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£80bn government scheme ‘a huge missed opportunity’ says ethical finance chief

22 July 2012
photo of Ben Hughes, CEO, CDFA

If the Treasury really wants to support the struggling small businesses that are the lifeblood of our economy, they must channel some of the £80bn through the locally based community lenders who can reach them.

Ben Hughes

The boss of the UK’s major body for locally based community finance providers claims the government has missed a vital opportunity to help the most vulnerable businesses in the UK.

Ben Hughes of the Community Development Finance Association said small local businesses starved of bank finance ‘won't see a penny’ of the new £80bn Bank of England scheme to boost lending to businesses. 

Hughes said: ‘Previous initiatives like Project Merlin and the Enterprise Finance Guarantee clearly aren't getting finance to the local struggling businesses that need it most. If the Treasury really wants to support the struggling small businesses that are the lifeblood of our economy, they must channel some of the £80bn through the locally based community lenders who can reach them.

‘Our research suggests that £100m – just a fraction of the funding for lending money – could create about 20,000 jobs overnight if it was delivered to businesses through our tried and tested members.

Last year the CDFA’s members delivered £23m in community finance to SMEs creating and protecting around 5,700 jobs, with half of all loans made to sole traders.

‘Community finance is local, traditional and responsible, offering financial services for businesses and households turned away by the banks,' added Hughes. ‘Demand for their services are growing, but investment is needed to ensure they can continue to create and sustain local jobs in their communities.

‘The Treasury needs to look beyond the big banks, and towards these local community providers who offer the traditional face to face banking style largely absent from the mainstream providers.’

The CDFA’s recently published Inside Community Finance report reveals the latest data on the activity of the 60 community finance providers in the UK. It is available to download here.

The Bank of England's latest Trends in Lending report has confirmed that lending to UK businesses fell by £3bn in the three months to May, with small and medium-size enterprises (SMEs) especially hard hit.

Meanwhile, ethical lending by community development finance institutions has risen by 300% since 2006. In the financial year to 31 March 2011, CDFIs:

  • disbursed about £190m in finance to 23,000 customers
  • of which £23m was lent to 1500 businesses
  • which generated £171m turnover, creating or safeguarding over 5700 jobs

Hughes said the government must channel some of the 'Funding for Lending' scheme through community finance in order to really help vulnerable businesses in the UK.

‘Latest figures from the Bank of England confirm that businesses, and small businesses in particular, just cannot access the finance they need from mainstream lenders. This confirms our own figures, that 370,000 businesses are financially excluded,’ said Hughes.

‘Yet last year our members delivered £23m in community finance to SMEs creating and protecting around 5,700 jobs, with half of all loans made to sole traders.’

He added: ‘Demand for community finance is growing, but investment is needed to ensure providers can continue to create and sustain local jobs in their communities.

‘The Treasury needs to look beyond the big banks, and towards these local community providers who offer the traditional face to face banking style largely absent from the mainstream providers.’