Social finance falls £2.1bn below demand, suggests report

Community Development Finance Association document, written by Dr Nick Henry and Philip Craig (pictured), recommends partnership of public, private and social investors

Philip Craig
Philip Craig

There is a difference of up to £2.1bn between the amount charities and social enterprises want to borrow and the amount of finance that is actually available, according to a report released yesterday.

Mind the Finance Gap: Evidencing Demand for Community Finance was written by Dr Nick Henry and Philip Craig, two researchers at the consultancy ICF GHK.

The report was released by the Community Development Finance Association, the umbrella body for community development finance institutions, and supported by the Royal Bank of Scotland through its Inspiring Social Enterprise programme.

The report says government estimates, published in 2011 in the European Commission notification of state-aid approval for the social lender Big Society Capital, suggested there was a gap of up to £1.7bn between the level of social finance available to the sector and the amount it needed.

The report says that this amount could have grown by up to £400m since that point because of worsening funding conditions and increased demand from entrants to the market.

But it says the total size of current lending to third sector organisations by CDFIs is £145m, and outside this there is only a small amount of other lending by social investment finance intermediaries.

The report says there is an annual demand of up to £6.75bn for the type of community finance provided by CDFIs, which covers not just social enterprise but also businesses and individuals, mostly in deprived communities, that are unable to access mainstream credit.

However, the total annual funding delivered by the community finance sector is only £700m.

The report says this demand could not be met by mainstream bank lending, but only by "a partnership between public, private and social investors" who "share common economic and social objectives".

"Meeting potential existing demand implies developing better-capitalised, more productive, more scaleable providers and stimulating growth of innovative, lower-cost models," the report says.

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