Interview: Bernie Morgan

The recession has caused big problems for community development finance institutions, says the head of their umbrella organisation

CDFIs, which lend to social enterprises, businesses and sometimes individuals in deprived areas, have seen demand rise steadily during the recession.

But even before the recession, the Phoenix Fund, the seed capital that allowed many of them to operate and was provided through the Department for Business, Enterprise and Regulatory Reform, was wound down.

"It's been a difficult time for our sector," Morgan says. "At present, relatively few lenders are able to lend sustainably, which means they need to find funding from elsewhere. And that is proving difficult to come by."

However, she says support from the Government has been promising, particularly from business secretary Lord Mandelson, who put aside £20m for CDFIs as part of the Government's enterprise guarantee scheme, and has shown an interest in Berr taking over the regulation of community lenders, which is currently split between several departments.

Support has also come from Vince Cable, the Liberal Democrat Treasury spokesman, who last week proposed a parliamentary motion backing CDFIs.

Several legislative changes would make a difference that would not involve extra public spending, says Morgan. These include a reform of community investment tax relief, which allows CDFIs to offer a 5 per cent tax rebate to investors but, according to Morgan, is currently too heavy an administrative burden for many lenders because of the red tape that is involved.

Another change she supports is passing a community reinvestment act, which would require banks to invest a certain portion of their incomes in deprived communities.

Morgan also believes that a social investment bank, which would act as a wholesaler to capitalise the sector, could make life easier for CDFIs by improving their access to capital.

"In the long run," she says, "we'd like our funding to come through banks. In other countries, they're required to invest a proportion of their cash in deprived communities. We'd like to see that done through CDFIs."

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