Case Study 1 – Community Banking

The above figure shows the publicity used in one of the early Community Finance Initiatives – often known as Money Lines

There are now over sixty trusted ‘community banks’, not just in Salford, but spread across the UK in both urban and rural areas, and especially in Wales. After an initial £6 million in loans, another £20 million is now available for on-lending, with innovative new financial products and services constantly in development. The project has been seen to be of real value by the Bank of England, the Treasury’s Financial Exclusion strategy and the Department of Wages and Pensions, while assessment by EFQM reveals it as at European standard of over 700/1000. There are also now over forty successful ‘banks’ operating right across many communities in Wales.

The Community Banking projects also had highly politicised issues and without careful dealings with the Government and it’s agencies, and with the banks support they would never have existed; this includes strong support from Barclays and Lloyds, plus the Bank of England, which helped get Gordon Brown on side. This became a sensitive matter and careful communications with Patricia Hewitt, when she was a Minister, was needed to sign off the developments enabling it to go to the next level, then things started to happen.

Bob Paterson was the main Citizen Enabler of all CFS programmes, supported by many others of like mind , especially at Salford University, to begin with. Nearly a hundred Community Banks have been developed and led by local citizens giving them the opportunity to gain access to reasonable funding.

The Step-by-Step Approach with Community Banking as a Magical Playbook example of how to achieve successful Citizen Enablement

Below we show how the magic playbook would suggest issues in project like the development of Community Banking, should be approached in the round and then enhanced in the step-by-step approach mentioned earlier by real citizens:

Problem: One of the main problems for people in deprived communities in the UK is the lack of credit, driving the poor into the hands of unscrupulous loan sharks who contrive, through absurdly high interest rates, to make them even poorer.

Solution:  The solution sees those previously financially excluded learning how to run their own ‘community banks’; so far over £6 million worth of loans have been made to thousands of local people and small businesses.

1. Reflection:  Before detailed work was undertaken to build Community Banks which could actually be initiated and run by citizens, those wishing to undertake such a development must address five critical questions in order to achieve a successful solution
2. Will the banks serve deprived markets?
3. Could communities of citizens develop and run their own schemes?
4. Could Enablers and Citizens work together to create sustainable solutions?
5. If not, why not? If yes what did research show was the best way
6. Are Community Banks worth developing and supporting, no matter what the barrier to their development?
7. How should the politics of developing community banks be dealt with?
8. What should the nature of their future support be?
9. Such as the strong overlap in the work here between the
   1. Coaching GROW model (Goals, Reactivity, Opportunities, Way forward)
   1. And the 4Ps Model (Position, Pain/Problem Experienced, Possibilities, Proposals)

• Understand or define your position first: The Citizen Enablers undertook comprehensive studies of the existing financial situations of the disenfranchised  poor, listened closely to those needs and wants, and then proposed a solution which might adequately deal with the problem. This required them to understand their own position first, then how to help citizens and create the necessary change team to deliver real and lasting change. They had to particularly: 
• Understand the position by the government to what the Enablers might propose, so they would eventually be prepared to help, and especially fund such banks which would then be allowed to develop and be run by citizens. Although it had been a major concern of governments and communities to undertake such a regeneration for years; it had proved impossible for anyone to make such a development until this team came along . The Citizen Enablement team created  a sensible, caring and deliverable position for a working solution which actually involved citizen groups in a possible solution development.  The Community Finance Solutions team of researcher’s from School of Sociology in the University of Salford and an ex-Director of a major Housing Association came together and then worked closely with appropriate citizen groups in Salford and Portsmouth to begin with, and then Blackburn in East Lancs, to explore the range of possible citizen groups requiring support, in order to ensure successful collaborations. 
• The development team further enriched their unique partnership with local authorities, housing associations and both Lloyds TSB and Barclays high street bank’s senior managers to form a powerful support team, with committed individuals capable of enlisting government and other important support. These high street bankers were also prepared to produce initial financial underpinning for the development, as well as manpower, to ensure something would be produced which was workable. As a result of these interventions senior people from other bodies such as the  major political parties, Government departments, the Bank of England, the Housing Corporation, and other major high street banks, decided to support the development of Community Banking and ensure they were actually eventually delivered.

3.  Analysis

A complex analysis was performed by key members of the development  team and studies were undertaken by a capable researcher, to ensure a sensible working solution was developed; this started with the three initial deprived communities being observed and then with a wider group. The research mainly focused on three areas: 

• Financial inclusion: The team recognised expertise in financial exclusion and conducted research on the nature and extent of financial exclusion, its determinants and the effectiveness of financial inclusion interventions. They also provided advice on developing financial inclusion policies and interventions. 
• Financial education: The team conducted several evaluations of existing financial education programmes aimed at a variety of groups, including older people, BME groups and women in the criminal justice system, develop their own working schemes. 
• Community and microfinance: The team had between them over 20 years of experience in applied research in micro and community finance for households and businesses. They developed and now sit on the steering group of the European Code of Good Conduct for Microcredit Provision.

In particular, their actual methods of observation, in outline form, was to:

• Case study six Community Finance Initiatives, among them:
  • 3 Credit Reinvestment Trusts – all from urban deprived communities
  • 1 Community Development Finance Institutions – established enterprise lending only
  • 1 Savings and Loan Schemes – partnership between a housing association and a building society
  • 1 Credit union – Live and Work common bond in deprived inner city.
  • The research they employed included:
    • Client profiling through using CFI records
    • Financial comparison of CRTs
    • Time Sheet analysis of how staff spend their day
    • Semi-structured interviews with key actors.
• Show how their developing Community Banks would easily serve at least 129 business clients from 3 CFIs and 251 personal customers of 5 CFIs were reviewed.
• To enlist a total £1,741,773 Investment Capital which was loaned to 101 of them as Business Customer clients. Supplementing this was £217,801 in personal investment by clients, though 85 loans were issued to clients without capital and they found that:
  • 68% of the citizen applicants were set up as new starts, predominantly seeking less than £5000 to purchase. equipment/vehicles. 64% of new start applicants secured a loan
  • 19% of applicants were women. At one CRT 25% had either County Court Judgement and/or were using a moneylender.
  • Only 25% of those wanting to use Community Banks were manufacturers, of the remainder 57% were in general services, 10% the media, and 8% in retail.
  • The purpose of most of the loans made were:44% were for equipment/machinery or vehicles, 50% was for cash flow/capital injection and only 6% for property related expenditure.
  • Due to CFI loans £855,000 was levered into the developments. In addition to each applicant, 111 other jobs were created, and 352 jobs were preserved. This equates to £3762 in loans for either saving or creating a job. This indicates that the CDFIs’ loans can deliver a cost effective public benefit in terms of job creation and sustainability.
  • Personal citizen customers: Client profiling (figures for CRTs in brackets); 51% claimed housing benefit (50%);71% received some state benefit (65%); 19% owned a car/motorbike (26%); 39% borrowed less than £250 (30%);41% of loans were for decorating/furniture (38%) 19% of loans were for clearing debts (25%); 43% did not have a bank account (62%); 16% had CCJs (26%); 22% used a moneylender (35%); 66% were women (58%); 36% were single (34%); 55% had children (57%); 33% were single parent households (42%); 46% were unemployed (44%); The average weekly income was of all the citizens on the studies was £153 (£150),  49% were in debt (65%) and 87% had no evidence of savings (90%) .

In order to understand the above, the Citizen Enablement team had to be extremely active listeners to disenfranchised peoples’ needs and wants, especially to the range of citizen groups encountered; they had to recognise the importance of any developments being place relevant and reflecting its social context. To put it in every day terms, the Citizen Enablers had to develop banks which would:

• Keep it Simple – Citizens in financial need get confused with too many advice and delivery agencies. Either Community Finance Institutions need to offer a full range of services, including savings, or provide joint single access points.
• Remember all business is personal – Micro-entrepreneurs rarely separate their individual and business accounts. Services and processes should reflect this reality.
• Know their market – The Credit Reinvestment Trusts were all reaching the most deprived communities but evidence of market research was scant. Community Finance Institutions needed to ask whether their processes are designed for them or their customer.
• Location, Location, Location was key to success – Those with physical locations in places where the clients congregated grew faster. Remote providers rarely got repeat business.

                        4. The Key to Enabling Others

The basic principles of the proposed banks had to be tested in a range of communities, then evaluated and improved, and this led to a portfolio of different solutions, all tailored to local circumstances, but based on strong local evidence of citizen and community need, demand and the relevant social context. Careful and caring Community Engagement would be the key to the success of any future working banks, and especially the citizens running it. Some existing Community Finance Institutions lacked genuine community accountability. Only the Credit Unions and the Credit Reinvestment Trusts had training for community directors. A rolling recruitment and training programme would be required to fully enable the citizens agreeing to develop and run the banks. This community focus must also be sustained to ensure total success and use of the new capabilities.

5. When were the Community Banks seen to be successful? 

The proof of success is that now over sixty trusted ‘community banks’, not just in Salford, but spread across the UK in both urban and rural areas are now both successful and actually sustained to this present day. They also produced business advice of relevance to the communities where they were located which, in turn, lead to sustainable economic regeneration.