Defining Purpose for Community Lenders
BSC and its partners launched a range of initiatives earlier this year to support community lenders to reach more underserved small enterprises in disadvantages areas – this is the first in a series of updates which looks at what it means to be a community lender as they themselves define it.
We believe that community lenders can play an important role in supporting communities to improve lives – they provide capital to underserved small enterprises, often located in more disadvantaged areas, who in turn employ local people and stimulate local economic activity. The prominent community lenders in the UK for these small enterprises are Community Development Finance Institutions (CDFIs) which have been our focus to date.
Core to the delivery of our initiatives is the voice of the underserved small enterprises and community lenders. As a starting point, we wanted to better define what it means to be an enterprise lending CDFI today. This was encouraged by a range of stakeholders – from Government to investors and business networks – who didn’t feel they had a clear sense of this but that it was crucial to inform their future thinking and engagement with community lending. To begin this discussion to build a consensus, we ran a series of workshops in London and Sheffield which were attended by 14 enterprises lending CDFIs.
There was a rich discussion and with the great expressions the CDFIs provided, a set of statements were developed on what it means to be an enterprise lending CDFI. We followed up with a survey to all CDFIs to gauge the extent to which the statements were representative of their organisation; recognising they would not be optimal for everyone. We had a 75% response rate (out of 19) and with a few tweaks for clarification, the final statements are outlined below with a note of the percentage of CDFIs that felt the statement was completely or very representative of their organisation’s view1.
Enterprise lending CDFIs are:
- Social enterprises that create positive social and economic impact by lending to underserved SMEs and business owners, many of which are located in more disadvantaged communities, to create jobs and generate local economic activity (92%);
- Alternative lenders taking diverse approaches to meet local needs, but are united in their open, fair and relationship based decision making, that puts the SME at the centre (85%); and,
- Targeting a market-wide need for small-scale risk capital, which mainstream lenders are not currently fulfilling (100%).
Big Society Capital and its partners will embed these statements in its initiatives, and we hope that other stakeholders will have greater clarity to inform their own thinking.
Look out for a follow up blog in the coming weeks on the common vision of enterprise lending CDFIs that came out of the same workshop.
1 The options given on the survey were: not at all representative, not very representative, moderately representative, very representative and completely representative.Return to knowledge centre