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Following the announcement of the introduction of a community investment tax credit (CITC) in the Pre-Budget report in November 2001 (see December 2001 update), there was considerable consultation between the Government, the Community Development Finance sector and potential investors over the legislation and regulations that would be put in place. Draft clauses for legislation on CITC for the Finance Bill 2002 were published in late March, as a final chance for comments. The draft rules for accreditation and guidance for CDFIs wanting to apply were also published for comment in March. See the following websites:
The Draft Legislation on the Treasury website.
The Draft Regulations on the SBS website.
The Finance Bill is passing through Parliament and is expected to receive Royal assent before the end of July 2002. State Aids approval from the EU is also still needed before the CITC scheme can start. However, it is expected that the first round of accreditation will take place before the end of the calendar year and the CITC will be backdated to 17th April 2002, so that any investment to an accredited CDFI after this date will be eligible.
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The Task Force called for the creation of a Community Development Venture Fund to provide equity to businesses in deprived areas. An independent fund called Bridges Community Ventures was launched at 11 Downing Street on May 14th 2002. The government has committed £20 million to the fund, which is being matched by £20 million of investment from the private sector. For more information on Bridges Community Ventures see www.bridgesventures.com
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The Bank of England published their ninth report on Finance for Small Firms in April 2002. This included a chapter on 'Finance for Small Businesses in Deprived Communities', which contained data on aggregated bank lending to small business in the 5% most deprived areas as well as information on the characteristics of small businesses in these areas and how this affects their access to finance. This follows on from their November 2000 report on 'Finance for Small Businesses in Deprived Areas' and shows that lending in deprived areas grew by less than lending to small business across Britain, as well as reporting that average lending margins remain higher in deprived areas compared to the general business population.
The British Bankers' Association intends to publish information on bank lending in deprived areas this year. Data will be presented by post-code, building on the information published by the Bank of England. They welcome views on how the data might be used by stakeholders involved in the local regeneration agenda, so that they can refine the exercise in subsequent years.
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The Charity Commission published guidance in May 2001 on "Programme Related Investments". This emphasises that charities can make investments that do not have to seek the best financial returns, as long as they are in line with the organisation's charitable objects.
See http://www.charity-commission.gov.uk/supportingcharities/ccpri.asp
The Charity Commission is now exploring further the role that charities can play in community development finance and whether there are obstacles to this involvement within the current charitable framework, with a view to publishing further guidance if necessary.
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The Community Development Finance Association (CDFA) was launched on April 24th 2002 by Paul Boateng at the Treasury. The CDFA's mission is to grow, promote and strengthen the CDFI sector. It will do this through the provision of the following services:
The CDFA has received funding from the Small Business Service's Phoenix Fund as well as from Barclays and NatWest/RBS to start up, and will seek further funding from other sources as well as generating its own income from services.
You can read details of the launch here and download the business plan [PDF, 500k]. To join the CDFA, as a CDFI or a supporter, see the website www.cdfa.org.uk
Research into the feasibility of a wholesale fund for the sector, funded by the Phoenix Fund, was finalised in April 2002. The study concluded that the sector is not yet sufficiently credit worthy to attract fully commercial capital, however both CDFIs and banks expressed interest in the concept of a specialised wholesaler. It was felt that an interim or transitional wholesaler, that could become fully commercial as the sector developed, could provide a valuable catalyst towards a more commercially sustainable future for the CDF sector.
A partnership, including Social Brokers, the Big Issue and Bank of Scotland, has started to work on the development of such a transitional wholesaler with the expectation of launching it before the end of the year.
The Phoenix Fund provides funding to projects that stimulate enterprise in deprived areas. In 2000 £100 million was given to the Phoenix Fund and this was divided between several funding streams - a Challenge Fund for CDFIs, a Development Fund to promote innovate ways of supporting enterprise in deprived areas, support for a Community Development Venture Fund, four pilot City Growth Strategies and support for the development of the Business Volunteer Mentoring Association. In 2001 the first round of the Phoenix Challenge Fund for CDFIs awarded £5 million to 16 organisations. The second round in 2002 awarded £14 million to 32 organisations. In total 41 organisations and 48 projects received funding through the Challenge Fund. £20 million in matched funding also went to Bridges Community Ventures, a new Community Development Venture Fund launched in May 2002, to create a £40 million fund that will provide equity finance to SMEs in deprived communities.
The Government Spending Review, announced in July 2002, extended the Phoenix Fund by 2 years to 2005/06 giving it an additional £50 million.
The third annual Community Development Finance Conference, Risk - Reward - Values, took place in Glasgow on June 20-21 2002. Over 230 people attended from CDFIs, the banking sector, the regeneration sector, charitable trusts and foundations, and local, regional and central government. Keynote speakers included Sir Edward George (Governor of the Bank of England), Nigel Griffith MP (Minister for Small Business), Margaret Curran MSP (Scottish Minister of Social Justice), Mark Pinsky (Chief Executive of the National Community Capital Association in the US) and Susan Rice (Chief Executive of Lloyds TSB Scotland). Over 25 workshops were provided over the two days, as well as 4 training modules during a pre-conference training day on 19 June.
Feedback from delegates was overwhelmingly positive. For feedback, copies of presentations and speeches see www.cdfi.org.uk Planning for the fourth annual conference, which is likely to take place in Cardiff in June 2003, is now underway.
Six training modules focusing on how to set up, manage and evaluate a CDFI have also been developed and will be offered by the Community Development Finance Association from the autumn. Details will be announced on www.cdfa.org.uk as they become available.
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