By Pat Conaty
There is a growing interest by local authorities and the devolved administrations in Wales and Scotland in public banks. This interest is growing in the lead up to Brexit. The Welsh government for example is working to transform Finance Wales, a government body for small business financing, into a development bank. Richard Werner has been leading work on the Hampshire Bank to cover Portsmouth and other local authority areas in the sub-region and capital for the bank has been pledged by a number of local authorities.
As New Economics Foundation research has shown, the UK has one of the most concentrated corporate banking sectors in the world, with the market monopolised by just a handful of high street banks. Other countries like Germany, Austria, France and Switzerland have very successful local banks that provide a full range of banking services and are either municipally, co-operatively or publicly owned. A rich and diverse mixed ecology of banking is sorely missing here to replace the trustee savings banks and building societies that were privatised. What could Responsible Finance do to advance this cause?
The CDFI Coalition established in the USA in the early 1990s brings together a broad range of ‘community banking’ trade bodies including those for community development credit unions, community development loan funds (what we regard as CDFIs), community development venture capital funds and community development banks.
At present there is a risk in the UK that new projects working on community development banks or public banks like in Wales and Scotland (and proposed by Labour for the UK) may be seen as a better way forward than lower profile CDFIs. In the USA, the CDFI Coalition prevents this from happening as all trade bodies speak with one voice through the long established coalition. This shared mission has also enabled the separate trade bodies collectively to lobby the US Treasury to expand the CDFI Fund (operated by the US Treasury under the CDFI Act) that since the mid-1990s has awarded some $2 billion in capital injections (mostly equity grants) for CDFIs to strengthen their balance sheets and thereby expand their capacity and performance. Most importantly in the light of the growing interest in community and public banking, it is vital that CDFIs promote most effectively what they are already doing and achieving. How can this best be done?
Although not a bank, the Merseyside Special Investment Fund has benefited Liverpool greatly over the years. To date the CDFI has invested over £164 million.
MSIF provides a wide range of funding to businesses across the North West, predominantly in the Liverpool City Region and surrounding areas. Funding is available from …
The key point is that local authorities and others interested in the cache of a bank need to be made well aware of the crucial need to build upon the best practices and track record of CDFIs.
Twenty plus years ago I led the work to set up the first local CDFI in Birmingham, Aston Reinvestment Trust (ART). In 1997 we successfully founded and kicked this institution off with a community investment share issue that raised over £350,000. Few people know this but in the development period to launch ART we spent three years trying to get a banking license to establish a Birmingham Development Bank. But after detailed market feasibility work and rigorous business planning reports we gauged from feedback from regulators that our application work to the Bank of England was not going to make the grade. Key reasons were lack of adequate capital and key personnel in place from the get-go. So ART as a CDFI was our Plan B but also a robust plan as we drew key lessons from the USA and the CDFI Coalition, then newly established, that was proving there were different community development finance ways to skin a cat.
What is important about CDFIs (and the success of ART 20 years ago, inspired others) and what they have proven since 1997 across the UK is that they have reclaimed and in so many ways reinvented ‘relationship banking’ where lending locally is based on local knowledge, trust and a creative use of guarantee funds and other methods to offset risk. We will need this set of skills nationally for something more ambitious like a public bank but we should not see the challenge as a choice between a CDFI or public bank but better to consider strategically ‘both and’ and how the CDFIs can become involved in the development of public banks and how the two can complement and supplement each other.
There is a wonderful example about how to do this from the USA. It is a dynamic CDFI (plus more) called the Center for Community Self Help and it effectively is a community development bank but not formally a bank. It operates functionally as a bank through three linked companies, united by a holding company. These include first a credit union, second a CDFI and third a non-profit company to provide off balance sheet the non-financial services projects need like good advice, technical guidance and other support. Hence the idea of a Center for Community Self-Help.
Since the 1980s Self Help in North Carolina has provided about $7 billion and over 100,000 loans to individuals, small businesses, co-ops and social enterprises. With this impressive success they have set up in recent years Self Help branches in California and Illinois. Not bad going for a lateral thinking CDFI that is not a bank, but punches well above its weight like a real People’s Bank.
Could Responsible Finance and the Community Investment Coalition co-develop a campaigning and advocacy network to operate like the CDFI Coalition in the USA by ensuring all forms of ‘community banking’ sing from the same hymn sheet and thereby also speak with one voice to Government bodies in the UK? Time now to have this discussion and debate.