It was good to see that many of the issues that I come across daily when meeting my clients have been highlighted in the CDFA’s( Community Development Finance Association) 2014 industry report “Inside Community Finance”. I come across many inspiring and capable people with good business ideas and ability who cannot get help with funding their business – either through overdraft or loan – or sometimes cannot even get a proper bank account. The reasons are usually that they have been bankrupt in the past or have some other adverse credit history (often for good reasons – redundancy or unemployment very quickly lead to difficulties in meeting financial commitments, so do long term illness or even divorce); or it could be that they have no cash of their own to put in (a requirement of many main stream lenders) – this often affects the young but also those who have not been working for a period of time – or no assets for security ( a very high proportion of people now, especially the young, do not own property); or it could be simply that the amount required is too small and the cost of providing that level of funding is not worth it for many of the larger institutions.
The CDFA report includes some interesting statistics: the four largest banks account for over 85% of business current accounts and 90% of business loans in the UK (lack of competition therefore) and loan application rejection rates for small and medium sized businesses soared from 5% in 2004 to over 20% in 2012. The UK had 17,637 bank branches in 1990 but only 9500 in 2014 – a decline of 46%, disadvantaging small businesses, vulnerable customers and remote areas. 1.4 million people in the UK do not have a bank account and a further 4 million people are at the edge of banking. 7 million people, 11% of the population, use high cost credit – almost certainly because it is the only option.
Access to finance – not just credit but things like a bank account and financial capability – are a catalyst to economic growth and if people remain excluded to the extent that they are now, our economic growth will remain stifled. For every individual or business declined finance, the opportunity cost can be measured by lost economic output and consumer spending. The CDFA report quotes the World Bank’s findings that there is a positive correlation between the widespread use of financial services in a country and a higher GDP.
A particular gap in access to finance highlighted by the CDFA report is in the sector where Purple Shoots operates. (This explains why I have been so busy!) This gap is for very small businesses with limited borrowing history and track record and no security. This sector has lower rates of success when applying for finance (less than 50% were successful) – and yet it is these businesses which provide goods and services to local communities and keep them vibrant.
CDFIs (Community Development Finance Institutes) of which Purple Shoots is one of only three in the whole of Wales, serve this sector. The results for the last year for CDFIs UK wide are impressive – over 12,000 businesses created or safeguarded, 19,000 jobs created and an additional £0.502billion was added to the economy as a result of their activities. Purple Shoots’ contribution to the Welsh economy so far has been £1.4m with over 75 new businesses created and more than 60 people helped out of unemployment. There is much more to be done!
Ref: Inside Community Finance – The CDFI Industry in the UK 2014. www.cdfa.org.uk