What is a CDFI?

CommunityEconomic

As part of our mission to educate and inform, this blog aims to shed light on what a CDFI is, the ethical finance they offer, how they operate, and why they are vital to the communities they serve. 

SWIG Finance is one of the UK’s leading Community Development Finance Institutions (CDFI) and supports small and medium enterprises (SMEs) across the South and West Country of England. Committed to fostering economic growth and financial inclusion, SWIG Finance has empowered thousands of smaller businesses that traditional banks often overlook.
 

What is a CDFI? 

A Community Development Finance Institution (CDFI) is a financial organisation dedicated to providing responsible and ethical finance to individuals and businesses that struggle to access support from mainstream banks and other lenders. Unlike traditional financial institutions, CDFIs focus on the potential of their clients and the benefits they generate in their local communities, rather than just their financial history or collateral. This human-centred approach ensures that every borrower is seen as more than just a set of numbers. 

In the UK, a network of CDFIs operates across the country, filling the gap left by conventional lenders. While in the USA, CDFIs are often subsidised by banks, in the UK, they rely on a mix of ethical funding sources and repayable investment to offer their services. SWIG Finance, as part of this network, specialises in providing ethical finance via enterprise loans, supporting businesses from start-ups to established SMEs looking to grow. 

CDFIs can generally be categorised into two types: Personal and Enterprise. Personal CDFIs provide small, affordable loans to individuals and families who can’t access mainstream credit but can afford to repay a loan, helping them with essential needs such as household goods or short-term financial challenges. Enterprise CDFIs, like SWIG Finance, focus on providing loans to businesses and social enterprises, enabling them to expand, hire more staff, and contribute to the local economy. 

Theodora Hadjimichael, chief executive of Responsible Finance which represents CDFIs in the UK, said: “Community Development Finance Institutions (CDFIs) invest into underserved places and people, unlocking potential for businesses, social enterprises and households. For economic growth to happen, we need lenders like SWIG Finance, who get to know businesses and understand people’s lives, make fair lending decisions that take these into account, and offer affordable finance.”

SWIG Finance Team
 

How Do CDFIs Work? 

CDFIs operate on principles of ethical lending, transparency, and social responsibility. Unlike some alternative lenders, CDFIs like SWIG Finance do not rely solely on algorithms to make lending decisions. Instead, they take a relationship-based approach, where decisions are made by people who understand the nuances of each business’s potential and challenges. 

Funding for CDFIs typically comes from ethical sources, and these institutions adhere to a charter that ensures their operations are responsible and community-focused. For example, SWIG Finance sources capital from partners like the British Business Bank and Triodos Bank, ensuring that the funds they lend are aligned with their ethical framework. 

As people-based lenders, CDFIs like SWIG Finance support their customers throughout the loan journey. From the application process to post-loan support, borrowers have access to a dedicated relationship manager who will take time to understand their unique needs and help them navigate any challenges they may face. 

Importance of Ethical Finance & CDFIs 

CDFIs play a crucial role in promoting financial inclusion, particularly in underserved communities. By providing vital access to ethical finance, they bridge the gap between mainstream banking and those who need support the most. 

One of the most significant benefits of CDFIs is their focus on social impact. Every loan delivered by SWIG Finance, for example, has a ripple effect, benefiting not only the borrower but also the wider community. This is evident in the creation of jobs, the support of local supply chains, and the overall economic empowerment of the regions they serve. 

CDFIs like SWIG Finance are concerned with the triple bottom line—caring about people, the planet, and profit. As not-for-profit distributing entities, any surplus generated is reinvested back into the business to improve services and reach more people. This approach ensures that the benefits of their work are felt long after the loan has been repaid. 

Financial inclusion is another critical aspect of CDFIs’ work. By filling the gap left by mainstream lenders, CDFIs make the financial ecosystem more inclusive. Many businesses that start with a CDFI loan go on to become banks’ customers, raising capital through other means and achieving long-term success. 

Success Stories: Making an Impact 

At SWIG Finance, our impact is best illustrated through the success stories of the businesses we support. These examples showcase the tangible difference that CDFIs can make in the lives of entrepreneurs and their communities. 

Fishy Filaments 

One of the standout success stories is Fishy Filaments, an innovative company based in Cornwall. Fishy Filaments recycles end-of-life nylon gillnets from the fishing industry into materials for 3D printing and advanced manufacturing. With the support of SWIG Finance, the company was able to invest in new equipment, increase production capacity, and hire additional staff. This not only enhanced their business operations but also contributed to reducing marine pollution—a critical environmental challenge. The funding from SWIG Finance was instrumental in enabling Fishy Filaments to scale their operations and increase their positive impact on both the environment and the local economy. 

Since receiving the funding, Fishy Filaments has gone on to undertake a successful crowdfunding campaign, raising £100k from investors all over the globe.

Find out more about how we supported Fishy Filaments here.

Ian Falconer, Founder of Fishy Filaments

TrueStart Coffee 

Another inspiring success story is TrueStart Coffee, a Bristol-based company founded by Helena and Simon Hills. TrueStart Coffee is on a mission to create a delicious and healthy coffee brand with consistent caffeine content. However, to realise their growth potential, they needed capital to increase their inventory and expand their team. SWIG Finance provided the necessary funding, enabling TrueStart Coffee to secure new retail opportunities and strengthen their market presence.  

This support not only facilitated the company’s growth but also helped them create jobs and contribute to the local economy, further highlighting the critical role of CDFIs in supporting small businesses. 

Read the full Truestart Coffee case study here.

Nicola Parker, SWIG Finance with Helena & Simon Hills, Founders of TrueStart

Conclusion 

Community Development Finance Institutions like SWIG Finance are essential for the health and vitality of our local economies. By providing responsible, inclusive and ethical finance options, CDFIs empower businesses to grow, create jobs, and contribute positively to their communities. In a challenging financial landscape, where traditional lenders may turn away those without a proven track record, CDFIs step in to provide the necessary support for success. 

If you’re a small business struggling to secure funding from traditional sources, consider the benefits of working with a CDFI like SWIG Finance. Download our 2023-2024 Impact Report to learn more about our work and the impact we’re making or get in touch through our website to find out how we can support your business journey. 

Download the full report here and discover how SWIG Finance can help your business grow and thrive. For more information, contact our team at info@swigfinance.co.uk or call us on 01872 227 930.

 

 

What is a CDFI?