Niamh goggin

Financial Exclusion Services Research:

The Supply Side

SMALL CHANGE PARTNERSHIP

http://mms2/biscuit/Data/current%20year/classifications/financial%20strategy%20segments/financial%20strategy%20segments.htm

Agenda

• Introduction

• Why This Research

• Demand Side Study

• Supply Side Study: Methodology

• Main Findings

• Implications: Microcredit Providers

• Implications: Government

• What Happens Next

Niamh GogginDirector

Agenda

• Introduction




• Main Findings




Why This Research

•Responsible for the sustainable economic development and regeneration of the South East of England – the driving force of the UK’s economy

•Central government transferred responsibility for CDFI’s to the Regions

•Tied in with Sustainable Prosperity Objective

•Stimulation of enterprise

•Support for locally-focused community-based businesses

•Importance of micro-business and home-based businesses..

Agenda

• Introduction




• Main Findings




Demand Side Study

• Demographic characteristics of those who are financially excluded within the South-East of England

• Measured financial exclusion and constructed a financial exclusion index

• Mapped financial exclusion in the South-East

Agenda

• Introduction




• Main Findings




Terms of Reference

• Availability of services for financially excluded in the region

• Assessment of gaps in provisions; and• Sustainability of Community Development

Finance Institutions, including microfinance organisations.

Methodology

• Compilation of primary and secondary sources– Access through CDFA to performance data

from CDFI’s– Questionnaires on coverage and sustainability

• Focus Groups– On coverage and sustainability

• Analysis

Services for Financially Excluded

• Personal Financial Services• Microfinance• Small Business Lending• Lending to Social Enterprises

Agenda

• Introduction




• Main Findings




Microfinance

• Seven microfinance providers operating in SE• Two national, one regional and four sub-regional• Provided a total of 518 loans in previous year• Estimated demand from start-ups and existing

micro-businesses 9,089 loans per year• Current providers meeting 5.7% of demand• No coverage for over-30’s in deprived areas

including Slough, Dover, Milton Keynes and Oxford.

Micro / Small Business Lending

• Average loan size £3,555• Ranges from £910 to £7,500• SE Community Loan Fund £15,000 - £50,000• Small market gap for borderline micro/small

business loans averaging £15,000• Estimated demand for almost 300 loans/year

Gap Analysis

• Coverage gap – borderline micro/small business lending

• Geographical gap – Slough, Dover, Milton Keynes and Oxford as well as in more prosperous areas.

• Product gaps – larger loans• Group or community gaps – products / marketing

targeting women, ethnic minorities, recent migrants and people with disabilities

What is Sustainability?

• Operational Sustainability: the extent to which the organisation can pay for its operating costs out of earned income (for example from interest income)

• Mission-Driven Sustainability: the extent to which the organisation can raise money from government or other stakeholders by demonstrating social impact

• Structural Sustainability: the extent to which the organisation can raise money to pay for the cost of operations because of its structure (e.g. through fund raising or cross subsidy from a more profitable venture)

Operational Sustainability

• No microfinance organisations came close to operational sustainability

• Fredericks Foundation came closest – 58.3%, but most income earned through non-lending activities

• Clear relationship between average loan size and term, portfolio outstanding and sustainability

• Portfolio outstanding over £300k – operational sustainability 20 – 60%

• Portfolio outstanding < £300k, op. sustain. < 20%

Mission-Driven Sustainability

• Indicator – Average loan size as % of Gross Value Added per head in the region

• Ranges from 4.9% to 40.33%• Some work with the most financially excluded

clients, with ratios of 5%• Few have adequate performance information to

demonstrate impact to funders

Structural Sustainability

• MFI’s as part of larger organisations• Find a prince to head your fundraising efforts• Charity with commercial subsidiary• Innovative fundraising – Hannibal’s Challenge• Wider network of Enterprise Agencies

Sustainability Model for MFI’sMICROFINANCE SUSTAINABILITY

Portfolio Outstanding 900,000

Av loan balance 3,000

No of loans 300

No of staff ( 3 LO, 1 Admin) 4

No loans/ staff 75

Loan losses 8%

Gross Portfolio Yield 16%

Interest income 144,000

Operating Expenses

Salaries and benefits 120,000

Admin expenses, rent etc 50,000

Loan losses 72,000

Total Op Expenses 242,000

Operating Surplus/ Deficit (98,000)

Sustainability 60%

Sustainability Model for micro/small business lender

MICRO/ SMALL BUSINESS LENDING

Portfolio Outstanding 2,062,500

Av loan balance 12,500

No of loans 165

No of staff 2

No loans/ staff 82.5

Loan losses 5%

Gross Portfolio Yield 12%

Interest income 247,500

Operating Expenses

Salaries and benefits 60,000

Admin expenses, rent etc 50,000

Loan losses 103,125

Total Op Expenses 213,125

Operating Surplus/ Deficit 34,375

Sustainability 116.13%

Agenda

• Introduction




• Main Findings




Implications: Microfinance Institutions

• Standalone MFI’s will not survive in the UK• Three models:

– grassroots, local CDFI’s offering personal credit, microfinance, money advice etc;

– larger, business lender offering loans from £5,000 up to £50,000

– part of larger economic development agency, offering wide range of business support and financial service

• Services focused at the financially excluded will struggle to survive

Implications: MFI’s

• Government attention already moving away• CDFI’s are not seen as having delivered• Outreach poor, low numbers, high write-offs• Need to focus on outreach and performance• Need to balance working with the poorest with

need for sustainability• Shortage of trained, committed, experienced staff• Work on impact measurement a priority

Agenda

• Introduction




• Main Findings




Implications: Government

• Financial exclusion is a problem even in the most successful regional economies in Europe

• Financial exclusion needs a holistic approach: access to credit, financial literacy, bank disclosure of its performance, Corporate Social Responsibility

• We need to present a united front to government – NGO’s, CDFI’s, MFI’s, Credit Unions etc – and a simple, clear message

• Government needs to take a long-term, strategic approach to the issue

Agenda

• Introduction




• Main Findings




Further Information

• Financial Exclusion in the South-East of England: Summary, Conclusions and Recommendations.

• Financial Inclusion Services Research: Supply Side

• Financial Exclusion: Baseline and Mapping

Small Change Research Partnership Reports

www.seeda.co.uk/Publications/Social_Inclusion

Niamh Goggin: [email protected]

Economy & Finance

Niamh goggin