| CHAPTER 1 - THE CHALLENGE OF THE UK'S UNDER-INVESTED COMMUNITIES | ||
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While banks have been consolidating and moving away from a local branch presence, a new set of specialist financial organisations has begun to emerge to address the needs of entrepreneurs in under-invested communities. These CDFIs see their primary purpose as the provision of finance to self employed individuals and businesses just outside the margin of conventional finance. They bring specialist knowledge and methods.
The origins of today's community development finance sector date back to the 1970s. Early loan funds in the UK included Mercury Provident (now Triodos Bank), Industrial Common Ownership Finance, Hackney Business Venture and the Prince's Trust. Other CDFIs, such as the Local Investment Fund and the Aston Reinvestment Trust, have started more recently.
Experience with these CDFIs has illustrated the potential that social entrepreneurs can bring to regeneration. A wave of experimental civic initiatives has swept across the UK in the last two decades. In Scotland, for example, reflecting the contracting out of public services, 38 per cent of the charitable sector's income now comes from trading revenues - almost as much as comes from grants [9]. Members of the Development Trusts Association, the community-based regeneration network, have a combined income generated from community-owned assets and enterprise of over £20 million a year. In the last three years, a new organisation created by social entrepreneurs, the UK Community Action Network, has forged links between 380 social entrepreneurs running initiatives valued at around £1 billion.
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Yet the evidence of these social entrepreneurs, which the Task Force has heard in some detail, is that most of the potential remains untapped - frustrated by lack of experience in using private capital, lack of skills and an appropriate enabling framework from Government. There is a need to create a system that makes it easier to exploit this potential, to make significant investments in entrepreneurial talent rather than put money into projects with a limited life. |
CDFIs serve a wide range of entrepreneurs in under-invested communities. Some like the Prince's Trust provide young entrepreneurs with micro-finance. Others like the Merseyside Special Investment Fund concentrate on substantial equity investments.
One example, which serves to illustrate more general problems is the area of credit for micro-enterprises, ie. businesses with fewer than ten employees. Such enterprises are the fastest growing sector of business in inner-city areas such as Tower Hamlets, London [10]. The UK has a higher failure rate for micro-enterprise than other OECD countries and one commonly cited cause is inappropriate finance.
CDFIs also serve larger for-profit entrepreneurial business, often in partnership with the banking industry. For example, Aston Reinvestment Trust provided a loan to Questions Publishing in Birmingham to enable it to expand into providing web sites for schools and interactive educational information via the internet, so employing more staff.
Some CDFIs focus on more strictly defined social and community enterprises (businesses which trade chiefly for a social purpose) and charities. For example, the Local Investment Fund made a £100,000 loan over four years to Community Links, a major East London charity, to ease its cash flow and to help develop a sustainable asset base. Charities Aid Foundation's Investors in Society lent money to Hastings Trust to enable it to buy a property, both as a shop front for its work and to provide an independent income stream.
Property assets and property-based lending are generally a crucial feature of social and community enterprise, as they have been in the much larger American CDFI scene. The UK's housing association movement shows what can be achieved when a system is put in place which brings together vision, capital, social need and an enabling Government framework. The highly successful Coin Street Community Builders is one example of the growing number of asset-based Development Trusts. It blends private enterprise, social housing and privately and publicly funded festival, arts and design activities on London's South Bank.
Business sectors with high potential for social and community entrepreneurs range from the provision of basic, everyday services, such as laundry, cleaning, gardening and child-care, to the exploitation of a growing range of opportunities to advance social inclusion by providing internet-based commerce, "distance" services of all kinds, and cultural services, such as arts projects, video/DVD rental and the provision of internet-based community information services.
There are many examples of social and community entrepreneurs in the UK developing a product or service within their local market and then expanding it to neighbouring and even more distant markets. Greenwich Leisure, for example, which began as a co-operative to run one leisure centre now runs a contracted-out network of leisure services across South London employing 1,000 people and contributing to both the local economy and quality of life.
FOOTNOTES:
9. Scottish Council
of Voluntary Organisations, 1998.
10. Research on enterprise and
regeneration by the Institute for Public Policy Research and the New Economics
Foundation, forthcoming.
11. New Economics Foundation research, October
2000
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