Sunday, June 23, 2024

Record Year of Community Development Finance to People and Enterprises Across UK

Responsible Finance reveals 14% jump to £287m lent to under-served businesses, social enterprises and households, creating 6,571 jobs and 3,829 enterprises and saving households £29m in interest

The UK’s not-for-profit, ‘community development’ lenders lent £287m to customers who would otherwise have been excluded from affordable finance in 2023, a 14% increase on 2022, and the highest total lending in their 30 year history.

New figures from Responsible Finance, which represents community development finance institutions (CDFIs), reveal they made 90,531 loans in 2023, of which 66% were to women and 11% to people who said they are from Black, Asian and other ethnic minority groups.

In 2023 CDFIs, some of which lend to households and others to businesses and social enterprises:

  • Helped households save £29m in interest they would have paid to a high-cost lender, by lending £66m (a 23% increase on 2022) to 85,208 people
  • Lent £102m (a 26% increase on 2022) to 4,546 start-ups and established small businesses, creating 6,411 jobs and safeguarding 5,402 jobs. 99% of the small businesses they lent to had not been able to access finance from a bank or other lende
  • Lent £119m to 371 social enterprises, safeguarding and creating a further 322 jobs

They support viable businesses and social enterprises, and people who can afford to repay a small sum loan, but are unable to access the finance they need from banks and other sources.

Their impact has been praised by politicians across parties, financial inclusion campaigners, SMEs and social enterprises and the organisations which represent them. Responsible Finance’s new report, launched on 20 May 2024, also shows:

  • CDFIs helped 143,050 people, many the ‘working poor’, identify over £601m in benefits they were due but not claiming in 2023
  • They distributed £416,600 in no-strings attached NatWest Group and Responsible Finance hardship grants of £50 to £100 to people who had applied for a small sum loan but been turned down
  • CDFIs created 3,829 new enterprises in 2023, and helped 662 firms to scale-up
  • A record number of new investors and partners supported CDFIs’ growth, including mainstream banks, family offices, trusts and foundations, technology companies and business and consumer groups – in 2023, CDFIs raised £183 million

The report was launched at an event on 20th May 2024 hosted by NatWest Group, which has worked with the UK community finance sector for 30 years. Bim Afolami, Economic Secretary to the Treasury addressed the event, alongside three CDFI customers.

Theodora Hadjimichael, CEO of Responsible Finance, said: “There is a lot for community development finance institutions to celebrate this year. CDFIs invested a record amount into underserved places and people, unlocking potential for businesses, social enterprises and households. A record number of new investors and partners supported CDFIs’ growth, including mainstream banks, family offices, trusts and foundations, technology companies and business and consumer groups.

“There is a wave of momentum behind CDFIs and recognition that their expertise, support and reach creates opportunities for those who other finance providers turn down or can’t reach.

As evidence of this, CDFIs outperform the mainstream by serving higher levels of women, ethnic minorities and areas of deprivation. They have also blazed the trail for support like benefits checkers, which other lenders are now adopting.

“We are grateful to our member CDFIs who turn every inch of support they get into a mile of impact. We are also grateful to all of our partners for their time, funding and advocacy for Responsible Finance and our sector. Yet our impact could be bigger. More people and businesses could be thriving. Millions of people and hundreds of thousands of enterprises have huge potential but are overlooked. We need to secure the policy tools and long-term investment that will scale the CDFI sector to unlock sustainable and inclusive economic growth.”

The report includes detailed breakdowns of personal, business and social enterprise sector lending by CDFIs; summaries follow.

A better today and a better tomorrow for financially-vulnerable households – in 2023:

  • Personal lending by CDFIs increased by 23% to £66m
  • Average personal loan: £726. CDFIs saved people an average of £340 in interest on each average loan
  • This helped households save a total £29m in interest compared with borrowing from a high-cost lender
  • 89% of personal loans were made to customers outside London
  • 55% were to people who had previously used a high-cost credit provider
  • 67% of personal loans were made to people describing their gender as female
  • The top three reasons for borrowing were for furniture and electrical items; paying for essential bills and expenses; paying for an appliance/ white goods
  • Because many CDFIs offer benefits calculators built in to their application process when people apply for credit, they identified £350 per person per month in unclaimed benefits (£4,200 each per year, totalling £601m)
  • They provided £416,600 in grants of £50 to £100 to more than 4,000 people through the NatWest Group and Responsible Finance Hardship Grants Programme

Enterprise lending: unleashing waves of entrepreneurial potential – in 2023:

  • CDFIs lent £102m (a 26% increase on 2022) to 4,546 small businesses and startups (41% more than in 2022), of which:
  • They lent £42.2m to 3,725 start-ups (average loan size: £11,354) and £59.8m to 821 established SMEs (average loan size: £72,883)
  • 99% of the businesses which borrowed from CDFIs in 2023 had previously been declined by another lender
  • 98% of businesses supported were based outside London
  • 60% of businesses supported were based in the UK’s 35% most disadvantaged areas
  • 41% of CDFI business loans were made to women-led start-ups and businesses (just 16-21% of UK businesses overall are led by women)
  • 24% of business loans were made to ethnic minority-led start-ups and businesses (only 6% of UK SMEs are ethnic minority led)

Women-led businesses and businesses led by people from ethnic-minorities are two to three times more likely to be rejected for finance compared to those led by male and by white business leaders. CDFIs lend disproportionately more to women-led businesses and to businesses led by individuals from Black, Asian and Minority Ethnic backgrounds compared to their representation in the overall business population.

Creating thriving places: CDFI lending to social enterprises – in 2023:

  • CDFIs and social banks lent £119m to 371 social enterprises
  • 93% of social enterprises supported were based outside London
  • 38% of social enterprises loans were made in the UK’s 35% most disadvantaged areas
  • 47% of CDFI social enterprise loans were made to women-led social enterprises

Responsible Finance’s new Impact Report gives a comprehensive insight into CDFIs’ work and the unique effects of fair, affordable finance, with extensive data in addition to the above.

The report is supported by NatWest Group. Brian Holland, Director, Customer Vulnerability, Retail Controls and Remediation, NatWest Group, said: “NatWest Group has a longstanding focus on financial wellbeing, and a track record in helping people and businesses to build a savings habit and resilience for the future. As a bank, we recognise the important role we play in helping people build their financial capability, and our ongoing support ensures that people, families and businesses across the UK can access the tools and support they need to take control of their finances.

“In January 2023, as part of our package of cost of living support for customers and communities, NatWest Group provided £900k to Responsible Finance. This was evenly split between hardship grants to address immediate needs, and CDFI capacity-building to help the sector grow and support more families and businesses in the medium-long term.

“The Hardship Grant Programme was designed to help financially vulnerable households who had applied to a CDFI for a small-sum loan but were turned down. Instead they were offered a no-strings-attached grant of £50 to £100. It’s encouraging to see from this report how these grants helped more than 4,000 households pay their energy bills, replace broken appliances, feed their children, and carry on getting to work – an immediate lifeline, that saved them from more risky and dangerous sources of finance.

“NatWest Group has worked with the UK community finance sector for 30 years. We are delighted to continue that support, working alongside Responsible Finance to draw attention to the broad economic, social, and environmental benefits of increased access to finance.”

The report is available at https://responsiblefinance.org.uk/policy-research/impactreport/

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