighbourhoods across the UK that can’t get what they need from banks. Rooted in their communities and operating as social enterprises, they get to know and understand the businesses in their area, and provide support and advice as well as finance. 

Last year CDFIs created and saved 8,300 jobs through investing over £200m. But this is just the start; 2012 also saw an 88% surge in demand, which tells us that they could be creating a lot more jobs if only they had access to the capital necessary to meet this demand. 

The CDFI model has caught the eye of Business Secretary Vince Cable, who last week launched a new £30m RGF fund, matched by a further £30m from banks for community finance providers. 

He clearly recognised the power of the CDFI offer, in achieving the double bottom line of financial and social returns. But at the equivalent of four months of community finance lending at current levels, this does little more than scratch the surface. 

We need a step change in investment to community finance providers, to move them from the margins to where they should be - the cornerstone of the financial services industry. With direct support from government having reduced over the past few years, it’s urgent that we accelerate investment from all sectors. 

This includes:

  • New tailored funds for CDFIs to on-lend to enterprise
  • Guarantee schemes that cover losses through a shared risk approach
  • Bolstered Community Investment Tax Relief (CITR), an overlooked lever in stimulating private investment
  • Innovative forms of raising capital, through equity and/or crowd finance

How do we spread the word? Well, we are about to launch a landmark referral scheme with the British Bankers’ Association (BBA) where, for the first time, bank loan declines are automatically re-directed to a relevant community finance provider. This is a real game-changer and is set to transform the flow of applications, and awareness of community finance overnight.

Most community finance customers have brilliant ideas, that are commercially viable - and that have a strong social purpose too. We have a proven and tested model that supports these businesses and an army of community finance champions that want to expand and grow. 

Ben Hughes is CEO of the Community Development Finance Association (CDFA), which represents community finance providers across the UK.

Find this article useful?

Get more great articles like this in your inbox every lunchtime

How to find the right mentor or executive coach

One minute briefing: McDonald’s UK CEO Paul Pomroy.

What you don't want to copy from Silicon Valley

Workplace Evolution podcast: Twitter's former EMEA chief Bruce Daisley on Saturday emails, biased recruitment and...

Research: How the most effective CEOs spend their time

Do you prefer the big, cross-functional meeting or the one-to-one catch-up?

6 rules for leading a remote team

Our C-suite panel share their distilled wisdom.

Showing vulnerability can be a CEO’s greatest strength

Want your people to bring their whole selves to work? You first.

A mini case study in horizon scanning

Swissgrid has instituted smart risk management systems for spotting things that could go wrong before...