Community finance could unlock economic growth in local communities

Across the UK, communities and neighbourhoods remain severely affected by decades of low economic activity – places where enterprises are few, debts high, youngsters are Neet, and families are trapped in a low pay/no pay spiral.

Their economic malaise is echoed in a host of other problems – poor health, mental illness, substance abuse, gang culture, dissatisfaction and disaffection which have the combined effect of pulling communities apart – in effect eroding the glue that binds communities together and that enables them to exert control of their localities and realize their aspirations.

These communities are trapped in a vicious negative economic cycle – one of low disposable income, poor circulation of money within the community, sub-optimally co-ordinated and targeted financial services, and negative inward investment.  This starves initiative of potential markets and insulates the community from improving economic activity and wellbeing, even when the tide rises around them.

Yet there are established and effective networks of community finance providers, money advice agencies, social housing providers and even local authorities who are ideally placed to turn this tide. What if these and others came together to offer an integrated, one-stop financial service?

No need to create new institutions, introduce new regulation or even, in the short term at least, new investment. We know from experience in USA, Canada and elsewhere that by working together, agencies and communities can increase both the disposable income in a community and the number and success of enterprises based there.  When this happens, a virtuous cycle of higher local spending, enterprise, investment, hope and horizons begins to emerge.

This approach is known broadly as community economic development, but in reality offers what most would see as a high quality community banking service as clearly laid out in the Community Investment Coalition’s (CIC) Community Banking Charter;

In essence the approach co-ordinates four lines of activity:

• Community development (focussed on awareness of the opportunities and assets in the local supply chain and the benefits of using them);
• Appropriately provided personal financial services (including social security, debt and money management advice);
• Micro / social enterprise development support; and
• Community capital raising

The resources and services to undertake this activity are already available to local communities and local agencies in England, but they are not well configured, and economically focussed community development (including capital raising) is not widely understood.

We know, for example, that local authorities are adopting their own ad hoc measures to tackle what they regard as irresponsible lending and that they may be expected to extend their role, following new legislation. However, we also know that local authorities are struggling with these expectations and that many are not expert or connected enough to be able to approach this strategically, sensibly or holistically.

We know, too, that many housing associations – who are able to reach many of those who will benefit from this proposal – are already addressing tenants’ needs in many ways, but that the picture is patchy.

These two key partners alone will benefit from this networked solution and the potential for expertise-exchange within their own networks. So why, given the obvious benefits of this one-stop approach, not to mention increased policy interest in localism and community self-determination, aren’t we seeing more ‘community banking’ services?

Because it’s complex. CDFA’s own Bristol based community finance pilot – BOOST Neighbourhood Finance, has highlighted the challenge of the various local institutions required to form the whole, having to run against the tide of siloed public policy, funding mechanism and to some extent consumer mind-sets. We also lack the political buy-in required to move us from being a worthy industry in waiting, to one that really is central to the financial services eco-system, and so able to call the shots.

The Charter rightly talks about the need for the community finance sector to scale, but for this to happen we need real political momentum, able to change hearts and minds and through so doing shift policy and investment practice towards community finance. That’s what will enable us to scale and meet the gap in provision (CDFA’s own 2013 research reveals a funding gap for the CDFI sector alone of c£6bn) that so urgently needs filling to prevent the drag this causes for both financially excluded individuals and business’, and for the wider UK economy.