Reconsidering UK Community Development Finance

This paper presents evidence from a review of enterprise-lending community-development finance institutions (CDFIs) in the United Kingdom (UK) that identified how policies and operating conditions affect CDFI outcomes. It also evaluates the strengths and weaknesses of enterprise-lending CDFIs in relation to exclusion and disadvantage.

The study found that CDFIs have had a significant impact on disadvantaged communities in the UK. Few, however, have become sustainable or fulfilled their potential. They need more support at the policy level. Findings include:

• Evidence of continued under-investment in disadvantaged communities indicates that access to finance is an ongoing problem for small and microenterprises;
• Enterprises supported by CDFIs can make a real difference in revitalizing disadvantaged communities;
• CDFI impact is hampered by limited scale and resources;
• CDFIs are unable to demonstrate because there are no performance standards for the sector;
• Achieving sustainability is not possible for most CDFIs;
• Government policy has not provided adequate support to CDFIs;
• High initial expectations have resulted in some disillusionment with the sector among donors, policy-makers, and investors;
• Limited funding, a short-term outlook, and inflexible policy mechanisms have stunted the development of CDFIs.