Government to consult on 'community reinvestment act'

Legislation could make money from banks available for CDFIs to lend to community organisations

The Government will consult on a scheme to encourage banks to invest in deprived communities.

The consultation, announced in today's Budget, could be the first step towards a community reinvestment act, similar to US legislation that channels finance into community development finance institutions, which lend to social enterprises, businesses and individuals that cannot access mainstream loans.

"The Government will continue to work to improve the supply of affordable credit for low-income households, including by supporting third sector lenders," the Budget report says.

"It will consult on options to make sure banks make an appropriate contribution to community lenders, through regulatory action or a new community levy to be funded by retail banks."

Bernie Morgan, chief executive of the Community Development Finance Association, the umbrella body for CDFIs, said the move could be "completely transformative" for the sector.

"At the moment, we work where banks can't reach," she said. "This could be an opportunity for us to channel the money banks have into the areas where the market currently fails."

Morgan also welcomed the Government's announcement that it would look at measures to ensure all UK citizens had access to a basic bank account. But she said more work needed to be done to ensure they were effective.

"Introducing a guaranteed basic bank account is an important step in the right direction towards financial inclusion," she said. "But this alone is not enough to help people who are frozen out of our financial services system.

"A guaranteed basic bank account will help many people, but it is not a silver bullet to end financial exclusion."

 

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