The UK’s microfinance industry is “thin and weak” as a result of poor and short-term policies and because both the voluntary sector and government have largely ignored it, the chief executive of Big Society Capital said yesterday.
Speaking at the Charity Finance Group's Alternative Finance Conference 2016, Cliff Prior said a waning microfinance industry could spell “absolute disaster” in political terms and be “appalling in social economic terms”.
Referring particularly to community development finance institutions (CDFIs), Prior said the industry has been subsidised by the government and EU “for a very long time”, but that those subsidies were now coming to a close.
“The government subsidies are just running out now and the European subsidies will run out in two years time,” he said.
Microfinance involves the provision of small loans for people who might not have access to traditional finance models – often for business development or community regeneration projects.
Globally, microfinance is a “big ticket item” for social investment, Prior said.
But he said it was “tenable that somebody in Durham, in the Welsh valleys, in Cornwall, cannot create a business for lack of basic business start-up capital”.
“To my mind, that’s appalling in social economic terms,” he said. “We are starting with such a weak starting point, that even with the best will in the world, it will be some time before we get there.”
Voluntary sector partly to blame
But Prior said the voluntary sector was also to blame for struggling industry.
“There are a number of things the government can do and a number of things that we can do. It’s not just the government that has ignored this. The voluntary sector hasn’t really included it and it’s because somebody else is doing it.
“But if you think of the effort that is made on the social sector community regeneration and so on - if there are no jobs, we are wasting our time. We’ve got to generate job creation and business creation and so on before you even stand a chance. So for me it’s a really important area.”
Microfinance initiatives have particularly suffered as a result of short-term policies in the UK, in comparison to longer-term strategic visions adopted in the US and France, Prior said.
“The American system is a combination of guarantees for the loans, and subsidies for the organisations that deliver it. It has been bipartisan and very long term – about 20 or 25 years. In the UK, it’s a three year programme here, a three year programme there. There is no certainty. These organisations in the UK are on a knife edge the whole time”.
Prior said it was key for microfinance schemes to be watched carefully but that this has not happened in the UK.
“Number one is just to keep an eye on it and my sense is that the government has not kept an eye on it,” he said.
“After the referendum and the change of government, there were some very immediate announcements about EU agricultural subsidies being carried on and research subsidies being carried on. Where was the mention of microfinance? They had forgotten it even existed. So number one is getting it on the agenda.”
