Community Development Banks

2003

This research is a preliminary examination of whether certain attributes of Community Development Financial Institutions (CDFIs) are correlated with greater success in serving racial and/or ethnic minority populations. The first question is whether minority-owned CDFIs are achieving higher levels of service among minority communities. The second issue is whether two factors are affecting CDFIs that have been successful in serving those communities. The factors are: 1) whether the CDFI specifically targets its services to members of the community; and 2) whether understanding the cultural norms of the community contributes to the success.

Research Handbook on Entrepreneurial Finance, 2015

2013

The conventional wisdom, not just in the UK but also internationally, is that the major banks are not interested in lending to small and medium-sized enterprises (SMEs). One of the main factors cited is that banks find it difficult to gauge whether SMEs have the capacity and/or willingness to repay their debts. In contrast, some studies suggest that most SMEs seeking external funding are successful in their applications. The current study sets out to investigate the truth of these seemingly contradictory claims and makes recommendations for improvements in SME access to bank finance. In conducting the study, the authors made use of their 2012 national survey on the triggers for SME success (with over 1,000 SME responses12), and secondary data analysis of government reports, with new data gathering methods using two SME focus groups, five in-depth SME case studies, and analysis of the major banks’ SME lending policies as presented through their websites. Access was obtained to interview the senior lending policy makers of four major banks and one challenger bank. Research revealed that the majority of SMEs seeking routes to finance avoid banks and traditional financial institutions. The main source of finance used by SMEs to start their business is personal/family savings, with more established SMEs using retained profits. Although banks are used by SMEs, they are not the primary source of finance. From an SME perspective, not only do banks not provide the capital required, but they also seem to know very little about what businesses (particularly small businesses) need. However, the picture is more nuanced than this. Of those SMEs that seek access to external finance, banks are still the primary source. Furthermore, and contrary to popular myth, the majority of SMEs seeking finance from banks do obtain it. This situation, however, has deteriorated. Before the economic crisis of 2008, 90% of SMEs seeking bank finance successfully attained it, a figure which fell to 74% in 2011 0. This partly helps to explain the growth in importance of alternative sources of finance such as challenger banks, business angels, peer-to-peer lending and crowd funding. Drawing upon the literature reviewed, the two focus groups with SMEs, and the five bank interviews, a number of core propositions was derived. These are presented in the report, along with key findings from the study.

The establishment of a system of federally regulated, for-profit, community development banks (CDBs) would help to fill the financial gap in areas inadequately served by traditional banks, requirements of the Community Reinvestment Act (CRA) notwithstanding. These organizations would be charged with delivering credit, payment, and savings opportunities and providing basic financing to households and small businesses in underserved areas. Such a system would not substitute for the CRA, but rather act as a supplement to current regulation. Proposed exemptions from CRA compliance for depository institutions that invest in the equity of a CDB would weaken the existing law by diluting the investment of the depository institution in its own particular community. Such proposals (under which "investment" has been defined to be as little as one-quarter of one percent of total assets) are not consistent with the spirit of the CRA and would negate the beneficial dialogue that takes p...

2012

Successful Innovation Systems

Capital, understood as nonhuman capital, is a diverse resource with a wide range of subgroups including venture capital, bank loans, research funding, "family, friends and fools," and more. Money is an enabler, but a bad motivator. Founders believe in their ideas and their potential impact on society. The big difference between a startup with seed capital funding and an established company's project budget is the perceived ownership of the money. The spirit of innovation is diametrically opposed to the many uncertainties of products and markets. Ecosystems that focus on a conservative view of the market will face growing disadvantages due to changing relationships between markets and demand. Demand is one of the most underestimated drivers for success in many regional innovation systems. The strategy for that is a consequence of policy, and is often our main window into the policies themselves. 3.1 Finance Capital Capital, understood as nonhuman capital, is a diverse resource with a wide range of subgroups including venture capital, bank loans, research funding, "family, friends and fools," and more. In most of its forms, capital has a fairly flexible character, as we also see in Chap. 5 where all kinds of capital can be in the upper section of the flexibility scale. One reason is the fact that, in most regions, the available capital is greater than the number of projects ready for investment. Before going into different forms of finance capital, we should highlight the nature and role of this resource in an ecosystem. Money is an enabler, but a bad

2003

The Role of Banking and Financial System in the Development of Small Business and Private Entrepreneuership, ed. by A.V. Akhabov, 2011

Journal of Microfinance / ESR Review, 2002

In the past twenty years, microenterprise development tried to alleviate poverty in the United States. Initially, practitioners and policy makers presumed that the lack of access to capital was the primary impediment for the self-employed to start and sustain their businesses. Because financial institutions are riskadverse to borrowers with weak credit histories, insufficient collateral, and limited or no business experience, alternative vehicles to credit were required. So microloan funds proliferated in the 1980s and 90s to serve this market. But the experience of practitioners today indicates that lack of demand and not supply is the principal challenge facing the field. There are simply too many dollars and too few customers. In attempting to understand this dynamic, few have researched the costs, barriers, and constraints for potential borrowers participating in these programs well.