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Transformational Not Transactional: The UK’s Community Investment Sectors Can Play a Major Role in Inclusive Growth

By Thomas Gillan, Deputy CEO, Social Investment Scotland

Over the past ten years we have witnessed some truly game-changing developments in the world of business. On the back of the worst financial crisis in living memory, distrust of large institutions has grown, consumers have become increasingly empowered, and a new generation of socially-conscious business leaders have emerged.

While such economic uncertainty has resulted in market volatility and a cautious investor mentality, we have continued to see the gap widen in terms of the access to finance for SMEs. This is without doubt hampering prosperity within our local communities and it’s time we do something about it.

Last month I had the privilege of joining leaders from a variety of UK based Community Development Finance Institutions (CDFI) as part of a Big Society Capital and Citi organised delegation visiting the East Coast of the United States. The purpose was to get an insight into the US CDFI market, using the opportunity to take learnings and observations back to the UK to help expand and scale our CDFI sector. During the visit, we met seven CDFIs, as well as several policy making organisations, and the Federal Reserve Bank of New York.


So how does the US compare to the UK you might ask? We know the US CDFI sector is well established, operating at scale, and accessing mainstream capital. It’s also supported by a raft of policy interventions such as the Community Reinvestment Act (CRA) which help support mission-driven SME lenders operate in an area of market failure.

What surprised me is that key sector challenges were pretty familiar to what we often face – namely lack of awareness, sustainability, and capacity challenges. Beyond these observations, I want to highlight three takeaways that I believe could transform the UK CDFI space.

  • Firstly is data. The depth of market intelligence available is hugely impressive and creates a live and dynamic demand-led approach to product manufacturing within the CDFIs. This has undoubtedly resulted in a more transparent and engaging sector, making it easier for financial institutions to partner and allowing for efficient deployment of capital.
  • Secondly is technology and the disruptive effect it has on the lending markets. It is clear that fintech is going to move the needle in the small business lending sector. We are seeing the meteoric rise in online platforms such as OnDeck in the US which is taking business from the mainstream financial institutions at a phenomenal rate. We see the same in the UK, with customers willing to pay a premium for convenience and get money in their account same day. This, however, is not addressing the pre-existing market failure and those who cannot access finance are continuing to be excluded. As one of the world’s largest fintech hubs, the UK can play a leading role in harnessing the power of technology to increase access to finance across the board.
  • Lastly is less a direct observation but more a reflective point. If we look at the successful enterprises in recent memory, they have all been fantastic at marketing themselves. What the CDFI sector delivers is nothing short of awesome – economic opportunity and prosperity in areas of poverty and need. However, we continue to lack awareness, and many are not visible in the marketplace. Whilst it is acknowledged that marketing budgets cannot match those by the PE backed lenders, we do have an opportunity to work collaboratively to drive awareness; increasing the profile of CDFIs to match the ambitions of the sector.

To summarise, I think it’s easy to look across the water with awe, amazed at the scale and impact of the CDFI sector in the US. But for me that’s only one part of the puzzle; the US sector does a fantastic job at supporting SMEs who struggle to access capital to sustain or grow. It’s clear the policy interventions and the engagement of corporates are vital to a thriving CDFI sector. In the UK, we have all of the above, arguably not totally connected, but interdependent when building an ecosystem. We have an economic strategy underpinned by inclusive growth, huge pools of talent, a progressive tax system, and an ambitious CDFI sector. It’s time we move the needle.

I’d like to thank Citi and our colleagues at Big Society Capital for sponsoring and arranging the trip. For more information about SIS, explore our website here.