Community Development Finance

Expert opinion

Ben Hughes

Chief Executive, Community Development Finance Association (CDFA)

  • Delivering fair and affordable finance for our communities
  • Bringing financial and social benefits
  • Increasing impact by recycling funds
  • Offering a tax-efficient investment


Community development finance institutions (CDFIs) are social enterprises that deliver financial services. CDFIs tackle poverty. They create and keep wealth in the areas where it is most needed.

They help small businesses, social ventures and individuals, particularly those in areas where bank provision is weak and high cost credit is prevalent.   CDFIs are rooted in communities, use a traditional ‘relationship lending’ approach, and generate both social and financial returns.

By making loans, they are able to recycle this finance again and again into neighbourhoods where it is most needed. The continual reinvestment multiplies the impact of every penny loaned. It also means that CDFIs are sustainable organisations that continue to generate social impacts in communities and financial returns for investors.

Why are CDFIs needed?

Access to fair and affordable finance, delivered responsibly, is vital. Everyone – every family, every small business, every social enterprise – in every community across the entire UK deserves access to affordable credit.

Without access to fair credit, many businesses would not be able to start, survive or grow, jobs would not be created or saved, social enterprises would not be able to deliver services to their local communities, families would turn to high-cost credit companies or go without basics, and cash-poor homeowners would be living in substandard conditions.

Yet the gap between the availability of affordable finance and demand from viable, credit-worthy customers is not only wide, it is increasing.  Banks and mainstream lenders have traditionally found it difficult to serve these markets, and are likely to continue to find it difficult to provide direct services, especially to the UK’s deprived communities.

At the same time there has been an explosion in the size of the high-cost credit industry. Payday and doorstep lenders often prey on vulnerable communities and require increasing numbers of families (and micro businesses) to spend huge chunks of their income on loan repayments.

CDFIs offer an ethical alternative to those unable to get bank finance, who may otherwise turn to high-cost lenders.

CDFIs in the UK

There are currently around 60 CDFIs operating across the UK. In the year ending March 2012, CDFIs made 33,000 loans totalling £200m, which:

  • Created or protected over 8,300 jobs
  • Saved 18,800 people from high cost lenders, avoiding £7.5m in interest payments
  • Supported 2,400 businesses
  • Helped 350 charities and social enterprises

CDFIs create economic opportunity, helping to regenerate and stabilise neighbourhoods and alleviate poverty. Their lending has positive effects on the wealth of families, communities and the economy. 

Examples of CDFI lending

Atlas Leisure Homes, a Hull-based caravan manufacturer, took a loan from its local CDFI, Hull Business Development Fund, when the bank said no. The loan helped the company to survive, and it went on to create an additional sixty jobs. The Commercial Director said,

“Without the CDFI quite honestly we wouldn’t have got the business operational. They gave us invaluable support at a time when it was very stressful for employees, and the business was uncertain. There is a sizeable caravan industry in Hull and it had been through a calamitous period. For every 60 jobs we created there is probably another 60 jobs created through the supply chain in the local area.”

James and Amy, a young couple from Devon, bought the only house they could afford in the village where they grew up. But it was in a dreadful state of repair and the couple’s low income meant they did not qualify for a bank loan. But a local CDFI, Wessex Resolutions, provided them with a loan to insulate their house and install central heating. Amy explained,

“It’s the first winter in 8 years where we haven’t had ice in side, and no mould. We used to have mushrooms growing in the house. The heating bills have gone right down too. We had an electric heater in the lounge before, and it cost us a fortune. My son had a lot of bronchial and chest problems before the work. He’s now much better, and my asthma is a lot better as well.”

The future for CDFIs

CDFIs are increasing their outreach. Since 2008, CDFIs have increased the number of customers helped by 400%.

But the need for CDFIs is increasing at a rapid rate. In 2012 CDFIs saw demand increase by 88%. Growing numbers of small businesses are struggling to access finance and increasing numbers of families are turning to payday lenders. But the current network of CDFIs lack the investment to expand their services and meet the demand. If CDFIs had the capital to meet just half the estimated demand, 68,000 jobs would be created.

Case study

Big Issue Invest (BII) is the social investment arm of the Big Issue. It finances social enterprises that are helping to tackle poverty and inequality, and that embody the ethos of ‘a hand up not a hand out.’

Sarah Forster is Deputy CEO and says, “The rewards for us come through the enterprises we back. These organisations are on the frontline doing amazing things, making a real difference. We know our market well and as a social enterprise ourselves we know what it takes to succeed.”

BII recently established a social enterprise investment fund, with funding from 22 investors – including corporates, foundations and individuals. The investors are seeking both a financial and social return over ten years.

The funding has enabled BII to support a range of community ventures including a Birmingham-based social enterprise that provides counselling, support and therapeutic services to people with mental health issues and their families, and a London-based community transport enterprise which reinvests profits in providing jobs, skills and training to unemployed people.

BII also provided a loan to Highlands Home Carers (HHC), an employee-owned business that provides home-based care to older and disabled people. Sarah explains: “We liked the business model of HHC, the passion of staff and their commitment to delivering really good quality care. They are able to help people in very remote areas and so people are receiving home caring where no one else is willing to provide it."

HHC’s CEO Stephen Pennington says, "The new deal means there will be more profit and therefore more money to invest in our staff. These people are our asset and in investing in your people you improve the quality of your service - which is at the very heart of caring."

How to invest in CDFIs

Community Investment Tax Relief (CITR) applies specifically to investment in CDFIs and provides the opportunity for a competitive rate of return on investment. The relief alone is worth 25% of the money invested, spread over five years (5% a year).  On top of this, different CDFIs may offer additional returns in the form of dividends or interest, making the overall financial return higher in some cases.

Investing in a CDFI allows you to maximise the long-term social impact of your money.  Unlike grants, your investment will be used as capital for a revolving loan fund – loan finance is circulated again and again rather than given away once.  This allows more people to benefit from your investment.

You can invest directly in a national CDFI or a CDFI in your local area. 

Further resources

Finding a CDFI

For details of the CDFIs operating across the UK visit It is possible to search for a CDFI in your local area, or that supports a community of interest

More details about the CDFI sector

The Community Development Finance Association (CDFA) is the national voice for CDFIs. Its website has details of the achievements, activities and impacts of CDFIs.

More details about community investment tax relief (CITR)

A guide to community investment tax relief for investors can be downloaded from

More details on the scheme can be found on the HM Revenue and Customs website

CDFIs offer social investors an opportunity to combine financial with social returns. As with any investment decision, we advise you to consult an investment professional in evaluating your options. 





This expert opinion is tagged under:

  • Government, legal and tax issues