Total lending by the 66 community development finance institutions rose by 77 per cent to £200m in the year ending March 2010, according to a new report released by the Community Development Finance Association.
Inside Out, the CDFA’s annual review of the CDFI sector, also shows the sector received applications for loans worth £437m during the year, up from £361m, and lent to about 15,300 individuals and 3,600 businesses and charities.
CDFIs receive grants, mainly from the government, borrow money for loan purposes and receive income from their loans.
Only 3 per cent of organisations they lent to were third sector organisations: however, these made up 78 per cent of CDFIs’ loan portfolios, mostly due to the activities of a small number of large providers, including Charity Bank, Bridges, Big Issue Invest and Triodos Bank.
Money raised through Community Interest Tax Relief, a 5 per cent investment relief available only to CDFIs, was £4.7m, down from £6.4m in the previous year. The CDFA said it is drawing up plans to increase uptake of the tax relief.
However, the report said that CDFIs continued to face problems in operating sustainably, with earned income making up only 40 per cent of the sector’s total income of £72.4m. Earned income was only enough to cover 74 per cent of operating costs for the average CDFI.
Bernie Morgan, chief executive of the CDFA, said CDFIs were "standing on a precipice" because of a lack of funding.
"If the government supports them now they will be able to increase their scale and reach more under-served markets," she said. "If that support is not forthcoming it will create untold and lasting damage on disadvantaged communities."
The number of CDFIs has also fallen from 80 in 2006 to 66 at the time of the report.