While the government has passionately pursued an ‘access to finance’ agenda there is still plenty of room for improvement.
As I write, the election campaign is in full swing as ministers, MPs and activists travel the country attempting to persuade voters that their policies are right for one and all.
Before it’s all over I’m hoping for, at the very least, accusations of dirty tricks, a whiff of scandal and mudslinging galore. How I love an election campaign! But the fun aside, how will the new administration affect the lives of people and organisations that have difficulties accessing finance on reasonable terms?
Access to responsible finance affects so many people. Without it thousands of businesses would not be able to start, let alone grow and regenerate their communities. Many of the poorest people in the country will continue to resort to predatory lenders and be forced to pay extortionate interest rates on loans for essential goods.
The sector I represent – community development finance – is an emergent force for change. Even at this early stage of its growth, the sector has financed 9,500 businesses, created 10,000 jobs, sustained another 85,000 and controls £400m through Community Development Finance Institutions (CDFIs).
The current government has created and supported an access-to-finance agenda. It has supported the development of CDFIs and brought in a tool to lever private finance into the sector: Community Investment Tax Relief (CITR). In just over 18 months CITR has levered £18m of private finance into the sector.
Importantly, CDFIs are not working to keep their clients on a long-term basis. Theirs is very much a developmental role: once a client has a track record and credit history, they can move onto use the services of mainstream banks as they will no longer be deemed as high risk. In this way, CDFIs are complementing the work of banks by penetrating and developing a new market for them.
While the government has strongly pursued the ‘access to finance’ agenda, it is a message that resonates with all parties. CDFIs encourage people to be financially independent, use their own skills and develop their potential. They contribute to the economy, create jobs, regenerate communities, encourage independence and grow markets for mainstream banks. Given that this agenda crosses the whole political spectrum, I would like to see the support for ‘access to finance’ continue unabated in any new administration.
Yet there is scope for any new government to improve the approach. At the moment CDFI-financed enterprises are being supported through a central fund, but from March 2006 local authorities are expected to take a key role through the Local Enterprise Growth Initiative. This will only complicate matters, since seeking support from a variety of sources makes the process much more complex.
There is even greater room for improvement for any new government. Support for financial inclusion for individuals through the Financial Inclusion Fund is being disbursed through a number of different departments, making the whole support map far too complicated. CDFIs know that it is very difficult to separate enterprise finance from personal finance. For instance, if a CDFI lends money to an entrepreneur to buy a car for their business, it is likely they would use it for personal use. Similarly, if money is lent for home improvements, it may well encompass developing an office space within the house. Access to finance is too important an issue to divide up and fragment through a range of agencies as it crosses so many policy objectives.
So I would like to see a new administration take a proactive, cohesive approach to this issue. It could provide an independent source of support, which would focus on all aspects of access to finance. It is only by doing this that people and organisations who are financially excluded will have proper recognition on the public agenda, the recognition they need to ensure they are able to improve their lives, those of their families contribute to the regeneration of their communities.
more info
To find out more about CDFIs and Community Investment Tax Relief, the cdfa is holding a breakfast seminar and exhibition for CSR staff on May 4 in London. For more details, please contact: info@cdfa.org.uk
Corporate Citizenship Briefing, issue no: 81 – April, 2005
Bernie Morgan is chief executive of the community development finance association
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