20.09.2013
By Ben Hughes, Chief Executive of the CDFA
The froth of party conferences can have surprising benefits; in the main, it’s about distilling what really matters – through penetrating the froth as it were. Let me explain; all the fringe meetings I’ve been in – whether on panels or as participant – have shown pretty well universal support for CDFIs and all the things they do; in reality, I guess who wouldn’t. And for the first time since I’ve been with CDFA, there really is a growing sense of impatience not just at banks and all that’s wrong with that ‘top end’ of the industry (and good luck Lambert in your quest to raise banking standards), but with the whole way money is working – or not – for the many communities that banks don’t serve.
In discussing this and the desire to understand CDFIs in particular, there’s a hunger for a simple definition – what are they? Who do they serve? What do they look like?
Not easy questions to answer in once sentence! CDFIs will never be as simple as institutions like banks, which although they do – in theory at least – serve multiple markets, are essentially the same; in scale, brand, regulation, functionality and the public perception they enjoy. Not so CDFIs; with 5 possible regulatory frameworks, scale that stretches from the hyper local to the national; absence of any common brand or indeed name (fewer and fewer are understandably using the CDFI label) the elevator pitch becomes a little challenging. But what I have picked up is the interest people have in the difference CDFIs make – the social yes, although in some ways there’s an over-association with that, but with the economic.
There is, without doubt, a significant and growing economic impact that all CDFIs achieve through investing in underserved markets; significant downstream savings to the public purse, through reductions in welfare, health, criminal justice etc but more importantly in the unique contribution to local economies – and in encouraging local supply chain development, able to reverse the spiralling of profits being hoovered up by big corporates.
Getting away from the need to always describe the institution, to talking about the difference they make, really gets people to sit up and think.
We know that every £1 invested in Start up Loans (SUL) yields a return of £4.30. We need this data for every £1 invested in a CDFI, which is why I think the economic modelling tool we are developing is one of the most important activities of the moment. Yet we also need a new message, based not on describing the institutions in all their varied forms, but on the difference they make, and the economic difference in particular.
Our Citi Foundation economic modelling programme will give us a strong base to make what I have no doubt will be impressive claims on CDFIs’ economic impact; but in the meantime, using the SUL formula as a logical proxy, in 2012 CDFIs created £1.125bn towards the nations GDP. That seems impressive to me, and certainly cuts through the froth.