EUROPA

CITR works as follows:

• Investors: Individual and corporate investors

receive income or corporate tax relief worth 25% of the money invested and spread over five years. They can invest in accredited CDFIs through bank deposits5 _{(account for two thirds}

of investment under CITR), shares (account for less than 5%) or via a loan (most common mechanism for non-bank accredited CDFIs).

• Accredited CDFIs: To be eligible to receive

investment under CITR, the organisation needs to be accredited by the Office of the CIC Regulator (under Department for Business, Environment and Industrial Strategy) as a wholesale or retail CDFI. A wholesale CDFI can raise up to £20m to lend to other CDFIs, whilst a retail CDFI can raise up to £10m to lend directly to businesses. The accredited CDFIs 5 In which case, accredited organisation needs to be a bank

have to onward lend 75% of the investment (i.e. has to matched with new lending).

• End beneficiaries: The end beneficiaries can

receive loans of up to £250,000 (non-profit enterprises) or £100,000 (for-profit). They have to be SMEs in disadvantaged community. This is defined as enterprises located in the 35% most deprived areas or owned and operated by, or intended to serve, individuals recognised as being disadvantaged on account of their characteristics (e.g. gender, ethnicity etc.). Recent research suggests that the scheme is viewed favourably within government.6 _{As the only relief with}

a clear policy focus to provide finance for businesses based in or supporting disadvantaged communities, the view of HMT remains that the scheme is well targeted and its key objective, i.e. providing finance into disadvantaged communities, has been met. It is also a component of BEIS Access to Finance policy. Additionally, the scheme has avoided falling foul of state aid rules through State Aid de minimis (as aid 6 Aslan, S., Freeman, R. and Henry, N. (2018). Community Investment Tax

Relief (CITR) and the Responsible Finance Sector. March 2018 Key data on CITR

Year introduced 2002 Accredited CDFIs 34

Loan limit For-profit Not-for-profit £100,000 £250,000 Departments Policy lead Accreditation HM Treasury

Office of CIC Regulator Investment limit Retail Wholesale £10m £20m Investment raised Total 2017 £145m £16m

levels less than €200,000 to individual investors over 3-year period) meaning there is no requirement to formally report State Aid levels to Commission. However, the scheme has fallen significantly short of government expectations of raising £100m annually to support the CDFI sector. Since 2002, it is estimated that the scheme has raised £145m in total or less than £10m annually. Moreover, of this, two thirds have been raised by two large social banks. There are a number of reasons for the lower than expected uptake, including lack of awareness and understanding of CITR, competitor schemes, restriction of CITR investment limits and complexity.

The CDFIs have found the scheme to be most effective when used in combination with first loss guarantee (e.g. Regional Growth Fund). The fact that CITR can now be used alongside the Enterprise Finance Guarantee (EFG) is believed to be an opportunity to significantly increase use and effectiveness of the scheme. To take full advantage of the scheme, it is also necessary for the CDFI to be able to generate sufficient levels of new lending to fulfil 75% criteria.

Transferability of lessons

There are lessons to be learnt from CITR. However, there are factors limiting the transferability to personal lending CDFIs, including:

• There are not currently any first loss cover mechanisms (i.e. equivalent to EFG) for personal lending, which could hamper its effectiveness

• There is a clear-cut public policy case for intervention. There is a market failure (i.e. viable businesses go unfunded), whereas the market enables households to access finance albeit at a higher price.

• There is clear cross-party for supporting businesses in disadvantaged communities, unlike consumer lending, which is

controversial and seemingly at odds with other policy objectives (i.e. saving etc.)

minds through influencing policy, and by changing lives through innovative practice and partnership work. The Carnegie UK Trust was established by Scots-American philanthropist Andrew Carnegie in 1913.

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About Community Finance Solutions

Community Finance Solutions (CFS) is an award-winning independent research unit specialising in financial and social inclusion, and community asset ownership. Located within the University of Salford, CFS offers independent research and advisory services to social landlords, local authorities, national government, charities and other organisations and agencies. Founded in 1999 by Professor Karl Dayson and Dr Bob Paterson, CFS was established to help empower communities to solve local problems relating to land and financial inclusion. Between them they developed solutions for securing community ownership of land and also models for the provision of loans to low income households who found themselves excluded from mainstream lending. These solutions have gradually extended over time and now CFS remains at the forefront of pioneering social research.

CFS

University of Salford Room 6.39

New Adelphi Building Salford M5 4WT t: +44(0) 161 295 2841 http://hub.salford.ac.uk/cfs

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Registered Charity No: SC 012799 operating in the UK Registered Charity No: 20142957 operating in Ireland Incorporated by Royal Charter 1917