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Press Release: April 24, 2002
The following Press Release, issued on
April 24th, 2002, announces the launch of the Community Development Finance
Association.
In addition to the telephone numbers listed, for further details,
please email info@cdfa.org.uk -
professional journalists, please indicate publication and copy deadline.
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Launch of a new trade association for financial service organisations
specialising in lending to businesses in areas bypassed by the banks
Private sector investment in small businesses in deprived areas and
social enterprises looks set to reach unprecedented levels in the UK following
the launch of a trade association for a new breed of financial service
organisations today.
The Community Development Finance Association (CDFA), which has been set
up with private and public sector funding, will represent the interests of
financial intermediaries specialising in providing loans in disadvantaged
communities and under-served markets.
The organisation was launched today at the Treasury by the Rt Hon Paul
Boateng, financial secretary to the Treasury and Sir Ronald Cohen, the founder
and chairman of Apax Partners Holdings Ltd, one of the country's leading
venture capital companies.
Members of the CDFA will be organisations that are known as community
development finance institutions (CDFIs), which provide a "double bottom line"
by generating both social and financial returns. They will include social
banks, micro-credit agencies, community venture capital funds, community loan
funds and community development credit unions.
Banks, private sector companies and charitable organisations will also
be invited to join as supporters.
The trade association will work towards promoting the size and diversity
of the sector, improve performance of CDFIs and influence policy regulating the
industry.
Speaking on the eve of the launch Sir Ronald Cohen, who is also chairman
of the Social Investment Task Force, said: "I welcome the creation of the CDFA.
The Social Investment Task Force identified CDFIs as crucial to community
development because they provide finance and other services to those who are
excluded from the mainstream.
Just as the British Venture Capital Association has greatly aided the
flow of information and experience across venture capital firms and given
greater weight to their calls for new policies, so the CDFA, by informing,
representing and supporting CDFI's, will help build a thriving community
development sector in this country. I therefore urge CDFIs and leading
financial institutions to join and otherwise support its efforts."
The CDFA was set up with £334,000 funding from the Government's
Phoenix Fund, which is administered by the Small Business Service. A further
£45,000 has been invested as seed funding by NatWest/Royal Bank of
Scotland and Barclays.
Andrew Robinson, head of community development banking at NatWest/RBS,
said: "CDFIs operate at the margins of the conventional banking system - at the
edge. They invest in areas where the banks don't go and help to overcome the
barriers, both real and perceived, to increasing investment flows into our most
disadvantaged communities."
Robinson, who is also chair of the CDFA steering group, added: "The
potential of CDFIs as development tools won't be maximised if they're just seen
as simple financing vehicles. The best CDFIs are efficient coordinators of a
whole inventory of incentives, subsidy and development support."
What is a community development finance institution (CDFI)?
Case study one - supporting small businesses in deprived areas
For small and medium sized enterprises in some of Britain's poorest
neighbourhoods the biggest obstacle to getting off the ground is access to
finance.
Baba Enterprises, based in a deprived area of the West Midlands, turns
out 8,000 fresh papadoms an hour. The family business, which originally
employed four people, set up in 1993 making papadoms "to the same recipe that
ma Patel used to make back in Nadiad, our home town in Gujarat, India".
Wanting to branch out into new flavours, Baba Enterprises needed finance
to buy new kitchen machinery. It proved difficult to convince the banks that
the plans were viable. The company went to local CDFI the Aston Reinvestment
Trust (ART) who agreed a loan for the new equipment.
Today, Baba Enterprises has a turnover of £250,000 and employs 11
people. It is the largest producer of fresh papadoms in the UK and now exports
to the US.
ART is funded by individual and company shareholders, including major
banks and charitable foundations, to provide loans of between £2,000 and
£40,000 at commercial rates of interest. Since 1997, ART has made 71
loans, levered in £2.1 million of money for clients, created 131 new jobs
and preserved 459 more.
Case study two - supporting social entrepreneurs
CDFIs are already offering a range of financial products historically
denied to the voluntary sector by the major banks. The story of registered
charity Baby Lifeline shows such loans are already creating lasting change.
Baby Lifeline aims to improve care during pregnancy and childbirth. The
charity wanted commercial backing for a range of videos for doctors and
midwives that highlighted the most common problems during childbirth.
"The banks didn't want to know," explains Judy Ledger, the founder of
the charity. "It is very difficult to explain your problems to an ordinary
business world."
Refusing to give up on the project, Ledger approached Investors in
Society, a CDFI set up by the Charities Aid Foundation. "When we spoke to liS,
staff were immediately very friendly and came straight in to see us. They
understood what kind of charity we are," said Ledger.
She added that the completed videos went on to give "us a massive
platform with the professionals - including bodies which originally refused to
have anything to do with the project, much less fund it."
Since making its first loan in 1997, liS has approved loan or guarantee
facilities for 150 charitable projects and organisations. Set up with
£500,000 it now has a loan fund worth £6.4 million from which it
makes loans of between £5,000 and £150,000.
ENDS
24 April 2002
Notes to Editors:
- Journalists and photographers are invited to attend the launch of the
CDFA at the Treasury on Wednesday 24 April 2002. Please call Selva Romero at
the CDFA on 020 7840 0356 or email
s.romero-toledo@cdfa.org.uk.
- A business prospectus for the CDFA titled The Power of
Association is available from Ros Boyle, a secondee at the CDFA from
UKSIF, on 020 7840 0356 or email r.boyle@cdfa.org.uk.
- Today's launch of the CDFA follows a seminar held at the Bank of
England yesterday on finance for small businesses in deprived neighbourhoods. A
chapter in the Bank of England's annual report published this month discusses
the role CDFIs can play in widening access to finance in deprived areas.
- CDFIs are independent financial institutions, funded from a variety
of sources including banks, individuals, charitable foundations and the
government. They use different methods to achieve their social and financial
goals. They include community loan funds, micro-finance funds, community
development venture capital, social banks, community development credit unions
and mutual guarantee societies.
- The case studies in the press release are taken from a report
published in February 2002 by the UK Social Investment Forum,
Community Development Finance Institutions: a new financial
instrument for social, economic and physical renewal, available for
download or direct from Ros Boyle (see note 2).
- The Social Investment Task Force first endorsed the role that CDFIs
can play in widening access to finance when it reported to the Government in
October 2000. Chaired by Sir Ronald Cohen, the task force report,
Enterprising Communities, made five key
recommendations. It called for a community investment tax credit (CITC);
government support for community development venture funds; disclosure of data
from banks on their lending practices in marginal markets; greater latitude and
encouragement for charitable organisations to invest in community development
initiatives; and greater support for the sector, including the creation of a
trade association. Click here to read or download the
report, or call Ros Boyle (see note 2).
- The CDFI model was first developed in the US in the early 1970s in
response to the growing number of banks refusing to lend money in rundown
neighbourhoods. The practice, known as redlining, led to the creation of
"intermediary" financial institutions that levered investments from banks,
charitable foundations, faith groups and philanthropists in order to provide
loans to businesses and community enterprises, such as social housing projects.
- According to figures from the US-based National Community Capital
Association (NCCA), there are currently 600 CDFIs managing loan funds worth a
total of $5-6 billion. Of this, 22 per cent of investments are made by
charitable foundations; 23 per cent by individuals; 15 per cent by banks; 14
per cent from faith groups; and 12 per cent from government. US case studies
are available on request.
- Print and broadcast journalists can arrange interviews with leading
figures in CDFIs, banks and organisations by contacting UKSIF or the CDFA on
info@cdfa.org.uk.
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