04.03.2013
The Bank of England has announced that net lending fell by £2.4bn in the final quarter of 2012 compared with the previous three months.
The Funding for Lending (FLS) scheme, which began in August last year, was designed to encourage banks to lend more money, both to individuals and businesses, and boost the economy.
Figures from the Bank of England shows sharp contrast between different banks. Lloyds was amongst the banks that lent less, while Barclays lent more.
The Bank of England told the BBC,
“Some banks are reducing parts of their lending activities, consistent with the continued adjustment of their business models in the wake of the financial crisis, or responding to state aid conditions.”
“It takes time for reduced funding costs to feed through to lending volumes, given the typical lags involved in the loan application, approval and drawdown process,” the Bank said.
But there is an army of local ‘community banks’ which are lending to small businesses across the country. Community Development Finance Institutions (CDFIs) know their communities and can nimbly respond to local demand.
The CDFA believes that CDFIs need to be included in government schemes such as Funding for Lending. Chief Executive Ben Hughes said,
“Our members can reach the businesses that banks can’t. With the right government support they would deliver real business growth. CDFIs are completely focused on meeting the finance needs of their clients. They want to lend to all viable businesses and are not distracted by adjusting their business model.”
Recent CDFA research revealed that there is a £6billion hole in the financial system – where demand for credit is going unmet by the mainstream. Hughes added,
“CDFIs exist to fill this gap. They can channel finance to the people and businesses that need it. But like the banks, they need access to capital at good rates.”
What next?