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This article looks at the key factors in building a healthy community which includes the ability to access fair finance; for power to reside locally in determining community problems; and for communities to be able to resolve these issues. These factors have become increasingly critical in order to create flourishing communities that actively participate in and benefit from sustainable economic growth.


In 2008, the collapse of Lehman Brothers Holding Inc. triggered a global financial recession resulting in governments around the world spending trillions of pounds on bank bail outs and other responses to prevent economic meltdown. Responses to the financial recession by the banks themselves and by governments have, in the short term, helped to undermine local resilience. The impact of this on businesses, households and communities is significant and well documented.

Banks, for instance, have sought to reduce their exposure to risk by, amongst other things, withdrawing services and supply of affordable credit to deprived communities. In order to reduce public expenditure the Government has made cuts to the level of service provision in communities and implemented changes to benefit payments. It is estimated that the Government’s welfare reform programme, which aims to move people off benefit and into jobs, will remove an estimated £19 billion a year from working age social security between now and 2015[1]. Whilst we know that healthy communities do not just depend on flourishing local economies and access to affordable finance, these two factors are critical to building local social as well as financial prosperity. Alongside this is the need to trust and invest in local communities, to help them build resilience by taking control of their lives and working with others to improve local quality of life.

Financial vacuums

Evidence highlights that whilst the UK may have narrowly avoided entering a triple dip recession, the country remains a long way from sustainable economic growth and communities continue to face pressure from rising costs and a stagnating employment market.

Benefit changes will increase the financial squeeze on poorer families and have a significant impact on the local economies of those communities with high numbers of benefit claimants. A recent report by the Financial Times estimates that Blackpool, the hardest hit town in England, will lose an average of £914 a year for every working age adult. Added to its already straightened social conditions, ranking 10 in the Indices of Multiple Deprivation[2] – and with specific societal wellbeing datasets ranking even higher – this is likely to have a real impact on economic regeneration and business prospects in the area, with a large chunk of spending power effectively removed and economic resilience undermined. Small and medium sized enterprises (SMEs), a critical pillar of economic growth, continue to struggle to access affordable finance despite a number of government initiatives, such as Funding for Lending.

The British Bankers’ Association (BBA) has admitted that the main high street banks can no longer serve all communities in the UK.  The partnership work that some banks, such as RBS, are doing with Community Development Finance Institutions (CDFIs) (social enterprises that support communities by providing affordable finances) to refer on higher risk credit applicants is part of a managed retreat from some communities. But CDFIs and credit unions do not currently have scale to fill the gap. Instead payday lenders, one of the success stories of the recession, are stepping in.

There is a significant and growing evidence base about how and why the current British banking market is having a negative effect on British businesses, especially SMEs, and on communities in deprived areas. This goes further than restrictions to credit, resulting in increasing reliance of businesses and communities on high cost, short term solutions to credit and finance shortages, such as increasing use of high interest payday loans and reliance on high cost over draft facilities. This, of course, sucks out what little economic potential is retained in these communities and adds to the cycle of debt and poor economic growth.

The SME market is one of the most concentrated in the banking sector: four banks controlled approximately 80% of the SME market in 2008.  But increasingly, SMEs find that the services they need are not available and decisions about lending are taken by people whose lack of local knowledge means that they are unable to accurately assess levels of risk.

At the same time the Government continues to extol the role of SMEs in pulling the UK out of recession and supporting local economic growth. Its 2010 ‘Financing a Private Sector Recovery’ report[3] states that the UK’s 4.8 million SMEs are vital to the economy and at the heart of economic growth, providing 60% of private sector jobs and half of private sector turnover.  But it also acknowledges the problems SMEs face in accessing finance.

Gaps in the market

Since 2004, there has been a significant decline in bank lending to SMEs, with businesses instead forced to rely on their own reserves or loans from friends and families.  It is hardly surprising that payday lenders, such as saw a gap in the market and leapt in to fill it. For many entrepreneurs desperate to access the credit they need to start up, keep going or expand, the Wonga promise of instant cash and that ‘we’re different, we’re fast, we’re responsible’ will, in the short term, prove appealing.

Households are equally under the cosh. An estimated 1.4 million people are unable to access bank accounts[4] and this in itself creates financial pressures. For example, it is estimated that those who pay for fuel on prepayment meters spend around £359 a year more than those on direct debit.[5]

Households unable to access suitable financial services and those struggling to make ends meet often have little option but to rely on high cost credit. Again, the gap in the market is being rapidly filled with pawnbrokers[6] and payday loan shops. It is estimated that over 4 million individuals are borrowing from lenders charging interest rates of between 450% and 2,500% depending on the type of service they access.

The most financially excluded will, of course, look to other solutions to meet their basic living needs. Loans from a pawnbroker are typically used for day to day living expenses (51% use loans for food and groceries and 27% for bills other than rent or mortgage). They are less commonly used for a special occasion or socialising. Interest is typically charged monthly and ranges from 5%-12%, which equates to an APR of between 70% and 200% on a £100 loan over six months. [7].

There is a much publicised growth in the use of payday lending, with an estimated 1.2 million people a year using these lenders[8] with the resultant proliferation of providers. For example The Money Shop increased from 168 branches in 2006 to 450 in 2011.[9] According to Which? 60% of people who borrow through payday lenders use the loans to pay for bills and other essentials including food, petrol and nappies.[10] Access to these types of finance simply enables people to get by in their daily lives. And, of course, alternative markets thrive where there are gaps in mainstream provision.

There is, therefore, plenty of isolated statistical and anecdotal evidence that it is households and SMEs in deprived communities that are most seriously affected by risk-adverse banks and the tightening of credit. But while banks hold information about where and who they lend to, they do not currently disclose this in a format that enables those in charge of tackling debt and promoting economic growth to use the data to help fill the gaps.  If this information was disclosed on a geographical basis, local policy and decision makers could feed this into targeted local strategies to fill the gap, by creating credit unions, providing financial advice, and innovating new fair financial services.

The Community Development Foundation (CDF) – supporting communities to tackle the lack of fair finance

The Community Development Foundation (CDF) was founded in 1967 and whilst particular objectives may have evolved over time, our core purpose has always been to empower people to influence the decisions which affect their lives. As the leading national organisation in community development and engagement, we get money and support to where it is most needed. In the last 10 years, we have managed over £470m worth of community programmes and over 7 million people have had access to grants managed by CDF which is equivalent to 15% of the population of England. And we mobilise communities and get people talking and working together. Since 2008 we have supported 30,000 grassroots organisations and in the last two years, 4 million volunteer hours have been generated through the Community First programme[11], which operates in less than 8% of the electoral wards in England. Community First is an £80millon government-funded initiative that runs until March 2015 helps communities come together to identify their strengths and local priorities to plan for their future and become more resilient.

We evaluate the programmes we manage and conduct research, both of which provide credible evidence of local issues and the ways in which people and groups work together to resolve them. We use this evidence to influence policy-makers, businesses and funders who may wish to tackle a problem or support a cause.

We know that there is real concern within local communities that want to tackle the issue of high cost credit and to improve local economic health.  Through our Community First programme informal and formal groups can apply for small grants of between £250 and £2,500. Many of the issues raised by groups and some of the projects funded by Community First are access to fair finance schemes.  For example, activities include: promoting local credit unions, running financial literacy sessions and raising awareness of dangers of borrowing from loan sharks.For a small grant of £438, one organisation targeted vulnerable, low income residents struggling to manage money in one of the most deprived wards in England. In this area, unemployment is almost 20 per cent, a high percentage of the population is dependent upon benefits and the rate of child poverty is one of the highest in the country. Community First funding has been provided to facilitate three sessions in connection with the Children’s Centre and local schools to offer budgeting and debt workshops delivered by specially trained and fully qualified advisers. Siginifantly these projects are organised in a voluntary capacity with the grant money going towards direct costs, such as the qualified advisors.

Further projects provide, for example, money management support to the elderly Asian community (£900) and support with the Universal Credit system through weekly tuition sessions in a community IT centre (£2,292). A financial education and employment support project (£500) delivers workshops which show and encourage people how to manage their finances and deal with debt problems and signpost them to employment, self-employment and volunteering opportunities.

In less than 18 months CDF has administered 8,500 applications for these types of small grants. They both highlight the breadth of need, but more importantly the community capacity to address this. If this is not evidence enough of local resilience then the real economic value of these peripheral public services should not be overlooked. Through Community First, over £45 million of match contributions has been generated – a mixture of £8m in real cash, volunteers’ hours based on the average hourly wage and in kind cash donations.

So some local communities are taking a lead and doing what they can to promote fair finance locally. But they are operating in an environment with the odds stacked against them. A lack of transparency of regional variations in financial service provision and, despite recent reforms, an alternative finance sector that lacks investment and scale are just some of the barriers to moving local economies onto a firmer footing. CDF has been instrumental in drawing together partners to campaign for disclosure of financial data and to develop models which can use this data to deliver better services.[12]

There is much talk about the stimulation and regulation of competition in this country, but this language has not yet permeated the financial services sector in the same way as it has other sectors. When it is discussed the focus is on the mainstream financial services we already have; those which have left ordinary working people in straightened circumstances. Our dominant commercial sector currently leaves little room for alternative models although there are plenty of examples around the world which demonstrate a better financial equilibrium which work towards meeting all of a nation’s interests.[13]


Much of the debate on building healthy communities still focuses on issues such as crime and quality of local environment; these too are critical. But this needs to broaden to include the valuable community-led contributions to economic and social wellbeing and the quantifiable multiplier effect of small investments of resources to tackle locally-identified need, at a hyper-local level. A sustainable local economy, which retains more of the wealth it generates, uses more of local skills and knowledge to innovate and create and manage local assets more effectively for local benefit is more likely to flourish and help to build healthy and resilient communities for the future. But critical to this is access to fair finance.

Community groups can play a role in promoting financial literacy, providing debt advice and encouraging take up local credit unions. And until the UK has a more diverse financial services sector with CDFIs and credit unions playing a bigger role in serving local communities, the lack of access to fair finance will continue to impede local sustainable economic growth.

Alison Seabrooke and Jennifer Tankard

This article was first published in the Journal of Urban Regeneration and Renewal






[6]  2010 survey of 502 pawnbroker customers.