4th March 2024: Lloyds Bank is the lead investor in the new, £62m Community Investment Enterprise Fund (CIEF), launched to help small businesses across England and Wales access finance to support local jobs and economic activity.
CIEF phase two will invest into three Community Development Finance Institutions (CDFIs), our members BCRS Business Loans, Business Enterprise Fund and Finance For Enterprise. They and other CDFIs lend to creditworthy businesses which traditional and challenger banks and fintechs cannot serve – more than 90% of CDFI customers were first declined by another lender, and CDFIs often create banks’ future customers.
Almost 50% of CDFI lending is to areas in the UK’s most deprived regions and CDFIs lend disproportionately more to businesses led by women and by ethnic minority entrepreneurs.
The new Fund follows a successful first phase and is backed by Lloyds Bank, Big Society Capital (BSC) and contributions from the participating CDFIs. It will continue to be managed by Social Investment Scotland (SIS), itself a social investor and CDFI. It is the first time a mainstream high street bank has made a commercial investment into enterprise-lending CDFIs.*
The announcement follows longstanding recognition for the unique role CDFIs play in unlocking entrepreneurial opportunity, job creation and business and social enterprise growth. A 2021 report by the All-Party Parliamentary Group (APPG) on Fair Business Banking described a shortage of finance for small businesses with its cross-party members urging Government to further capitalise CDFIs to address this. In the same year, Kevin Hollinrake MP, then co-chair of the same APPG (and now Minister for Enterprise, Markets and Small Business), wrote to the Chancellor calling for the scaling up of CDFIs, and Pat McFadden MP, then Shadow Economic Secretary to the Treasury, said CDFIs have a very important role to play where main high street banks are unable to help.
Since then, commentators in The Financial Times, other politicians across parties, business and social enterprise lobby groups and campaigners have called for banks to invest into CDFIs and Government to enact policies to support this. The British Business Bank 2022 Nations and Regions Tracker stated “evidence suggests CDFIs outperform banks” in lending to the UK’s 35% most deprived areas. Responsible Finance chief executive, Theodora Hadjimichael, gave evidence to the recent Treasury Select Committee inquiry into SME finance.
The new fund aims to invest in around 800 small businesses, supporting around 10,500 jobs. Its first phase, also managed by SIS, saw the deployment of £66m by four CDFIs in England to meet the needs of more than 900 small businesses operating in disadvantaged areas, supporting both jobs and economic activity. Launched in 2018, the first phase of CIEF was funded with £30 million from Big Society Capital, with additional funding from Triodos Bank and Unity Trust Bank.
BCRS Business Loans, Business Enterprise Fund, Finance For Enterprise, Responsible Finance and the Impact Investing Institute have all played a key role in bringing this second phase to fruition and working with Lloyds Bank and Big Society Capital.
One small business which received funding from the first phase of CIEF is Newcastle-based tea merchant Estate Tea Company, founded by local entrepreneur Tom Webb, which specialises in single estate, small batch and hand blended teas. It supplies teas to cafes, restaurants and hotels across the UK, as well as operating its own cafe and eatery in Newcastle.
Funding from CIEF, via CDFI Finance For Enterprise, enabled Tom to relocate from a small café in Gateshead to a larger former plumber’s merchant which he has transformed into a day-night haven for tea lovers. Since opening the new venue, the business has increased its trading hours, creating several new local jobs. Funding has also supported the expansion of blending facilities and an increase in customers stocking its tea range, from approximately 50 to over 80.
Theodora Hadjimichael, CEO of Responsible Finance which represents the UK’s CDFIs, said: “Wherever they live, entrepreneurs need the right finance at the right time to develop their businesses. Yet many viable businesses based outside London or led by people from an ethnic minority background or by women, struggle to access the finance they need to grow. Lending from the UK’s CDFIs is meeting this gap, creating thousands of thriving businesses and banks’ future customers.
“We are thrilled to welcome Lloyds Bank’s commitment to our sector and the small businesses we serve, alongside BSC’s valued longstanding support. As we announce this historic investment, we urge other mainstream banks to join Lloyds. We call on Government to extend the Recovery Loan Scheme (RLS) which has proven so effective at unlocking finance for SMEs. RLS is a crucial way for securing investment like this and channelling it to underserved but viable businesses.”
Elyn Corfield, CEO Business and Commercial Banking, Lloyds Bank, said: “Small and medium size enterprises are the heartbeat of the UK economy and as the largest domestic banking group, we have a proud history of supporting UK businesses to thrive. We’re therefore delighted to support the CDFI sector to back local businesses, with a focus on deprived areas, and ensure they have access to a range of financial options right for them. When local businesses flourish so do local communities and we hope our leadership within this second phase of CIEF will see many more areas of the UK succeed.”
Alastair Davis, CEO, Social Investment Scotland said: “What we have achieved through CIEF since its launch five years ago provides evidence that investing into under-served communities, and place-based approaches are both possible and credible. This new phase, crucially, provides a continuity of capital and an opportunity to build on the good foundations already laid. It is particularly heartening to see that funders are demonstrating a long-term commitment to the CDFI sector as a key channel for connecting capital with the communities who need it most. In collaboration with our partners, we are confident that CIEF can make a huge difference to people’s lives and livelihoods, at a time when many households are struggling with the cost of living and volatile economic conditions.”
Anna Shiel, Chief Investment Officer, Big Society Capitalsaid: “At Big Society Capital we care deeply about building fair opportunity through expanding the reach of investment into communities and supporting access to a more diverse set of business owners. Like the small enterprises they serve, the dedication of CDFIs to create long-term impact deserves greater backing. The combination of their hard work, and vital tools such as the Recovery Loan Scheme guarantee, has unlocked the potential to draw in more capital from institutional investors such as Lloyds, whom we are delighted to co-invest with in this fund. We are thrilled to see the work of partners come together in the next stage of CIEF and especially to see how the positive track record of these CDFIs is being noticed!”
Kieron Boyle, CEO, Impact Investing Institute said: “We are seeing increasing momentum in support of CDFIs, who play a critical role for people and enterprises that are not well served by mainstream banks. Historically, one of the main challenges has been the lack of investment at scale into CDFIs so that they are able to support more small enterprises across the UK. It is great to see Lloyds become the first commercial bank to show long-term commitment to the sector and invest in CIEF. Increased access to capital will ensure that they continue to reach underserved people and places, boost economic growth, promote employment creation, and reduce inequality. This is a landmark moment for the sector which we hope will pave the way for other mainstream banks to invest in CDFIs.”
The announcement is covered in the Financial Times here.
What next?
- *NatWest Bank worked with personal-lending CDFIs in 2023 to distribute hardship grants to households.
- Journalists and media: numerous case studies of thriving businesses supported by responsible finance providers (CDFIs) are available. For case studies or comment requests contact Jamie Veitch.
- Business Enterprise Fund (BEF) is a social enterprise and Responsible Finance member providing flexible finance to businesses in areas that need it most. Its profits are reinvested into the loan fund and granted to organisations that encourage and build enterprise. Over the last 11 years BEF has invested £108m in lending, added £392.4 million of value to the region’s economy, and created or safeguarded 13,140 jobs. Download BEF’s latest Social Impact Report & Annual Statement.
- BCRS Business Loans is a co-operative run on a non-profit basis, owned and run by Member Investors who elect representatives to the Board of Directors at each Annual General meeting. Established in 2002, BCRS is committed to lending to viable businesses making a positive contribution to the social, environmental or economic wellbeing of the West Midlands and Wales that have been unable to secure funding through mainstream lenders. Download its latest Impact Report.
- Finance For Enterprise has been supporting viable SME businesses with loan finance since 1985. It helps businesses across England to achieve their ambitions. Financial support is tailored to meet the unique needs of each borrower SME, helping them to improve liquidity, facilitate growth or purchase assets. Learn more here.
- Businesses seeking finance: visit BCRS Business Loans, Business Enterprise Fund and Finance For Enterprise. Find these and other CDFIs at www.findingfinance.org.uk