An academic report ‘The Future of CDFI Business Lending’ has just been published (6th March 2018) and recommendations will be discussed at a Best Practice Workshop, hosted by one of the co-authors, at the Responsible Finance Annual Conference 2018 in Glasgow (21st March 2018).
The report is the result of a two year research and engagement exercise on funding for business lending for responsible finance providers (also called Community Development Financial Institutions or CDFIs), facilitated by The Centre for Research into Ethnic Minority Entrepreneurship (CREME) at the University of Birmingham.
The work was undertaken by two honorary members of CREME, Professor Richard Roberts and Dr Steve Walker, both with long careers in the UK SME finance industry. Dr Steve Walker is Chief Executive of responsible finance provider ART Business Loans, but undertook this work in a personal capacity, with a view to its relevance to the responsible finance sector.
CREME hosted a workshop on the 6th March to mark the publication of the final report. The event was attended by around 30 people, including experienced practitioners in the responsible finance market and a number of key policy makers.
Key Issues
- Enterprise Lending responsible finance providers currently play a small, but important, part in the SME funding landscape – new loans advanced in 2017 exceeded £60 million to about 5,000 viable firms unable to access commercial funds;
- Since 2015, a number of new developments have emerged to help build a sustainable funding environment to support the enterprise lending responsible finance providers, despite the Government decision to end the Regional Growth Fund scheme. These include recent announcements by Big Society Capital and the work of the new British Business Bank managed sub-national funds. In addition the authors’ recommendation to allow the Enterprise Finance Guarantee Scheme to be used with Community Investment Tax Relief has been agreed;
- However, it is taking time for this new funding ecosystem to be secured. Fee-based schemes alone are considered insufficient to underpin this new environment and a further decline in gross lending from enterprise lending responsible finance providers looks likely in the short term.
Key Recommendations
- The enterprise lending responsible finance provider sector should be supported – a stronger sector will help secure and create jobs, especially amongst underserved communities, including ethnic minorities, in the UK SME sector through the years of economic uncertainty ahead;
- A long term capital funding environment needs to be established to secure the future for the business focussed responsible finance sector;
- To help speed up a sustainable future for enterprise lending responsible finance providers the report proposes greater use of public loan guarantees – perhaps through a variation to the existing Enterprise Finance Guarantee –in order to promote raising investment capital at lower risk for investors. There are international examples of successful deployment of such arrangements, notably in the USA;
- Enterprise lending responsible finance providers share many attributes with the wider sector, however enterprise lending should increasingly be regarded as a separate market which needs more targeted attention to ensure viable business proposals from start-ups and established SMEs rejected by commercial providers of all types can obtain debt funding. The SME finance market is very different now than a decade ago. The range of commercial providers is greater than ever before and the supply of debt funding for many mainstream established SMEs is not a major issue. However, enterprise lending responsible finance providers provide an important safety net to help support viable business propositions declined for commercial finance or discouraged from approaching traditional providers.
The final report can be downloaded below.
Dr. Steve Walker, ART Business Loans
The Future of CDFI Business Lending
March 2018
This report is the result of a two year research and engagement exercise on funding for business lending for responsible finance providers (also called Community Development Financial Institutions or CDFIs), facilitated by The Centre for Research into Ethnic Minority Entrepreneurship (CREME) at the University of Birmingham.
The work was undertaken by two honorary members of CREME, Professor Richard Roberts and Dr Steve Walker, both with long careers in the UK SME finance industry. Dr Steve Walker is Chief Executive of responsible finance provider ART Business Loans, but undertook this work in a personal capacity, with a view to its relevance to the responsible finance sector.
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