Banks have ‘increasingly denied' appropriate credit to social enterprises and small businesses for at least a decade, argues a report released by the New Economics Foundation (NEF) last week.
The report, titled I.O.U.K., claims banks have become too big and too removed from communities to be interested in supporting small enterprise activity, with local branch managers a thing of the past.
I.O.U.K. argues that instead of the government supporting banks to resume business as usual it should support social enterprise lenders like community development finance institutions (CDFIs) and a new People's Bank, based in post offices.
The report was welcomed by Community Development Finance Association (CDFA) CEO Bernie Morgan, who said: ‘NEF is right to say that CDFIs should play a much larger role in our restructured economy.
‘If CDFIs were to benefit from just a fraction of the public money that has been poured into high street banks, they would very quickly get it out to the small businesses that desperately need it.'
I.O.U.K. argues that the ‘sleeping architecture of the new economy already exists' in the form of credit unions and CDFIs but legislative support is needed - in particular, a grant fund backed by incentives to attract private investors that will go into community development finance, a Community Reinvestment Act along the lines of the United States and legislation forcing banks to disclose lending practices.
At the same time the report noted that: ‘Perversely, the CDFI sector appears to be suffering from dwindling government support for enterprise lending just when it is needed most.'
Social Enterprise reported last month that the Business Secretary Lord Mandelson's much vaunted, but hastily rushed through, £20bn business support package to ease the recession, could end up hitting the cashflow of CDFIs. Morgan was disappointed that the CDFA was not consulted at all in the creation of the package.
Read the full report here.
