Responsible Finance Sector Calls for Further Investment as 2018 Results Show Supply Outstripping Demand | Blog | Foundation East
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Responsible Finance Sector Calls for Further Investment as 2018 Results Show Supply Outstripping Demand

31st January 2019 By Katy Ford in Business loans, Current Affairs

Foundation East’s 2018 Annual Review celebrates the success of the many women-led businesses we have helped over the years. We lend 40 percent of our capital to female entrepreneurs, which is a big deal. Yet it is not the only big deal we and our fellow responsible finance providers are co-creating. The wider sector’s annual review, published last month, revealed that for UK-based micro-enterprises, SMEs and social enterprises wishing to access finance, demand is outstripping supply. Access to finance equates to access to opportunity. Access to opportunity is at the heart of all the UN Sustainable Development Goals. We think this is something worth shouting about. So, enjoy (oh, and, please invest in our CITR shares) …

Responsible Finance - The Industry in 2018, reveals that the responsible finance industry grew by £19 million (8%) from 2017 to 2018, lending £254 million to 52,121 customers.

Drilling down into the sector’s impact on businesses:

  • Responsible finance providers lent £85 million to 5,310 businesses, creating 4,490 new businesses and creating or saving 10,370 jobs in 2018. This was a 27 percent increase on the £67 million lent to UK businesses in 2017.
  • Responsible finance providers lent £138 million to 475 social enterprises in 2018 - 112 more social enterprises than in 2017 - creating and saving 4,060 further jobs.

The responsible finance sector contributed towards reaching most of the UN Sustainable Development goals too, as reported on pages 11 and 12 of the report, something unique in the financial services sector.

Locally speaking

Foundation East is the only responsible finance provider offering loans and support to businesses in the East of England. Over the last 14 years, we’ve lent £9.8 million to 608 businesses and created and saved 1250 jobs. Despite dwindling funds, we are still making loans and positively impacting the region. In fact, where the wider responsible finance sector creates £7 economic return for ever £1 it loans, Foundation East creates £15 economic return for ever £1 we spend providing our loans and business support service, contributing to UN Sustainable Development Goal 8.

We contribute to other UN Sustainable Development Goals too, via the work of clients such as BeeBee Wraps and Fabio’s Gelato, both of whom are on the shortlist for the Citi Micro-entrepreneurship Awards 2019.

In Cambridge

BeeBee Wraps, a Cambridge-based social enterprise that designs, manufactures and sells an organic beeswax alternative to single-use plastic, contributes UN Sustainable Development Goals in the following ways:

Goal 7: Affordable & Clean Energy

  • Redesigned production process to be greener, more energy efficient and lower waste
  • Uses a green energy provider

Goal 13: Climate Action

  • Only uses General Organic Textile Standard (GOTS) certified Organic Cotton, which uses fewer pesticides and man-made fertilisers
  • Reduces the amount of fossil fuels used in manufacturing food covering by using a natural alternative
  • Helps to reduce food waste by enabling the responsible storing of food

Goal 14: Conserve and sustainably use the oceans, seas and marine resources

  • Offers sustainable alternative to plastic, which can end up polluting marine life
  • Only uses GOTS certified Organic Cotton which uses fewer pesticides and man-made fertilisers with less run-off of these harmful chemicals into waterways and oceans
  • Partnering with Sky TV to raise awareness of issues relating to marine life sustainability

In Hitchin

Fabio’s Gelato, an ice-cream parlour growing its reach across the region, contributes to UN Sustainable Development Goals in the following ways:

Goal 8: Decent Work and Economic Growth

  • Has created 17 jobs for local people, 5 full-time

Goal 10: Reduced Inequality

  • Offers equal and fair pay policies for a 70% female team
  • provides accessible dining areas and toilets, creating a comfortable environment for people with disabilities
  • Installed curved glass cabinets to make products viewable for wheelchair users
  • Welcomes families of children with autism who claim “It’s rare to find such a space where our children feel safe”

Goal 7: Affordable and Clean Energy

  • Hannah and Fabio are soon to upgrade the energy efficient machinery Foundation East’s loan enabled them to start-up with, further aligning their business with UN Sustainability Goal 7

With the above facts in mind, isn’t it shocking that the lack of capital for investment is hampering our sector’s ambitions for growth is?

To quote from the report:

“While responsible finance as a sector has experienced a significant increase in investment in 2018, the sources of that funding have shifted with social investors providing considerably more investment and the Government and UK banks providing less. Given the transformative impact our members make within some of the UK’s poorest communities, further investment from a range of different sources is essential.”

What does the UK Government need to do to ensure supply meets demand for access to fair finance for businesses?

It needs to listen to the responsible finance sector. We play a key role in ensuring people can access useful and affordable financial services. Our members are well positioned to work with the Government and the Financial Conduct Authority to create strong and diverse industries and inclusive and resilient communities.

We are asking the UK Government to commit to the following actions to continue to meet the increasing need for affordable and ethical finance in the business community. (N.B. We are making further requests regarding personal finance).

Launch a dedicated responsible finance fund

A dedicated £150 million responsible finance fund, similar to that in the US, would unlock significant private sector investment and scale up the sector’s impact on excluded and under-served communities.

Replace EU funding and instruments

Replacing the drop-in funding from the EU since the referendum is challenging. The Chancellor guaranteed that key projects that support economic development across the country, and depend on European funding, will continue to receive funding. It is essential that those facilities which incentivise commercial investment into the responsible finance sector, namely EaSI, COSME and ERDF, are replaced, or access is maintained.

Ensure greater transparency and regulation in the business lending sector

The Financial Conduct Authority regulates the responsible finance industry, but much of the regulation is designed for large-scale financial institutions. Proportionate and fit-for-purpose regulation would enable fair, small providers to grow and innovate. Currently, the business finance sector is unregulated. This has led to the establishment of practices among some lenders that aim to maximise profit at the cost of the consumer. The Government must put in place protection mechanisms to promote fairer practice and responsible lending.

The Financial Conduct Authority regulates the responsible finance industry, but much of the regulation is designed for large-scale financial institutions. Proportionate and fit-for-purpose regulation would enable fair, small providers to grow and innovate. Currently, the business finance sector is unregulated. This has led to the establishment of practices among some lenders that aim to maximise profit at the cost of the consumer. The Government must put in place protection mechanisms to promote fairer practice and responsible lending.

We’ll leave the final words to Jennifer tankard, CEO of Responsible Finance:

“Access to finance is access to opportunity. Given the transformative impact our members make within some of the UK’s poorest communities, further investment from a range of different sources is essential, alongside other actions to continue to meet the increasing need for affordable and ethical finance.”

Foundation East is looking to provide loans and business support to micro and SME businesses in the East of England with viable business plans. If you know any, please put them in touch!

 

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  • About the Author
    Katy Ford

    Katy Ford

    Katy’s knowledge of community finance is extensive, having worked for Foundation East since its inception in 2004. She is recognised locally as an influential business leader by the Suffolk 100 and nationally, as a founding member of AskIf, an online network of community-based lenders. Previous to moving across to community finance, Katy was the treasury manager for a large insurance company. She also has experience as a SME owner, having run a small hotel.