Summit 2020: Collaborate like mad

Before 2020 draws to a close, we here at CLES are thinking about hope in the darkness and the prospect of local economic reform as we commence the long journey to Covid-19 recovery. In this spirit we’re sharing write ups of our policy breakout sessions from November’s Community Wealth Building Summit. Following yesterday’s blog from John Heneghan on labour market reform, Eleanor Radcliffe reflects on the discussion on making financial power work for local places.

Finance is one of the core pillars of community wealth building, the life blood of our local businesses and crucial when considering the future of our local economies. However, the UK’s banking sector is currently orientated to global markets, not local investment and development and in recent years we have seen a stagnation of lending to local businesses and increasing disconnection from local communities. With a sector that was already not fit for purpose prior to Covid-19, the pandemic has been a reminder of how badly served our local economies are by the financial sector and has resulted in an increasing consciousness of the challenges faced by local businesses trying to operate and compete with larger firms.

Marloes Nicholls of the Finance Innovation Lab and Tony Greenham of South West Mutual joined us to share their thoughts on where we are now, changes to finance through Covid-19 and what we need to do to advance community wealth building by making financial power work for local places.

“problems we are seeing aren’t new, but the pandemic has effectively turbocharged the issues”

Within the session, we heard about four key ways in which the financial system is changing with Covid-19. Broadly, these changes paint a picture of greater economic inequality as a result of the approach taken by the financial sector throughout the pandemic. This has been caused by the combination of a “debt tsunami”, the increasing disconnection between the real economy and financial markets (where there is significant money but no way for communities to access it) and an unaccountable tech revolution in finance (the increasing use of online banking and digital finance and the associated barriers to access this with 20% of the population still relying on cash). The problems we are seeing aren’t new, but the pandemic has effectively turbocharged the issues we were already wrestling with before the emergence of Covid-19.

There are, however, some exciting and promising innovations occurring which seek to address the inequalities which have been deepened by Covid-19. The question of debt, how to get capital into our communities and digital innovation among those “good” players within finance (such as credit unions) are three key areas, which are being addressed by innovative approaches such as:

• Rent flex, an approach to reforming or innovating contracts to give more power to debtors. A pilot of the approach has been run by the Centre for Responsible Credit and Optivo Housing Association, demonstrating significant impact in resulting debt avoidance, payment and improving health and wellbeing.
• Community municipal (investment crowd) bonds. Crowd funding platform Abundance worked recently with West Berkshire and Warrington Council to utilise municipal bonds, where individuals could invest from £5 and subsequently receive a return on their investment.
• NestEgg, which supports credit unions to get online and digitise their processes and has developed new ways of using financial data to improve the way that credit unions assess risk. This enables them to do more responsible lending.

Regional mutual banking also has a significant role in ensuring community wealth building can fulfil its potential in our local places. Regional mutual banks have been shown to play a large role in addressing regional inequalities by reinvesting local savings back into the local economy. As natural partners for small businesses, co-operatives and social enterprises, they can provide loans and banking services which enable them to scale up to supply anchor institutions practicing progressive procurement. Not only this, but in themselves, regional mutual banks are citizen co-operatives, actively progressing the pluralisation of our local economies – profits are distributed back to members and the community, distributing wealth and ownership within our localities. Luckily, we are seeing the development of a network of regional banks (including South West Mutual, Avon Mutual and North West Mutual) with increasing interest from regions across the country – a promising glimpse as to what is on the horizon for local finance.

“Cutting through the discussion was the clear need to connect these financial innovations with practical actions”

Participants had an abundance of questions leading to extensive discussion, ranging from how communities could buy out local businesses which may otherwise be at risk of being purchased by nationals or multinationals, to the potential of mutual banks and local finance in supporting a green recovery. Cutting through the discussion was the clear need to connect these financial innovations with practical actions that can be taken by anchors, ensuring they maximise the potential of their financial power locally. This means thinking beyond procurement to pension investment, providing capital for community businesses and targeting key sectors with municipal bonds and enabling buyouts rather than bail-outs when considering post-Covid recovery and reform.

The overwhelming feeling coming away from this excellent session, was that there is a clear and urgent need to further advance the cause of progressive finance as part of building community wealth. As a pillar that is frequently misunderstood but absolutely vital for our local economies to thrive, it is crucial that moving forward we collectively develop a deeper understanding of both the role of finance and the role different organisations and services can play, alongside utilising and spreading innovations that address inequalities and build community wealth. Now is the time to collaborate like mad, not only across finance, but across the new economic movement, to truly make finance work for people, place and planet.