Australia lacks community financing initiatives

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Australia lacks community financing initiatives


Australia lacks specialist finance intermediaries that can channel finance into disadvantaged regional and metropolitan communities according to the co-author of a new report on community finance institutions. Launching the report today, Research Fellow in the Australian Centre for Co-operative Research and Development (ACCORD), Kathryn Parker, said that specialist financial intermediaries are essential to create strong opportunities for business growth and employment, and to rejuvenate local economies. Written by Parker and Professor of Social Economy at the University of Technology, Sydney, Mark Lyons, the ACCORD-published report, Community Development Finance Institutions: Evidence from Overseas and Australia, highlights the growth in most OECD countries of community development finance institutions, or CDFIs. "CDFIs are specialist institutions that raise funds for investment in community-owned and small business enterprises, in a similar way to venture capital investing and business mentoring," Parker said. "CDFIs began in the United States during the 1970s and spread to Canada and Europe. In the USA, CDFIs have experienced high employment growth and low default rates, which proves that lending in these markets can be worthwhile, financially and socially, for the community. "The only institutions in Australia that have some features of CDFIs are a small number of credit unions, friendly societies, foundations and regional development funds and these are hampered by an array of legal and regulatory requirements. "Australia also lacks policy initiatives to specifically address the difficulties that small community organisations and enterprises have in raising finance. "In contrast, in the last 20 years countries such as the United States and the United Kingdom have designed specific economic policies and incentives to encourage the emergence of CDFIs." Welcoming the report, Susan Ryan AO, President of the Australian Institute of Superannuation Trustees said, "ACCORD's report highlights a real problem in Australia." "Current regulations provide no incentives to pursue socially responsible economic ventures," Ryan said. "Because of the perceived high risk factor and lack of suitable alternatives it is difficult for superannuation funds and other socially responsible financial institutions to invest in community enterprises. "Overseas experience seems to indicate that lending for community development in markets traditionally rejected by conventional finance represents low risk and delivers good returns. "It is time for Australia to look at designing investment vehicles, such as government backed fixed interest arrangements that meet low risk requirements, but provide access for investors to well planned community enterprises." ACCORD is a joint venture of the University of Technology, Sydney and Charles Sturt University. It hopes to follow this groundbreaking exploration with more detailed research into the best ways of structuring CDFIs, given the difficult legal environment in Australia. Wednesday 10 December 2003