We aim to improve quality o\ue001 li\ue001e by
promoting innovative solutions that
challenge mainstream thinking on
economic, environmental and social issues.
We work in partnership and put people and
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which \ue001orced issues such as international debt onto the agenda o\ue001 the G7/G* summit meetings. It has taken a lead in helping establish
new coalitions and organisations such as the Jubilee 2000 debt campaign; the Ethical Trading Initiative; the UK Social Investment
Forum; and new ways to measure social and economic well-being.

This year represents a signi\ue000cant opportunity to
re\ue001ocus Government policy on \ue000nancial inclusion and
the appropriate role o\ue001 third-sector lenders such as
Community Development Finance Institutions (CDFIs).

December 2007 saw the publication o\ue001 the Government\u2019s
new Financial Inclusion: an action plan \ue000or 2008\u20132011.
Part o\ue001 this plan is an assessment o\ue001 the Financial
Inclusion Task Force and the \u00a3120 million \ue000nancial
exclusion \ue001und it monitors. In addition, renewed
discussions with the banking sector will be initiated on
the need \ue001or new shared goals \ue001or \ue000nancial inclusion.

The action plan sets out government plans to double the
capacity o\ue001 third-sector lenders to provide credit to the
\ue000nancially excluded and to consider new legislation, such
as a Bill, to \ue001urther develop third-sector lenders.

CDFIs represent a key third-sector provider o\ue001 \ue000nance to
the excluded, both o\ue001 personal and enterprise lending.
Third-sector lenders can and should be counted upon to
contribute to government inclusion targets.

For this to be achieved, the renewed government
attention on fnancial inclusion and third-sector
involvement must not repeat earlier mistakes o\ue000
insu\ue000fcient \ue000unding which was committed over too short
a period and without the necessary legislative backing.

The original policies and \ue001unding supporting CDFIs in the
UK drew inspiration \ue001rom the United States. Using newly-
released data \ue001rom the US Treasury and the CDFI Data
project this paper re-examines lessons \ue001rom overseas,
and makes the case in the UK \ue001or combined government
\ue001unding and legislative intervention to enable CDFIs to
contribute to the Government\u2019s own targets \ue001or \ue000nancial
inclusion and regeneration.

Public \ue001unds supporting CDFIs in the USA are \ue001ar more
e\ue001\ue001ectively used than in the UK. This is due to an e\ue001\ue001ective
combination o\ue001 enabling \ue001unding structures and legislation
that is lacking in this country.

In the USA, consistent levels o\ue001 public investment,
combined with a supportive legislative \ue001ramework,
together trigger \ue001ar more additional private \ue001unding and
investment \ue001or CDFIs. In the UK, by contrast, reduced
\ue001unding and uncoordinated policy severely limit the
ability o\ue001 CDFIs to provide capital to people and small
businesses excluded \ue001rom mainstream \ue000nancing. With
improved backing, CDFIs could contribute \ue001ar more
towards reinvigorating local economies and communities
across the UK.

The US CDFI Fund is part o\ue001 the US Department o\ue001 the
Treasury. This is, in itsel\ue001, indicative o\ue001 the importance
with which CDFIs are viewed in the USA. The Fund has
committed over $800 million since it began operating
in 1995. It has succeeded in leveraging an additional
$27 \ue001or every dollar invested through the \ue001und by 2005.
In contrast, in the UK, i\ue001 the public money invested via
the Phoenix Fund o\ue001 \u00a342 million plus the \u00a311 million
o\ue001 transition payments had leveraged just 20 times
more investment, it would have added over \u00a31 billion o\ue001
additional capital to UK CDFIs\u2019 lending. Inside Out 2007,
the most recent CDFI Trade Association report, notes that
the UK\u2019s Phoenix Fund managed to leverage \u00a32.20 to
every \u00a31 it invested in 39 member CDFIs.

Recent \ue000nancial crises both here and abroad illustrate the value o\ue001 investment in locally rooted, sustainable lenders, such as CDFIs. They can play a critical role in the \ue000nancial

Community Development Finance Institutions have been at the
\ue001ore\ue001ront o\ue001 tackling \ue000nancial exclusion and supporting local
entrepreneurs and communities to develop their own solutions
to economic deprivation. A\ue001ter an initial period o\ue001 public support,
they now \ue000nd themselves at a turning-point; though they have
grown signi\ue000cantly in size and capacity \ue001or impact, support \ue001rom
Government has dried up just when such support could have
\ue001ar-reaching bene\ue000ts. This paper sets out the case \ue001or how this
could be achieved.