by Kathryn Parker, Research Fellow, ACCORD

The following paragraphs provide an update on recent survey information, studies and policy developments concerning community development finance institutions in overseas countries such as the United States of America (USA) and the United Kingdom (UK).

USA Survey

A recent survey by the CDFI Coalition titled the CDFI Data Project (the 'CDP' project) aims to produce high quality, comprehensive data for and about the community development finance field1. The survey has been jointly funded and supported by the MacArthur Foundation, the Ford Foundation and the US Treasury's CDFI Fund, and involved the following US organisations:

• Association for Enterprise Opportunity (AEO)
• Aspen Institute
• CDFI Coalition
• Community Development Venture Capital Alliance (CDVCA)
• Corporation for Enterprise Development (CFED)
• National Community Capital Association (NCCA)
• National Community Investment Fund (NCIF)
• National Federation of Community Development Credit Unions (NFCDCU)

The CDP collected data for the 2001 year on 512 CDFIs representing the largest dataset ever collected on the sector. It includes nearly all the 800-1000 CDFIs operating in the USA. The CDFIs surveyed had $5.7 billion of finance outstanding at the end of 2001 and $2.4 billion in new loans and investment activity. Those surveyed undertook the following financial activities:

• Financed 7,484 businesses and micro-enterprises, and supported 52,798 jobs;
• Provided asset-building savings and retail financial services that benefited over 2 million people from credit unions services and 487,148 people from retail bank services;
• Provided 7,139 mortgages to economically disadvantaged people;
• Constructed or renovated 43,428 homes affordable to low-income families;
• Built or renovated 501 community service facilities in economically disadvantaged communities.

In the United States, this CDFI Coalition survey estimated that there were over 230 community development credit unions that are structured as co-operatives, and located in a mix of rural, and urban areas. These institutions had an average capital of approximately $12 million (per institution), average total staff of 10, average loans outstanding of around $10 million, average loans, per institution, of $5, 176. Of these, 37% were housing loans and 53% were personal development and consumer loans.

The same survey also found that there were 18 community development banks, for profit institutions, located in major urban areas (58%), with an average capital of $119 million, average staff size of 62, average finance (loans) outstanding of $70 million, of which some 39% were for business purposes, 42% for housing, and an average loan size of $68, 599. Examples of well-known community development banks in the USA include ShoreBank in Chicago, Elk Horn Bank and Trust in Arkansas, and Community Capital Bank in Brooklyn. Their loan loss rates compare favourably to those of conventional financial institutions.

The CDFI Coalition survey also found that there were 238 loan funds, including Multibank Community Development Corporations. 97% of these were non-profit, located in a mix of rural and urban areas, with an average capital of $12 million, 14 staff, on average, finance outstanding of $10 million, and providing loans for housing (74%), business (12%), with an average loan of $71,868.

The survey also showed that there were 26 venture capital funds primarily located in major urban areas (46%) rather than minor urban areas (26%) or rural areas (28%), with an average capital of $10 million, average staff size of 7, and an average finance outstanding of almost $5 million, providing 98% of loans to business, and an average loan size of $112,693.

UK Community Development Policy Initiatives

As a result of the UK's Social Investment Task Force (SITF), five proposals have been enacted and developed by the HM Treasury and government. A recent report published by the UK Community Development Trade Association (CDTA) updates policy progress and action since the SITF.

A Community Investment Tax Credit (CITC) was the first recommendation of the SITF report and envisages the award of tax relief to those providing finance to Community Development Finance Institutions (CDFIs) for on-lending to enterprises in disadvantaged communities that are excluded from mainstream sources of finance.

The UK Government accepted the recommendation, detailed consultations and development of what is now known as the Community Investment Tax Relief (CITR) The CITR was undertaken as a collaborative project involving the Treasury, Inland Revenue and the Small Business Service. The necessary legislation is contained in the Finance Act 2002, with more detailed operational information set out in CITR Regulations 2003 and in information published by the Secretary of State for Trade & Industry. As well, the CDFA has published a guide on the CITR that provides investors with an understanding of the Community Investment Tax Relief and how it can benefit both investors and deprived communities throughout the UK.

The second SITF recommendation regarding a proposed Community Development Venture Fund was intended to match funding in a partnership between government and the venture capital industry, entrepreneurs, institutional investors and banks. The Community Development Venture Fund (CDVF) was launched on 14 May 2002 and is a £40 million new equity venture capital fund. The UK Government is investing up to £20 million on a pound-for-pound basis with private sector investors. The Fund aims to stimulate the provision (and benefits) of venture capital to viable small and medium-sized enterprises that are capable of substantial growth and are located in the 25 percent most deprived wards in England, as classified under the Index of Multiple Deprivation (IMD) ranking. Bridges Community Ventures Ltd has been appointed fund manager, to manage the fund on a commercial basis. It is responsible for identifying and developing potential investment opportunities, rasing the finance, making the investment deal decisions and liasing with regional and local partners.

The third recommendation of the SITF focused on the need for greater disclosure by banks, of their role in under-invested communities. The disclosure was recommended preferably on a voluntary basis, but legislation may be necessary to ensure that the disclosure occurs, is sufficiently detailed and includes a ratings system to reward excellent performance. In addition, in 1999, the Bank of England began collecting statistics on bank lending in the most deprived areas of the UK and sought to increase awareness in the small business sector of other providers of loan finance such as CDFIs.

In April 2002 and 2003, the Bank of England collected new data on mainstream bank lending to small firms in deprived areas and undertook new research on the difficulties small firms in deprived areas face in accessing mainstream finance.1 The reports comment extensively on the important roles and potential that CDFIs play in assisting small firms, including some of the challenges faced by the emerging CDFI sector.

A recent report by the Bank of England, released in May 2003, examines the financing of social enterprises and comments on the important role that CDFI awareness could play in debt financing for such enterprises, as well as the need for more partnerships between conventional banks and CDFIs, especially in taking advantage of the CITR.

There has also been considerable public support through the SITC recommendations for an industry association supporting CDFIs. Indeed, the UK Community Development Finance Association (CDFA) was launched at the Treasury on 24 April, 2002 by the Rt Hon Paul Boateng MP, Financial Secretary to the Treasury, and Sir Ronald Cohen, the Chairman of Apax Partners Holdings Ltd and Chair of the Social Investment Task Force. It has received considerable political support for its establishment (some 75% of the industry are estimated to be members), and for the various tax and regulatory changes that now assist lending decisions in deprived and disadvantaged UK communities and regions.

For further details on the CDFA see http://www.cdfa.org.uk.