We are, as an economy, flooded with debt.
The rebranding of ‘debt’ as ‘credit’ ranks is now recognised as something of an economic folly. It sidestepped a very British tradition of self-help and responsibility. While debt still mounts, the marketing of credit papers over the reality – that widening economic inequalities make access to consumer choice far less open than before.
Today, I have been in Bristol with an exemplar of social innovation, which is the field of UK community development finance. It is a young sector, but energetic and one of the few options that appears to have bite in relation to needs such as enterprise finance, housing repair and capital for renewable energy.
The state of the sector is set out in the report 2013: Inside Community Finance – 53 community finance organisations serving over 50,000 customers. The model, diverse as it is, reflects some radical ideas.
1. Finance can be a way of bringing people together. Before it became Triodos, the Bristol based bank was, in the UK, Mercury Provident – a cooperative society. It chose the name because it saw in the messenger god a model of how banks should work – light, fleet of foot and transparent in connecting up savers and borrowers.
2. Finance can be a way to build business advantage. The example of community shares, that we support with advice through the Community Shares Unit with Locality and DCLG, and the microgenius community shares platform focuses on equity. The reason this works so well is that for local assets, is that when people are able to invest, they also want to participate in the life and success of the venture. That can mean customer loyalty, workforce engagement of a kind that outcompetes other options – sometimes the co-operative model is the only business model that could work.
3. Finance can be a business for everyone. Over one million people are now served by credit unions. Being involved in a credit union, a co-operative financial institution, is more than putting money in or taking it out. It means being a member, being involved in the running of a community bank. Not surprisingly, getting involved is a great way of building financial literacy and business skills.
But like all social innovations, there is the challenge of how to scale up, without selling out. The three suggestions that I offered to the 200 practitioners (including Unity Trust Bank, London Rebuilding Society, Co-operative and Community Finance) gathered in Bristol for the Community Development Finance Association conference were:
1. Accountability – the most effective mutual finance models worldwide are those that care about quality before they are required to by the regulators: the self regulation of the Desjardins Caisses in Quebec, the peer auditing of co-operative banks in Germany.
2. Values – the attraction of growth through access to mainstream markets led the world of micro-finance into rogue and shallow practices under the guise of being the next Grameen. We are not so pure that we can’t work with and learn from others, but you need strong values and strong purpose to counter the lure of gold.
3. Capital. Community finance initiatives need the blend of capital sources that can reflect that accountability and values. Here, our national policy framework for community finance has it all wrong. Why can mainstream UK banks can get capital at well under 1% for lending to small businesses and community development finance initiatives are being charged 3% – 4% from Big Society Capital? That is not the fault of Big Society Capital, but it is the policy framework that designed that in. As my colleague, Pat Conaty puts it, if you grow on the back of impatient capital, you become an impatient source of finance, just like the rest.
All this is not rocket science. This, after all, was how capitalism was supposed to work. You made money out of business, not money out of money. Stock markets were mutuals. Community finance is recreating what banking once was, because there are forms of banking that are worth saving.
In a world flooded by debt, it is good to be reminded, in the right hands, what a wonderful tool for social change money can be.