Providing financial support for Scotland’s most disadvantaged communities
Alastair Davis, CEO Social Investment Scotland
The Covid-19 pandemic has wreaked havoc with people’s lives across the world – and Scotland has been no exception. For many people, and indeed communities, the financial impact has been devastating. Through a lack of employment opportunities, furlough, redundancy or restrictions on trade, the pandemic has left large swathes of society facing financial difficulties. According to recent figures from the Financial Conduct Authority, a staggering one in four adults in the UK have been left financially vulnerable.
However, with lockdown restrictions easing and recovery in our sights, it’s vital that financial support is directed to the people and communities who need it most. One of the most effective ways of making this happen is by ensuring Scotland’s access-to-finance ecosystem is fit for purpose and sufficiently resourced to meet the needs of the people they serve. Indeed, this is a key principle of the Community Wealth Building approach – ensuring that investments and financial institutions benefit local people, communities, businesses and social enterprises.
During times of financial hardship such as these, Credit Unions (CUs) and Community Development Finance Institutions (CDFIs) can play a vital role in offering ways of saving, lending, and accessing affordable credit to those who are most in need. This includes those with no or poor credit history, low-income consumers, young people who are not in employment or education, the elderly and disabled people.
While Credit Unions are fairly well established, CDFIs such as Social Investment Scotland (SIS) are sometimes not as well understood outside of their stakeholder circles and, of course, by those who benefit directly from them.
The business model for CDFIs can be traced back to the US, where they grew out of the 1970s civil rights movement. African-Americans had long been excluded by banks, but a growing chorus of protest led to the creation of CDFIs as lenders rooted within their communities. It wasn’t until the early 2000s that the model crossed the Atlantic and landed on our shores, establishing themselves in deprived communities and gradually increasing in number over the next two decades.
It’s not just people who benefit from the support offered by CDFIs. In disadvantaged communities, small businesses and social enterprises are crucial, both as employers of local people, as drivers of economic growth and, in the case of social enterprises, as drivers of social and environmental impact. Many are unable to access mainstream finance to sustain and grow their organisations even if they are creditworthy.
CDFIs such as SIS, have a social mission to increase access to finance for underserved, yet sustainable, social enterprises to help them survive and thrive in their communities. Given they are one solution to the lack of access to mainstream finance for these organisations, there’s an opportunity to support CDFIs to scale significantly, amplify the social and economic impact that they can create in disadvantaged communities and build community wealth.
But, of course, as demand grows on the type of finance offered by the likes of CUs and CDFIs, so does their need for adequate capital to meet that demand. Funds such as the Affordable Credit Fund, backed by the Scottish Government and the Carnegie UK Trust are crucial in helping these credit providers have access to the capital they require to support their local communities.
As the effects of the pandemic stand to be felt for years to come, with disadvantaged individuals and organisations facing varying levels of financial hardship and distress, CDFIs and Credit Unions have a crucial role to play in supporting Scotland’s recovery. So long as these financial providers are sufficiently funded and resourced to meet an increasing demand on their services, they will be well placed to support those in our society who are most in need.