UK Community Development Finance Institutions

To what extent is Community Development Finance Institution (CDFI) movement fulfilling its original purpose to provide affordable finance to disadvantaged communities?

By analysing the experience of four case study organisations, we consider this question in the context of the varying demands being placed on CDFIs by both policy-makers and funders.

We argue that the failure of the sector to realise its full potential lies in the conflicting demands placed upon CDFIs. The core functions of CDFIs – outreach and regeneration – cannot be easily reconciled with financial sustainability. The operating practices of CDFIs and the realities faced by the communities they serve mean that they are seeking to generate long-term social benefits, rather than financial profits.

In this study we address the following questions regarding the UK community finance sector:

• What do CDFIs currently do?
  We provide a snapshot of the current market size and structure of CDFIs, the prevailing business models used and the activities currently undertaken by them.
• What was the original purpose of CDFIs?
  We consider the original expectations for the sector, particularly in policy terms, in order to understand the evolution of CDFIs and address the challenges of sustainability, outreach, community linkages and regeneration.
• Where have CDFIs ​‘strayed’ from their original purpose?
  We ask what prospect there is for CDFIs to achieve financial sustainability while continuing to foster regeneration and provide essential support to hard-to-reach members of society.
• What do CDFIs need to balance the competing demands placed upon them?
  Drawing on our case studies, we outline strategies used to balance the pressures CDFIs are under, both to identify lessons that CDFIs can draw upon, and to recommend how other stakeholders can better support community finance to achieve its goals.

The report concludes with a set of practical recommendations to enable CDFIs to achieve a step-change in both effectiveness and impact.