The Guardian 11-05-1999 How microcredit nurtures outside the mainstream John Dunn For many people, starting a small business too often remains little more than an idea. Single parents, the unemployed, those on benefits, people who have been made redundant, some immigrants can find it difficult to approach a bank for a loan. The banks, in turn, can find that the size of the loans involved does not justify the cost of the basic business advice and support they need to provide. There is, however, hope for the financially "excluded" and there is evidence that they are getting at least some of the loans necessary to make a start. According to the first survey of its kind in Britain, there is now a significant "microcredit infrastructure at work across the country, providing start-up loans of a few thousand pounds to a wide range of people who fall outside the banks' conventional business finance system. But in the first inventory of micro-credit in the country, the British Bankers' Association (BBA) has found 62 local schemes across the country lending an average of £5,000 or less to the "financially excluded" in order to help them begin self-employment or start a small business. The schemes are supported to the tune of £8m by the banks in partnership with local business advice organisations. Typically, they create a special loan fund with the local bank contributing some or all of the fund. The decision to lend is generally made jointly by the bank and its partners, although in 11 schemes the banks are not involved in the decision at all. There are more schemes in the Midlands and the north of England than the south. However, there are a surprising number in East Anglia, accord ing to the BBA. Two-thirds of the schemes have been going since 1995 and most have no set finishing date. But longevity is not the only measure of success, says the BBA. The rate of defaults and the extent to which the original fund has revolved - been repaid and loaned out again are also important. The inventory shows that 18 schemes have default rates of less than 7% and 19 have revolved more than once. According to Mike Young, director of the BBA with responsibility for compiling the inventory, it is estimated that the 62 schemes provide a total of £24m in loans. "The vast majority of business start-ups are funded by mainstream bank lending operations. However, the banks do recognise that there are particular areas of the country or groups of the population where it is difficult to provide this service," says Young. Imagine a single mother on a housing estate with an idea for a second-hand toy library. She needs perhaps £2,000 to get it off the ground. But she has never run a business in her life and hasn't the first idea of how to start. "The last thing she would think about is asking the bank for a loan. And the cost to the bank of raising her awareness, building her confidence, planning the business and getting it started would be enormous. Providing the money is the easiest part - - However, if the bank is in partnership with local organisations that can provide mainly free or heavily subsidised basic training and advice on bookkeeping and VAT, and perhaps help with a bit of market research, then setting up on your own becomes attractive to people who have an idea but who don't see themselves as natural entrepreneurs, says Young.
