Community Finance in the UK and ART (Aston Reinvestment Trust)-Access to Finance

1. Community Finance in the UK and ART (Aston Reinvestment Trust)-Access to Finance Dr. Steve Walker, Chief Executive ART 10TH June 2011 Imageen Visit. www.reinvest.co.uk

2. What are CDFIs? • Community Development Financial Institutions. • Independent Organisations – Different Forms, still a Young Sector. • Provide Loan Finance where others do not to Various Markets. • West Midlands in Top 3 Regions in UK by number. • CDFA, 2001, www.cdfa.org.uk

3. Community Finance • US experience CDF - 25 years. Community Reinvestment Act the driver. Worldwide - Grameen Bank - microcredit. • Small is Bankable 1998 – UK. • UK Public Sector Loan Schemes – research showed lack of outreach and success. • Social Investment Taskforce 2000. • Phoenix Fund – DTI/DBERR 2000-2006. • Regional Development Agencies 2006. (BIS) • ERDF Support in some UK Regions. • Policy switch to personal finance –DWP 2006

4. SMALL IS BANKABLE 1998 -Expansion of CDFIs • 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. • 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. • Community finance initiativesuse 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. • 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.

5. Markets • Micro Businesses (1-9 employees) – Micro finance (loans up to E25000) + loans up to £50000. • Small & Medium Businesses - loans up to £50000. • Social Enterprise - loans up to £250,000. • Equity for small businesses. • Consumer/Personal Lending.

6. National Examples • Charity Bank and Triodos Bank. • Cooperative and Community Finance (Formerly ICOF) • TSELF (Formerly Local Investment Fund • Bridges Community Ventures (Venture Capital targeted to disadvantaged areas) • Princes Trust

7. West Midlands Examples • ART (Aston Reinvestment Trust) • Black Country Reinvestment Society • Coventry and Warwickshire Reinvestment Trust • Impetus • Street UK Fair Finance Consortium www.fair-finance.net

8. JOBS OPPORTUNITY GROWTH INNOVATION ENTERPRISE Aston Commission Report 1989 Research and development and attempts to raise funding support. Established 1997 CDFI, Mutual Society Lends to businesses and social enterprises in Birmingham and Solihull Funded by individual, corporate and public sector investment ART

9. Mission Relief of Poverty through Enterprise - Local Jobs for Local People.

10. ART – Business Transformation BANK BUSINESS/ BUSINESS LINK SOCIAL / DEVELOPMENT ENTERPRISE SUPPORT ACCOUNTANTS-Advisors Policy Guarantee Funds ----------- ART

11. Business Loans For existing and start up businesses Up to £50,000 Now £10,000 upwards At launch until 2006 £2,000 upwards Up to 5 year loan period Commercial rates of interest- 12/base Compare Banks now post credit crunch. Social Enterprise Loans For existing and start up social enterprises Up to £50,000 Up to 5 year loan period Commercial rate of interest 12/Base –compare national providers in sector. ART Loans

12. Lending Criteria • Refused loan by bank and other sources. • Viable proposition - application form/business plan- • Social and Economic Benefits to area-usually jobs. • Evidence of desire and ability to repay • Financial track record – personal and business

13. Achievements Since start up in 1997 ART has lent over £9 million to 500 +borrowers enabling them to create or protect 4000 jobs in the Birmingham area. Experimented in other areas-Energy Saving and home improvement-reverted to core activity to support enterprise.

14. ART Achievements • Pioneer of CDFI model in the UK – now replicated around the country. Some have used model for other purposes.(Consumer finance). • Contributes to local and national government policy relating to access to finance and support for small businesses including social enterprises. • Hosted visits by interested parties from around the world.

15. ART Achievements • Revolving loan fund of circa £2.5m. • Current loan portfolio split: • 90% loans to businesses • 10% loans to social enterprises • Average loan £20,000. • Now covers over 95% of overheads, excluding bad debts, from earned income.

16. ART-Examples of Success • KPM Turnkey • Purnells • Eagle Gold Security

17. Funding • Investment by individuals and companies – from £250 to £20,000. Industrial and provident Society –Mutual. • Public and private sector support - capital and revenue. • Loans from Charitable foundations and banks. • Investments qualify for Community Investment Tax Relief. (CITR). 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 and achieve social and economic impact.

18. CDFA Latest Information. Since 2003 CDFIs have lent £500m. Portfolios now excluding TB and CB £98million.(£394m). Business Loans-total volume p.a. £33 million .Micro =35% by value 64% by number. Tighter lending conditions. Regional Growth Fund bid approved awaiting contract and local funding including ERDF.

19. Lessons from the early years. • SCALE • RAISING AWARENESS • REFERRALS • PARTNERSHIPS • BAD DEBTS/PRICING • MICRO LENDING-impact v sustainability • DIVERSIFICATION – Issues + or -

20. Lessons over the years • Finance + Support needed in disadvantaged communities - compare US. • Community Reinvestment Act- huge plus for US. • Sustainability is not everything. • CDFIs have a positive impact and can make a real difference…….NEF 2007. • Evaluation of the sector GHK for BIS highly positive for enterprise lending.

21. Future Issues • Public Sector v Mission of CDFI • Full coverage v targeted to areas of disadvantaged. • Banks? Are they fit for purpose -Small is bankable-is Bank right for small businesses? NEF -IOUK. • Banks appetite for the small business market? • Community Reinvestment Act in UK or…?