By Ben Hughes
25.09.2014
“Things are much better now, aren’t they?” this was the statement put to me at a recent Treasury round table on access to finance. What my colleague, a well-meaning but poorly-briefed official was referring to was the almost daily rhetoric on improved access to finance, increased competition from challenger banks, crowd funders setting the world alight and peer to peer schemes unlocking new forms of capital. And then of course we’ve had the odd celebrity adding their – generally helpful =- views on the matter personified by Justin Welby’s helpful interventions last year, that really did put the spotlight on iniquities of very high cost credit.
However, despite this – and indeed the data that shows some increase in lending to SME’s (although certainly not those that characterise CDFIs’ typical client base) – my response was quick and required little thought; “no, they aren’t actually”.
The data we’ve collected from CDFA members in 2014 shows a significant increase in enquiries, and a c40% increase in lending to small firms. Such increases are not a result of small firms deciding the CDFI loan is preferable to that of a bank or other institution; it’s simply because they cannot, still, access funds elsewhere.
In essence, this is why we’ve produced Just Finance II, a follow up to our initial manifesto of 2012 that maps progress in achieving our asks, and that lays out in ever more stark language what needs to happen if we are seriously going to fill this structural financing gap; a gap that aside from causing destructive social impacts is proved to be a significant drag on the economy.
So what’s been achieved in the past two years? Well, there’s some progress certainly – disclosure of bank lending data, some additional funds available, certainly increased visibility (although much of this is mistakenly focused on credit unions, whose regulatory and structural constraints prevent them from lending to the typical CDFI customer) but overall, its woefully slow in relation to the ongoing deficit and size of funding gap.
The UK has a rich history of innovating quality services; introduction of the NHS and provision of comprehensive education for all to name but two, with other ideas like the living wage being formative in setting a minimum pay standard.
So why, with this history, the wave of media and public attention and a consumer movement that supports competition , are we still struggling to reflect equality in provision of our finance industry. We know that SME’s continue to struggle with accessing finance; we know that around three million individuals remain underserved by responsible or mainstream providers and we know that the current housing bubble has squeezed thousands out of any hope of ever accessing quality housing. And we also know that there’s a viable albeit still nascent sector of community finance organisations – CDFIs – that are filling what they can of this gap, with remarkable effectiveness.
Just Finance makes the case for CDFIs and crucially lays out some key asks – somewhat surprisingly given the value placed on self-help and free markets, these have been informed in part by looking west to our US colleagues. America enjoys a flourishing community finance industry that has a current loan book of a little over $45bn; the key drivers for growth of the US industry have been 1) the Community Reinvestment Act (CRA), legislation that requires banks to invest into CDFIs as those with closest links to low income communities, and 2) creation of a rolling CDFI fund, able to capitalise CDFI balance sheets and leverage significant private investment.
Ben Hughes is Chief Executive of the CDFA