Good growth for cities is bolstered by the responsible finance industry

Posted On: 
19th November 2019

SMEs in all regions of the UK need access to finance so they can contribute to local regeneration, employment, innovation and social cohesion. By providing finance to underserved and excluded SMEs, responsible finance providers create a more inclusive financial services system and power the engine of the UK economy.

This week, PwC released its Good Growth For Cities 2019 report on urban economic wellbeing. The report looks beyond GDP to take a broad approach to measuring economic success. Its index for good growth looks at the factors which are important to communities including jobs, income, skills, income distribution and business start-ups; all of which are created by the responsible finance industry.

Responsible finance providers are Community Development Finance Institutions. They provide microfinance to small businesses, social enterprises and consumers. Microfinance is a key enabler of sustainable economic development; enabling inclusive growth, sustainable job creation, and creating good quality work and income which circulates in local economies.

Last year, responsible finance providers lent £85 million to 5,310 small business, creating 4,490 new businesses and creating and saving 10,370 jobs. 84% of the viable SMEs lent to by responsible finance providers had previously been turned down by a mainstream bank, a fact which highlights that access to finance is still an issue for a large minority of small business owners.

Cities in less affluent regions typically have lower scores in the good growth index compared to more affluent areas. Responsible finance providers have a flexible approach in determining the viability of a business and a different risk appetite to banks which allows them to lend to businesses who are otherwise excluded. In 2018, responsible finance business lending data was mapped by the Personal Finance Research Centre at the University of Bristol alongside bank SME lending data and geographies of deprivation in the Northern Powerhouse region. The maps demonstrated that responsible finance loans are made in areas where there is less bank lending and higher levels of deprivation[i].

Regional investment is essential to ensure that cities across the UK benefit from inclusive growth. The Northern Powerhouse Investment Fund, Midlands Engine Investment Fund and Cornwall and Isles of Scilly Investment Fund are important components of regional devolution. Seven responsible finance providers deliver the microfinance portion of the funds, demonstrating the effectiveness of the industry in reaching underserved and hard to reach businesses and unlocking local economic growth.

In addition, responsible finance providers deliver the Government’s Start Up Loans programme, providing finance and mentoring for businesses who struggle to access other forms of finance; rising new business creation per head was one of the key drivers behind the strong increase in the average city scores since 2005 – 07.

Economic success means inclusive growth, community resilience and improved experience. Through their creative use of finance, responsible finance providers play a crucial role in enabling this to become reality.