Memorandum from Fair Finance Consortium
Limited (WM 07)
1. INTRODUCTION
TO THE
SECTOR
The second half of the nineties saw many organisations
formed across the UK with the objective of being not-for-profit
providers of finance to either individuals, small businesses or
in some cases both. Some of these organisations were totally independent
and others had links of various sorts to local authorities or
other organisations committed to encouraging enterprise. Most
of these organisations focused on a relatively limited geographical
area, although a few concentrated on specific types of customer.
Not all of these organisations (now called CDFIs—Community
Development Financial Institutions) still exist. Not surprisingly,
some failed due to lack of funding, other were unable to reach
critical mass and others still amalgamated.
The West Midlands was in the forefront of this
not-so-minor revolution and remains one of the best resourced
regions in terms of CDFI support for micro and small businesses.
In 2005 a number of West Midlands based CDFIs formed the
Fair Finance Consortium, to give member organisations the opportunity
to share experience and knowledge. The relationship between each
RDA and the CDFIs within its region can take many forms and Advantage
West Midlands has actively encouraged and supported the CDFIs
operating in the West Midlands. Fair Finance Consortium Limited
was registered in October 2008 (as a company limited by guarantee)
and exists to bring AWM and the operational CDFIs closer together
on key issues like funding and reporting on the outputs of the
community finance sector. FFCL (as it is referred to) will be
employing two part time staff to ensure that the combined outputs
of the member organisations are collected and reported and functions
that can be centralised, like top level marketing and identification
of funding streams, are delivered efficiently and effectively
by a single organisation.
FFCL represents the not-for-profit community
finance providers across the region.
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| CDFI | Business Sector
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| Arrow Small Business Finance | £1k to £8k small business loans concentrating on Birmingham and Solihull
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| ART (Aston Reinvestment Trust) | £10k to £50k small business loans into Birmingham and Solihull
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| Black Country Enterprise Loan Fund | Small business loans up to £10k into the Black Country
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| Black Country Reinvestment Society | £10k to £50k small business loans into the Black Country and Southern Staffordshire
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| Coventry and Warwickshire Reinvestment Trust
| Small business loans up to £50k into Coventry and Warwickshire. Also personal ending.
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| Impetus | Small business loans up to £50k into Herefordshire, Shropshire and Worcestershire
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| MCF (Midlands Community Finance, formerly Derbyloans)
| Small business loans up to £10k into Staffordshire (from a Burton office). Also personal lending
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| Street UK | Predominantly personal loans, which sometimes have an enterprise element.
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CDFIs can provide an alternative source of finance when the
banks are unable to help. However, they are run as business (although
not-for-profit, they have to cover their costs like any business)
and clearly in an economic downturn they cannot (arguably should
not) take on every risk presented to them. Compared with commercial
bank finance, the resources available to the CDFI sector are minuscule.
2. MEMBERS RESPONSE
TO THE
5 QUESTIONS
The following answers have been supplied by member organisations
after the questions posed were circulated to them.
2.1 The effect of the financial and economic situation
on businesses in the region including the effect on different
sectors such as manufacturing, service industries etc
"Effect is patchy, and there are still some good firms
in poor sectors. These firms will be best placed as the business
comes back. Automotive is particularly badly hit—though
some blame must be laid at the door of company directors who did
not diversify their customer base in the good times. I have seen
businesses where 90% of TO goes to Toyota at Burnaston. Maybe
when this is all over, there should be a 'diversification fund'
or similar initiative to make sure that some of the business risk
is taken away from local companies."
"CDFIs have always dealt with financially excluded
businesses. There are now a lot more such businesses but the impression
remains that the people most experienced in evaluating the viability
of start-up and existing micro businesses and SMEs have been pretty
much excluded from the measures to minimise damage to the economy."
2.2 How effective Advantage West Midlands and initiatives
such as Business Link are being in assisting businesses in the
current climate, including helping them to gain access to funding
both from Government funding streams and through the banking system.
"Response has been reasonable, but focused around
advice. It may be more appropriate to extend funding in conjunction
with advice/assessment. Obviously no-one will support dead ducks
but orderly wind-downs of employment would hurt the local economy
less than mass lay-offs. The mechanism for extending financial
support should be through existing providers—banks and CDFIs.
The banks do not want to seem to engage in the EFG, so the funding
focus should be on CDFIs who have a good track record and could
quickly grow over the next couple of years to deliver this."
2.3 The response of banks and other financial institutions
to government and other initiatives to stimulate bank lending
and the access of businesses in the region to credit.
"Response of banks has been poor. Generally seems
to be a lack of interest in new business. Local managers are being
driven much more on credit issues than sales (a complete volte
face compared with the last few years). The high profile regional
collapses are shadowing lots of small liquidations due to bank
intransigence. The problem is exacerbated by business owners being
too afraid to approach their banks for fear of having existing
facilities called in. I have come across several businesses who
haven't spoken to their bank manager at all in 2009 so far."
2.4 The role of the West Midlands Task Force established
by the Regional Minister in helping businesses cope with the economic
downturn.
No response offered to this question.
2.5 The role of other Government agencies such as the
Government Office for the West Midlands, and of partnerships between
Government agencies, local government and the private sector,
in providing support for businesses.
"Financially excluded businesses are those that the
banks don't want to be involved with. One interpretation of the
current situation is that suddenly the bar has been raised and
that there are now many more financially excluded businesses.
The community finance sector, arguably the one financial services
sector that knows how to work with financially excluded businesses
still seems excluded from being part of the solution, with the
specific exception of the excellent relationship with AWM."
3. COMMENTS FROM
THE COMMUNITY
FINANCE SECTOR
3.1 CDFI customers were experiencing the "credit
crunch" before the expression was invented. It has been the
experience of financially excluded entrepreneurs for years and
was one of the factors that created the CDFI sector in the first
place.
3.2 For many small businesses, it is irrelevant that
the banks have started lending again—and are even buying
advertising space in national newspapers to tell us about it.
The perception is that the banks cannot be bothered with small
enterprise loans. It will take a long time for "we are lending
25% more than before the credit crunch" advertisements to
change that perception.
3.3 The CDFI sector, although it is getting better at
proclaiming its successes, remains a tiny part of the business
support infrastructure and based on its involvement in the measures
implemented so far, is likely to remain so.
3.4 The perception among people seeking finance to start
or expand small businesses is that the people implementing the
solutions are the same people that caused the problem in the first
place. Perhaps a little harsh, but nevertheless understandable.
3.5 CDFIs that have survived the "difficult early
years" (including the members of Fair Finance Consortium)
can play a much bigger role in the future than they have been
asked to do. Modest public investment in the CDFI sector over
no more than 2 or 3 years could transform the viability
of the sector. This would leave a lasting infrastructure that
could provide a credible alternative to mainstream bank finance
and avoid a repeat of the near disaster still happening for fragile
small businesses in the West Midlands and elsewhere.
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