From cdfi to sifi: is Big Society Capital the answer?

CDFA’s Chief executive Ben Hughes

05.04.2012

CDFA chief welcomes Big Society Capital launch

“Starved” CDFIs will welcome new capital availability

We’ve written before about how CDFIs could support many more social enterprises and businesses if they weren’t so starved of cash. With a track record of over 10 years of successful lending to social enterprises, to businesses (especially micro enterprises which make up 95% of Britain’s businesses and find it particularly difficult to access finance), and to individuals, the UK’s community development finance institutions can justifiably be called the ‘unsung heroes’ of the banking sector.  Yet despite this success they’ve been (relatively) starved of capital: their potential to support the recovery of UK Plc is throttled if they can’t scale up.

So it was with great interest that CDFA attended the launch of Big Society Capital yesterday.

Big Society Capital (BSC) is a social investment bank with a goal to create a market for “social finance.” It will invest via intermediaries and will be funded with equity investments from dormant bank accounts – over time, this could amount to “up to £400m” (full details here) – and an equity investment from the ‘Project Merlin’ banks. As part of the Merlin agreement Barclays, HSBC, Lloyds and RBS are each investing £50m and will own a capped shareholding between them of 40% of BSC shares (from which they hope to make a return on their investment of 4-5%).

Chaired by social investment pioneer Sir Ronald Cohen – former chair of the Social Investment Task Force which recommended the creation of the CDFA over ten years ago – BSC is very specific about its investment criteria: “We can only invest in SIFIs. We seek both a social and a financial return from every investment we make.”

Social Investment Finance Intermediaries (SIFIs) can be social banks, non-bank social investors, or social finance support providers. BSC specifically includes financial inclusion and community development within its list of SIFIs it will invest in; many CDFIs will be appropriate SIFIs. And many community development finance institutions – CDFA members – are already listed within BSC’s directory of intermediaries.

For CDFIs, Big Society Capital could offer a welcome investment of new capital to lend – vital for the community finance sector to upscale in line with CDFA’s ambitious strategic plan and five-year vision.

Speaking after the launch Ben Hughes, CDFA’s Chief Executive, said:

“CDFA welcomes BSC and the potential it might hold for growing the social investment market. We are delighted that BSC will invest in social investment financial intermediaries (SIFIs) targeting community development and financial inclusion as well as other social sector areas. Many of our members – community development finance institutions – have a superb track record of providing affordable finance to social and micro enterprises – yet we’ve recently published figures showing that unmet demand from financially excluded businesses is higher than ever.

“As an emerging market, SIFIs are undeveloped and BSC must adhere to its pledge to develop the infrastructure to enable the funds it deploys to have an impact. CDFA could provide support with this.

“CDFA is also pleased that BSC recognises the importance of CITR (community investment tax relief) in infrastructure development and the importance of an urgent review and upgrade to ensure that it is fit for purpose.”

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