Community Finance: The state of play in 2015

15^th April 2015

With over 200 people attending across the Community Development Finance Institutions (CDFI) industry, as well as across the private, public and public sectors, there was an undeniable buzz around Community Finance 2015 – the CDFA’s annual conference – at the Grand Connaught Rooms last month.

With the 2015 General Election just around the corner, a significant window of opportunity is open for the main political parties to commit to renewing their efforts in promoting and supporting the sector.

2014 represented another successful year for the CDFI sector. The industry demonstrated how big a role it can play in broadening diversity in the financial services industry, and meeting the ever increasing demand for alternative finance.

This was demonstrated by the £173 million CDFIs lent to over 50,000 customers, creating 11,500 new businesses, supporting over 20,000 jobs and helping 42,000 people avoiding high-cost credit providers.

2014’s Inside Community Finance also benefited from the use of the Economic Impact Tool (EIT) quantifies CDFIs’ contribution to the UK economy in monetary terms. The EIT shows that CDFI lending to SMEs contributed over £500m to UK GDP – illustrating for the first time the major economic impact CDFIs are having.

Among the early dominant themes at Conference 2015 was financial inclusion. The conference had the pleasure of welcoming Sir Sherard Cowper-Coles, Chair of the Financial Inclusion Commission, who was able to provide a preview into what the Commission’s report – ‘Improving the financial health of the nation’.

Among the many eye-catching recommendations were the UK Government promoting measures to make community finance institutions more sustainable, such as the government lifting the APR cap on credit unions, lenders and investors developing a better understanding of business models and risk, and community lenders attracting a wider customer base, as well as instituting a ‘Minister for Financial Health’ to lead on financial inclusion and financial capability in the UK.

Similarly, Nick O’Donohoe, Chief Executive of Big Society Capital, highlighted the importance of CDFIs in tackling financial exclusion, citing that Britain has “one of the most concentrated banking market than we have here, where 70-80 per cent of loans and deposits are controlled by just five banks.”

The consensus emerged that, within this environment and with the Competition and Markets Authority conducting an investigation into the banking services to small and medium-sized enterprises, CDFIs had a great opportunity to champion their unique selling point – providing loans to create wealth and prosperity in Britain’s most deprived communities.

This was followed by the mini-plenary sessions: delegates having a wide array of options – from the rise of alternative funding to how regulators and the government can deploy legislation effectively to aid the growth of the community finance sector.

Indeed, how CDFIs will secure the capital they need to begin plugging the £6.75 billion demand for community finance. There are plenty of examples of CDFIs illustrating this demand: Diane Burridge, Chief Executive of Yorkshire-based CDFI Moneyline, said that their business saw demand between January and February of this year increase by 40 per cent compared with the same period in 2014.

This has led for many to support – as the CDFA has done – Citizens UK’s proposal for the establishment of a Community Finance Foundation, which would use the £200 million in bank fines levied by the Financial Conduct Authority during the next Parliament to support and champion sustainable growth in the community finance sector.

Others, meanwhile, are calling for a Community Banking Act with organisations such as the Community Investment Coalition and private sector firms Unity Trust Bank and Bates Wells Braithwaite among the loudest proponents.

Peter Kelly told Pioneers Post: “The time for debate is over. A Community Banking Act would create a much needed framework for positive engagement and would enable banks to be incentivised for innovation and good practice.”

An economic recovery will result in an ever increasing demand for credit throughout the UK. With the right support, CDFIs have proven they can flourish and unlock the potential of local economies across the UK. Yet, there are still barriers to scaling up the CDFI industry; a shortage of capital prevents many from increasing the level of lending and support they can conduct, which restricts growth and subsequently their ability to bring wealth and prosperity to households and communities.

Let’s hope the next UK government heeds these flashing signals on the community finance dashboard.

Callum Anderson joined the CDFA as a Research Assistant in January 2014 following stints at the think tanks Demos and Reform. He graduated with a BSc in Economics with German from the University of Birmingham in 2013.