The creation of a finance body to disperse some of the European funding currently channelled through banks to people and firms in deprived areas is being considered by the Government, it has emerged.
The idea is being discussed by senior officials at the Treasury and the Department for Business, Enterprise and Regulatory Reform (DBERR), Regeneration & Renewal has learned.
It is proposed that the body – with the suggested name Capital for Enterprise – would act as an intermediary to funnel funds coming from the European Investment Bank (EIB) to community development finance institutions (CDFIs) or other micro-finance bodies operating in deprived areas.
Around £4 billion of funds are being provided by the EIB to help commercial banks maintain lending in the current economic crisis.
The Community Development Finance Association (CDFA), the umbrella body for CDFIs, has proposed to the Government that the bodies it represents should receive a proportion of this money.
A CDFA spokesman said the Government had indicated that cash distributed by the proposed body should only go to “mature” CDFIs that were more established and “investment-ready”. He also said that discussions were “preliminary” and nothing had been confirmed.
The spokesman continued: “We have seen a market failure on the part of banks in providing finance to (people in) disadvantaged communities, who have been denied bank loans even during boom years. Now, the Government is supporting banks and so this gives us the opportunity to put forward a proposal from our sector.”
He added: “CDFIs have been providing services to disadvantaged communities when banks were not.” Banks were not in a position to help create a financially inclusive society, he said, “but CDFIs have a track record of it”.
Faisel Rahman, managing director of CDFI Fair Finance, said there was no guarantee that banks would lend to small and medium-sized enterprises in the current crisis, but CDFIs were more likely to because “their only mission is to lend”.
A DBERR spokeswoman said: “As far as we’re concerned, it’s speculation and we do not comment on speculation.”