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2003 update on Aston Reinvestment Trust and other UK Reinvestment Trusts (by Caroline Whyte)
ART has succeeded to such an extent that it has become a model for many other Community Reinvestment Trusts which have been established in different areas of the UK since 1996. These Trusts combine several of the ideas described in the original text of Short Circuit. For example, in addition to micro-credit programmes, Community Land Trust projects (such as are described in Chapter 6) are emerging under the auspices of ART Homes Fund, the Wessex Reinvestment Trust and the London Rebuilding Society simultaneously. These other Trusts are also described below.
Since its launch in June of 1997, ART has made 93 loans which have totalled £1.7million. The average loan size has been £20,000, and the total amount leveraged has been £2.4 million. In terms of social performance, 193 jobs have been created and 567 have been preserved. 70% of ART's loans are made to small businesses and 30% to social enterprises.
The businesses which the Trust has provided loans for are quite varied. They include an electro-plating company, a community nursery, a grounds maintenance service, a factory which produces inner tubes for bicycles and a printing company. In its 2002 annual report, Steve Walker, the Chief Executive of ART, describes ART's clients as "a whole range of borrowers who wouldn't otherwise have been able to grow their businesses or even get them off the ground - people entering self-employment for the first time, small businesses, and social enterprises. We have a wide cultural mix in both our small business sector and social enterprises, including organisations helping the homeless and people suffering from addictions"."
ART had been hoping to be able to have £3 million available for loans at this stage, but it found fund-raising to be a challenge. Sir Adrian Cadbury, the Chairman of ART, comments in the 2002 annual report that "we would like to see more companies investing. We've really done remarkably well with individuals and we've had very good help from banks, but there's still a job to be done in persuading companies that a healthy Birmingham is to their advantage and they can help by investing in us".
ART charges comparatively high interest rates for its Business Development Loan Fund - 12% for loans to small businesses. (This rate compares favourably however with US credit unions, which tend to charge around 16% for such loans, and the Grameen Bank, which charges 25-30%). The rate reflects the risk involved in the investment: there is a 13% default rate. Walker comments that "...it has been access to finance rather than the cost of finance that has been the issue. We've had no negative reaction to our interest rates from our borrowers. If you ask the people who consider us expensive where they would go for finance, they often say credit cards. These actually have interest rates sometimes 10% higher than ours!". Repayment periods vary from 6 months to 10 years. Borrowers have to become investor members with a minimum deposit of £250, redeemable upon full clearance of the loan. Information about borrower's management accounts must be provided to ART so that it can monitor progress.
Pat Conaty comments that "ART works in complementary fashion to community credit unions, as does the London Rebuilding Society" (see below). "I am working with Cliff Rosenthal, an old friend who runs the National Federation of Community Development Credit Unions (CDCUs) in the USA." The federation has 207 member credit unions which serve more than 600,000 shareholders throughout the US, and has over 1.9 billion dollars in assets. It provides technical assistance and training for its members. Conaty explains, "we have made sister city links between New York CDCUs and Birmingham community credit unions..... there are 31 Birmingham Credit Unions and the Birmingham CU movement is about to launch the first European Community Development Credit Union". More information about Community Development Credit Unions
In addition to the Business Development Fund, another fund called the Key Loan Fund has been established, specifically to benefit social enterprises in Birmingham, such as charities or companies limited by guarantee, which reinvest their surpluses into community support. This fund, which initially received partial support from the European Union, provides loans at very low interest rates - 1.25% above base rate - to help with the purchase of property and assets and to assist with cash-flow.
A third subsidiary of ART, ART Homes, has also been launched, with the goal of "delivering affordable loans for property repair and maintenance to homeowners who cannot access mainstream finance." ART Homes works in partnership with Birmingham's HouseProud scheme, which works to improve the living conditions of older homeowners and those with severe difficulties in Birmingham. It is also researching the possibility of forming Community Land Trusts in some areas of Birmingham.
"Energy Saving" loans are also made to small businesses and voluntary organisations in Birmingham for capital expenditure on energy saving initiatives. Repayment on loans is helped by savings in fuel consumption and a related interest rebate. (Some other policies and initiatives for promoting energy efficiency in the home are discussed in Chapter 5).
ART has benefited from national government funding; it was awarded shares in the first and second rounds of the Phoenix Fund, which is dedicated to helping enterprise in disadvantaged areas. Walker says "the award...will help us in plans to double our loans over the next two years, which means continuing to bring in new capital recourses". If the goal of £3 million in loans were reached, the fund would become able to fully cover the maintenance of its office from the returns.
ART's website is at www.reinvest.co.uk. ART Share Ltd., The Rectory, 3 Tower St, Birmingham B19 3UY, tel +44 121 359 2444, fax + 44 121 359 2333, e-mail email@example.com.
Other Reinvestment Trusts in the UK
Pat Conaty comments that "ART has been copied widely and further developed as a practical concept in many interesting ways". He himself no longer works at ART, but has been involved with the establishment of similar community reinvestment trusts elsewhere in the UK, such as the London Rebuilding Society, which, he writes, "has developed links with JAK Bank in Sweden and hopes to introduce interest free lending products in the future as well". The LRS specializes in finance for social enterprises and began lending in the spring of 2002. Its loan funds include the London Ecology Action Fund, known by the clever acronym LEAF, which will "offer advice and loans to help social economy organizations 'green up' their premises" (quote from LRS website), and the Mutual Aid Fund, which will be a 'credit union' style fund, enabling social economy organizations to borrow small sums against reserves for needs such as training or buying equipment. This fund builds on original ART ideas for a Social Enterprise Economic Development (SEED) Fund which Conaty says "was never funded in the 1997-1999 period despite much effort". The Mutual Aid Fund was launched in London on 10 October 2002. Conaty comments that "LRS is emerging with similarities as a mutual to some of the larger CDCUs like Alternatives Federal Credit Union in Ithaca, New York and Self-Help Credit Union in North Carolina".
LRS is also developing an LRS Homes Fund like the ART one in Newham, East London. Its draft report will be launched in Spring 2003. Conaty writes, "[the LRS's] research findings and success with ART Homes Fund to date, with its first 30 loans in Birmingham, have stimulated several CRTs to develop Homes Funds. These include PART in Portsmouth(see below), Salford Moneyline and Derby Loans. We are seeking a way to co-develop these regional housing funds through co-teaching and close networking."
The New Economics Foundation and London Rebuilding Society have hired Jerker Nordlund of JAK Bank Sweden to help develop a Housing Fund for London on interest free principles. Like JAK Denmark, the LRS plan as it is emerging is to offer traditional and interest free products side by side, and steadily win people over through making such goods available and providing education on the concept of interest free loans. The idea, Conaty explains, is "to work from the status quo slowly towards a new solution". It is also looking into the provision of loans to customers who don't have savings, by means of Grameen-Bank type lending circles.
Karl Dayson and Bob Paterson, colleagues of Conaty's at the University of Salford, have done extensive research into the development of Community Reinvestment Trusts. Their website is at www.communityfinance.org.uk . Paterson himself has developed several new CRTs, including Portsmouth Area Regeneration Trust (PART) and Salford Money Line. These trusts are particularly geared to helping local people with very low incomes, for example by providing cheque cashing services and loans to meet domestic emergencies, thus preventing loan sharks from moving in. PART shares its office space with a fledgling credit union, the Portsmouth Saver's Credit Union, and it intends to pass its customers on to the credit union when they achieve financial stability.
Paterson's model for Community Reinvestment Trusts (CRTs) puts strong emphasis on the role of social housing associations as possible sources of advice and funding. These associations, which are not-for-profits, provide housing to low-income people in Britain. The British government is currently encouraging them to diversify the investment of their surplus funds by putting them into a broader range of social enterprises. CRTs could be ideal for them to invest in, and the CRTs could reciprocate by helping the housing associations in various ways. For example, the CRTs could work with them to find innovative ways to deal with the problem of rent arrears, by providing an advisory service to help landlords and tenants to come to agreement about reduction of late rent. A similar programme, the Money Advice and Budgeting Service, has been very successful in Ireland. CRTs could also buy the debt from the housing association, and then re-finance it so that the tenant is able to pay it back more easily. CRTs can also provide credit to private homeowners who are unable to afford repairs for their homes, as with ART's Homes Fund.
The Wessex Reinvestment TrustA new kind of Trust, the Wessex Reinvestment Trust, was launched in September 2002. It was developed by Paterson, Conaty and Tim Crabtree, a community activist and the former co-ordinator of the New Economics Foundation, who promotes local food production in Dorset. The researchers gathered information about what sort of assistance the Trust could provide by distributing questionnaires to local small businesses, social enterprises and voluntary organisations.
The WRT is intended to take the idea of community reinvestment in several new directions. It is the first European rural CRT. Conaty explains that "it seeks to pioneer Community Land Trusts for affordable housing and affordable farming in the rural SouthWest (West Dorset, Somerset and Devon)". There are also plans to encourage local renewable energy production. The WRT therefore unites three ideas described in the original text of Short Circuit - the idea of community-based investment as described above, the idea of locally-produced energy as described in Chapter 5, and the idea of community land trusts, as described in Chapter 6.
The Business Plan for the WRT explains that "rural economic development needs are often linked, whereby somewhere to "live and work" and the provision of workshop space and loan finance for business enterprise are in many instances supplementary and complementary to each other."(p 7). The rural SouthWest is suffering from a shortage of housing for low or even middle-income people, with retirees and well-off city people buying up the existing houses to use as holiday homes. Planning permission is very strict and it's hard to build in open space, but it may be possible to deal with the problem creatively by bringing it under the umbrella of the Reinvestment Trust and forming land trusts.
The WRT will have loan funds available for microcredit, and an energy-saving loan fund similar to London Rebuilding Society's LEAF. The microcredit loan fund is intended to provide loans for small businesses in the area, as with the other Trusts, but also to encourage local sustainable agriculture by providing loans for organic farmers and farmers who market their food locally. At present, 70 to 80 per cent of organic food in Britain is imported, and the demand for organic food in the EU generally is expected to increase by a rate of 40 percent per year, so there is clearly a large potential market for organic produce.
Local farmers in the UK have a very low share in the sale price of their food - only 7.5 per cent - and this naturally causes a financial strain. Farmers in France, by contrast, retain an 18 per cent share in their sale price. This comparative financial strength of French farmers is thought to have arisen for several reasons: a greater proportion of food in France is grown locally, local farms and other groups are more likely to "add value" to their food (eg by making milk into cheese) right in the area rather than exporting it as a raw product, and there are stronger farmer organisations which can effectively negotiate with the food industry. The Trust is therefore hoping to encourage the development of small-scale food-processing businesses and distribution co-operatives. There is also expected to be a growing demand for local food in the future, as people become more aware of its environmental and economic benefits.
On the subject of renewable energy, the WRT business report describes a government scheme, launched in 2002, whereby National Wind Power pays the capital investment costs for three turbines on a farmer's land for a cost of £1 million and the farmer shares in the profits of, say, £4000 a year. The British Wind Energy Association is looking for farmers to develop at least 100 schemes like this. The WRT is also looking into encouraging bio-mass and micro-hydro in the area. In addition, there is the potential for other environmentally-related enterprises such as recycling to develop there.
Information about the British government's policies concerning community credit can be found at the Social Investment Task Force website. In the US, similar schemes exist for Community Development Financial Institutions such as the Women's Self-Employment Project in Chicago, described elsewhere in this chapter.
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