There is a finance gap of between £1.3bn and £2.1bn a year for civil society organisations, suggests research from the Community Development Finance Association.
The research, Mind the Finance Gap, finds current provision of finance to the civil society sector is estimated to be around £286m per year compared with an estimated demand of between £1.3bn and £2.1bn per year.
The research says the market failure exists as mainstream banks can only fund based on financial return – not the social returns to society also generated by civil society organisations (CSOs).
It notes that while the nascent social investment market is seeking to address these market failures, it is unlikely that it will be able to meet the funding demand, and do so sustainably.
CDFA chief executive Ben Hughes commented:
“The scale of unmet demand is staggering. This must act as a call to action to government, banks, funders and the broad community finance sector. The benefits of filling this gap are obvious: more business start-up and growth, more jobs, more people saved from the debt traps of high cost lenders and more wealthy vibrant communities.
“Last week we launch the Community Investment Coalition, and it is partnerships like this that must show leadership in working together to champion the growth of the community finance market, raise its profile and bring about a stronger public policy framework. It is in all our interests to better meet the needs of those eight million underserved clients and ensure a fully inclusive financial services industry.”
Mind the Finance Gap: Evidencing demand for community finance is launched as part of RBS Inspiring Enterprise, the bank’s initiative to encourage and support youth, women and social entrepreneurs. Inspiring Social Enterprise aims to support 2,500 social enterprises by 2015, and work in partnership with the sector to improve access to expertise, markets and finance.
In 2012, 28 CDFIs received enquiries from over 1,800 CSOs and lent £145m – two CDFIs alone accounted for almost 93 per cent of loan value.
