Untold Banking #1: From barren lands to rich seas of responsible investing

When you consider the size and diversity of the social investment marketplace today, it’s easy to forget that 20 years ago, it was a pretty barren landscape out there.

The challenge of how one could make finance more accessible to individuals, small businesses and social sector organisations in our most deprived communities was really just beginning to be explored by government and mainstream financial institutions.

Given this backdrop, it was a pretty big leap of faith for a high street bank to see that a way to provide finance for charities and social enterprises whom it was unable to support through the more traditional parts of the bank, was to start its own ‘microfinance fund’ – the original name of NatWest Social & Community Capital.

At the same time as this fund was getting off the ground, the government had been looking at the role of what were known as Community Development Finance Institutions (CDFIs), and their potential for enterprise promotion, regeneration and financial inclusion.

It was a pretty big leap of faith for a high street bank to see that a way to provide finance for charities and social enterprises... was to start its own fund.

The CDFI movement had emerged in the United States during the 1970s to provide a solution to so-called ‘red-lining’, in which US banks were excluding poorer areas from the provision of financial services (quite literally, a red line was drawn on a map around neighbourhoods considered too risky for investment).

In the 1980s and 1990s, a growing number of CDFIs were established in the UK and in 2000, a report by the UK Government’s Social Investment Taskforce recommended that a UK trade association for CDFIs should be established, as well as a new tax relief channelling private investment to CDFIs and disadvantaged areas, and regeneration-focused funding through a new government-backed fund called the Phoenix Fund.

A key team member at NatWest, its head of community development banking, Andrew Robinson, was a keen proponent of the CDFI movement and had also spearheaded the creation of the Microfinance Fund. NatWest became one of the original funders of the new Community Development Finance Association when it was launched at HM Treasury in 2002 – and Andrew Robinson chaired the CDFA steering group.

It’s no overstatement to say that without Andrew’s vision and energy, and the support of his colleagues at all levels of NatWest, the birth and early development of the CDFA would have been much harder to achieve.

My own involvement in the CDFA began in 2003 when I became its first CEO. In 2011, I was invited to join the board of Social & Community Capital, where I have now been a trustee for eight years.

Although life seemed tough and sometimes scary back in the early days, it was also very exciting. We felt like pioneers, and there was a real momentum around the work we were doing.

When the financial crisis hit in 2008, this led to the shrinking of credit from the banking sector but resulted in even more need for alternative finance – and by 2010, CDFI lending had risen to more than £200m.

The innovation that helped get this sector off the ground needs a new boost of energy and commitment.

Fast forward to the present day and there is plenty to celebrate but there are also some challenges that I think we must address.

For example, 20 years ago, I think there were more women in senior positions than there are now. Perhaps women were more prepared to take risk (and had less to lose career wise in leading an ‘unconventional’ approach to finance); perhaps they were more able to judge the risks involved with greater accuracy?

I also notice that there is less innovation. It’s good that we’ve become more mainstream and thumbs up to everyone – but the flip side is a lack of creativity and energy around designing new products and solutions. The innovation that helped get this sector off the ground needs a new boost of energy and commitment.

As we approach 2020, there are lots more organisations out there offering different kinds of support but there are an awful lot of gatekeepers and I don’t know if all of them are absolutely necessary? There’s also a lot of faffing around with things like social impact measurement. I agree that it’s important to prove and improve what we are doing but are we making it more complicated than it really needs to be? Are we creating more barriers than solutions?

As far as Social & Community Capital is concerned, I think we’ve been a niche but important player in the market. We have achieved a great deal and it’s significant that we continue to have great relationships with the wide range of organisations whom we have supported over the years.

We may be small but we have a powerful mission, and we should be brave enough to make a few more waves.

We also have the backing of a very significant bank, and we must recognise that this is something that other organisations in our space do not have. I would like to see us continue with our current aims and philosophy, which have done us proud for two decades and will continue to do so. But I would also like us to become a little bolder, and more comfortable with taking a little more risk.

With big vessels like banks the ship always turns slowly and at S&CC we are a tug towing a tanker behind us. We may be small but we have a powerful mission, and we should be brave enough to make a few more waves, to make even more of a difference for the enterprises and communities we serve.

This article is part of a sponsored partnership with NatWest Social & Community Capital.