A government-backed ‘co-investment fund for economic growth’ has smashed targets to support businesses, create and safeguard jobs, adding £354m of economic value to local economies across England.
The RF Fund, a place-based investment fund to address inequalities in access to finance, was tasked with lending £70.4m to small businesses by The Department for Business, Energy and Industrial Strategy (BEIS), and creating or safeguarding 8,746 jobs.
It has lent £89m, created and saved 11,771 jobs, and become a critical part of the finance ecosystem in its eight years of operation, according to a Regional Growth Fund Impact Report published today by Responsible Finance which draws from an evaluation of the Fund for BEIS.
The fund, which unlocks lending to viable but unbankable businesses, mainly in the most deprived parts of the UK, has cost the Government just £2,549 per job supported, less than a tenth of the average expected cost per job of the Regional Growth Fund.
The RF Fund was established in 2012 with two key objectives: to capitalise community development finance institutions (CDFIs) so they could lever further investment and scale up their economic and social impact; and to grow and support private-sector jobs and economic prosperity in places dependent on the public sector following the 2008 financial crisis.
It has achieved both objectives, according to the report, and exceeded the Government’s ambitious targets for businesses and jobs supported, while also unlocking millions of pounds of further private capital.
Responsible Finance, which supports a network of CDFIs, was awarded a £30m government grant through the Regional Growth Fund to establish the fund with co-investment from Unity Trust Bank and the Co-operative Bank.
The report finds:
1. The RF fund has leveraged £45m of further capital from private banks.
2. So far it has enabled £89m of lending to viable but unbanked micro and small businesses and social enterprises, exceeding the Government’s target of £70.4m by over a quarter (26%).
3. It has created or safeguarded 11,771 jobs, exceeding the Government’s target of 8,746 by over a third (35%).
4. 87% of the RF Fund’s investment is outside of London and the south-east (the UK average for SME lending is 62%).
5. 16% of RF Fund-supported loans were made to BAME-led businesses and 24% to female-led businesses.
6. With an average investment size of £36,000, no minimum loan size, and nearly half of the loans made by the fund in the £5,000-£25,000 range, it fills a crucial gap in access to finance for viable businesses turned down by mainstream lenders.
7. The Fund is a successful model of collaboration across the finance sector, now identified as essential to support a “just transition” to net-zero emissions and Build Back Better.
But with longstanding and continued market failure in access to finance for viable businesses and social enterprises, it’s now crucial for the fund to continue, according to Theodora Hadjimichael, CEO of Responsible Finance. Commenting on publication of the Impact Report and ahead of a BEIS review to determine the future of the Fund beyond 31 March 2021.
Hadjimichael said, “The impact of the Fund demonstrates the unique strength of the Responsible Finance sector, increasing entrepreneurship, supporting businesses in under-invested communities, boosting productivity and supporting levelling-up.
“It has also proven highly effective in levering bank investment and other capital, and adding hundreds of millions of pounds of economic value to local communities.
“The Fund offers a strong and continuing return on the Government’s investment. It should now continue as an evergreen fund with all legacy capital perpetually recycled, which will amplify the impact of the original government grant.
“As government weighs its options for restoring high levels of fair employment in the recovery, the proven track record of CDFIs makes the sector a natural partner. An additional £100m of capital into community development finance institutions will allow them to lever further private capital to meet demand and provide advice to small businesses navigating the path to rebuilding.
“To build back better and achieve inclusive economic growth our viable but commercially unbankable businesses must create jobs in areas desperate to level-up; to do this they need access to appropriate finance and support. CDFIs are the proven route: locally-based social enterprises which are driven by different motivations. They understand their customers and help them to start-up, innovate and grow.”
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