Ethical Performance
inside intelligence for responsible business


Tax-free investment in the community

April 2010

As CSR fights the image of a luxury in recessionary times, Community Development Finance Institutions claim to be the best value for money around. Mike Scott speaks to Mike Baker, head of one of the largest

As the financial crisis has unfolded, CSR activities have had to justify their existence to an ever-increasing extent.

However, for companies with UK operations, there is a scheme that allows them to fulfil their CSR objectives, generate positive media coverage and help deprived communities with a minimum of risk – through a little-known initiative called Community Investment Tax Relief (CITR).

CITR is a government scheme to encourage companies to invest in deprived communities, via Community Development Finance Institutions (CDFIs).

Mike Baker, chief executive of The Social Enterprise Loan Fund (TSELF), one of the largest CDFIs, claims the CITR is one of the most cost-effective CSR activities around. ‘Every penny of your investment will be used to lend money to a social enterprise or possibly to a start-up small business in a deprived area. The CDFI will cover its costs from a combination of grant funding and the interest it charges the borrower.’

These government-accredited organizations lend money to businesses and other organisations that cannot raise money from high street banks – CDFIs have to make 75 per cent of their loans to organizations in the poorest 25 per cent of wards in the country.

Investing in a CDFI allows investors to cut their corporation tax bill by five per cent of the loan amount each year, equivalent to a pre-tax return on investment of 7.1 per cent. ‘With interest rates at a historic low there has never been a better time to invest through CITR,’ says Harry Glavan, policy and research manager for the Community Development Finance Association, an umbrella organization for CDFIs. ‘A CDFI is typically looking for individual CITR investments of between £50,000 and £500,000 and the tax relief means there is a good prospect of a better rate of return than can be got for bank deposits at the moment.

‘Plus, the investment is used to create jobs, improve public services and create a better quality of life in our most deprived communities. This ‘double bottom line’ makes investing through CITR a good way of meeting CSR targets and philanthropic goals.’

TSELF’s investments range from Get Hooked, a fishing club that combats anti-social behaviour in young people, to a pre-school centre that needed funds to build its own premises.

Another big player in the sector is Big Issue Invest – founded by Nigel Kershaw, chairman of Big Issue magazine – which has funded organizations ranging from the chef Jamie Oliver’s Fifteen Foundation to Mow & Grow, a gardening business that trains and employs people whose backgrounds mean they have struggled to hold down jobs.

The scheme even gives investors the opportunity to target their cash, says Baker. ‘Even CDFIs with national coverage will be happy to talk about dedicating funding to a particular geographic region or for a specific purpose’, he explains, with associated marketing opportunities. ‘In essence, there is a PR opportunity each time the CDFI makes a new loan using the funds you have provided.’

Money lent under the CITR is for a term of five years, with no repayments for the first two. If required, the CDFI can repay 25 per cent of the money at the end of subsequent years. Tax relief is applicable to the outstanding amount of the loan.

Community Development Finance Institutions | UK & NI Ireland | Community links

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