Three big achievements for CDFIs in the last year

In 2018, Big Society Capital launched a series of initiatives on community investment to support local businesses in the UK’s left-behind places. These initiatives centred around Community Development Finance Institutions (CDFIs), as we believe that with the right support they can play a key role in supporting underserved communities. CDFIs do this by providing capital to small local businesses, who in turn employ local people, stimulating economic activity in that area.

So, what were the top three achievements from last year on these initiatives?

Published

Written by

Marie-Alix Prat, Investment Manager

More local economic impact created through CDFIs using socially motivated capital

In 2018, the Community Investment Enterprise Facility (CIEF) was launched by Big Society Capital. This £30 million fund was set up for CDFIs to help them meet the financing needs of underserved small businesses. The Facility is currently supporting 3 CDFIs, who have in turn deployed £9.5 m to 189 small businesses.[1]

70% of these businesses are operating in the 50% most deprived areas in the UK. These three CDFIs supported by CIEF are creating positive social impact. In the financial year 2018 to 2019, across their activities (and utilising CIEF funding) they have jointly supported 795 businesses, creating and safeguarding 2,589 jobs.[2] BCRS and FFE have also secured £15m additional match from Triodos Bank, creating opportunities for further impact.

Responsible Finance’s 2019 report revealed that CDFI lending to small businesses declined to £78m from £85m in 2018[3] due to fewer funding sources being made available to CDFIs. Throughout this time the CIEF continued to provide much-needed capital for small businesses in left-behind places, helping to create positive local economic impact. We hope that it will contribute to continue to attract other investors in the sector.

Greater engagement from community investment stakeholders seeking to scale CDFI lending

Over the past year, Big Society Capital and Citi brought together the Community Investment Steering Group. It is made up of a diverse range of stakeholders including representatives from the CDFI sector, banks, investors, foundations and thought leaders. They all share a common interest - scaling enterprise lending CDFIs focused on left-behind communities.

In 2019 they published their final report “Scaling up Community Investment in the UK”, setting out the Steering Group’s vision to grow CDFI lending to £250m per year by 2025. It shared recommendations to the Government and investors, explaining how they could support enterprise lending CDFIs to scale.

The Steering Group believes that with the right support and environment, there is an opportunity to significantly grow the social and economic impact of CDFIs’ enterprise lending.

More learnings on community lending gathered

One of our key objectives around community investment is to contribute to the evidence base on CDFIs’ best practices and their impact.

As part of this work we, along with 5 UK CDFIs, visited community lenders in New York (thanks to the support of Citi) to learn from the successes of the US community investment sector. In 2019 we released a report exploring some of the lessons that could inform the UK’s work in this space. We hope that these lessons will help CDFIs, the Government, representative bodies and investors to consider what could be adopted in the UK to support the CDFI market’s growth.

An evaluation of the CIEF is also underway, with the first results expected in Spring 2020. This is being undertaken by the Centre for Regional Economic and Social Research at Sheffield Hallam University and aims to evidence the financial, social and economic impact of CDFI lending. It will also consider the changes that have occurred in the CDFI market over the life of the Facility.

Looking ahead to 2020

In 2020, we will see more loans deployed from CIEF to small businesses, creating more social impact in left-behind places.

We look forward to sharing the first open data and case studies from CIEF’s evaluation and hope that this new evidence will lead to further engagement from Government and investors. And finally, we hope the improved sector engagement will lead to more investment into CDFIs.

[1] CIEF reporting data, as of 31/09/2019

[2] See the social impact reports for BCRS (https://bcrs.org.uk/wp-content/uploads/2019/10/BCRS-Business-Loans-Social-Impact-Report-2019.pdf) , BEF (https://www.befund.org/assets/pdf/SIR_2019_Artwork-compressed.pdf) and FFE(https://finance-for-enterprise.co.uk/wp-content/uploads/2019/10/FFE-Social-Impact-report-FINAL-NON-PRINT-VERSION.pdf)

[3] Responsible Finance – The Industry in 2019: https://responsiblefinance.org.uk/policy-research/annual-industry-report/