By Max Clarke

Business and Enterprise Minister Mark Prisk today set out three key measures by the Government to promote support for micro-lending to small business.

Speaking to the Community Development Finance Association (CDFA), Mr Prisk set out reforms to the Enterprise Finance Guarantee scheme (EFG) to support community development finance institutions (CDFIs); announced he is issuing guidance to CDFIs to enable greater use of current support; and directly invited CDFIs to bid to the Regional Growth Fund.

Mr Prisk said that the Government will increase access to the scheme (which guarantees 75 per cent of a loan to small businesses) for CDFIs, which typically make more risky investments than other lenders. From April 2011 the Government will pay out on defaults of up to 20 per cent of each lender’s Enterprise Finance Guarantee (EFG) portfolio on the first £1 million of loans, an increase on the current 13 per cent.

CDFIs have an important role to play in supporting communities. They are typically not-for-profit groups that lend to businesses and individuals that have been turned down by mainstream finance institutions. The CDFA’s Inside Out report released today revealed that last year the industry made 19,000 loans, worth £200m as well as creating and supporting 8,600 jobs and 2,000 businesses.

Mr Prisk is providing guidance to enterprise CDFIs to enable them to take advantage of a little-used aspect of the EFG, which enables banks to lend directly to CDFIs, boosting their loan capacity. Under this scheme CDFIs are exempt from the usual two per cent premium on the loans.

He invited CDFIs to bid for funding from the Regional Growth Fund, which will target regions that are too dependent on the public sector. The Government is also developing a Big Society Bank to support the growth of the social investment market and make it easier for social enterprises and other enterprising civil society organisations, including CDFIs, to access capital. Mr Prisk also invited CDFIs to work with Government as it develops the Big Society Bank.

Mr Prisk said: “I want to encourage people from all backgrounds to start their own business. Community development finance institutions are extremely important in supporting business in communities that need a boost in enterprise and economic growth.

“With changes to the Enterprise Finance Guarantee and our continued work on the Big Society Bank and Regional Growth Fund new opportunities are opening up for CDFIs to increase their loan base. CDFIs are well positioned to make strong bids for RGF support in line with the objectives of the fund.”