What does the future hold for CDFIs?

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As a responsible loan provider which offers finance to those who find it hard to access funding through mainstream sources, First Enterprise is classed as a Community Development Finance Institution (CDFI).

There are currently around 60 CDFIs across all regions of the UK and the sector represented by the Community Development Finance Association (CDFA). First Enterprise’s CEO QZ recently went on a trip with the CDFA to New York where he learnt all about funding in America versus the UK, which got him thinking about the difficulties faced by CDFIs and how we can boost the sector.

Responsible finance

What challenges do responsible loan providers face?

The biggest challenges the sector faces are the lack of support and regular supply of capital. In the USA the government introduced specific legislation to support CDFIs but that level of backing is not available in the UK.

Crucial investment is therefore desperately needed to support the sector which would, in turn, have a positive impact on the wider economy. Responsible Finance – the sector trade body – says that the industry generates £7 for every £1 it lends and consequently, the social and economic value generated by responsible finance providers is significant.

To put this into context, so far this year First Enterprise has lent £3,552,093 which – by the Responsible Finance calculations – means our impact is actually more than £24 million. We’ve also supported 24 businesses and created 21 jobs across the East and South East Midlands region. This generated capital is considerable and demonstrates the benefit of investing into funding providers.

How can this growing sector be boosted?

Extra investment into the sector would certainly help CDFIs to become sustainable organisations. Through additional funding First Enterprise would be able to deliver its mission but, more importantly, bridge the gap for people unable to raise finance from traditional sources and contributing to the economy through job and enterprise creation.

The sector is growing quickly but with Brexit right around the corner, now is the time for the British government to invest into responsible finance. There has been a reported 82% drop in European funding since the referendum so the existing funding streams must be replaced and incentivised in order to maintain funding into the post-Brexit economy.

Moving forwards government lobbying will be crucial to guarantee a regular supply of capital. Our number one priority is tackling the access to finance for disadvantaged people who are turned down by banks as they will be crucial for the future diversity and sustainability of this country.

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