Co-operative & Community Finance: A mature lender with an eye to the future

Co-operatives often have difficulty raising capital, but finance is available for viable businesses, even when banks say no. Co-operative & Community Finance, which is 40 this year, brings...

Co-operatives often have difficulty raising capital, but finance is available for viable businesses, even when banks say no. Co-operative & Community Finance, which is 40 this year, brings an array of options under one roof.

It has over £4m of its own capital to support new or expanding member organisations, employee buyouts and communities purchasing assets. And by co-investing with other lenders like Baxendale Ownership and Big Issue Invest, it maximises its power and spreads the risk.

CCF manages other funds too. There is the Co- operative Loan Fund, which lent £300,000 to 14 co-ops in 2012. It also runs a number of local authority funds and co-manages London Development Agency’s £1.8m growth fund with London Rebuilding Society.

Roger Sawtell, co-founder of the Industrial Common Ownership Fund, the precursor to CCF, remembers the early days. “Workers co-ops have a problem raising capital,” he says. “Their democratic model doesn’t allow for investment by outside shareholders.

“There was an urgent need for a revolving loan fund. We set up ICOF in 1973 with £5,000 from Scott Bader, £5,000 from an individual and several smaller donations.”

In 1976 ICOF came into its own. The Industrial Common Ownership Act granted it £250,000 for a revolving fund. “Loan finance was just what was needed,” says Mr Sawtell. “ICOF was doing something very practical to contribute to what was then a rapid growth in co-ops.”

That £250,000 weathered a series of recessions over 20 years. CCF’s Investment Manager Ian Taylor says: “Initially we were mostly concerned with common

ownership co-operatives. We had close links with the Industrial Common Ownership Movement. We were creating demand and it became clear that we needed more funds.”

In 1987 it launched ICO Fund plc, a subsidiary which raises capital by public share issue. People concerned for their communities embraced it, and in 1997 the 10-year redeemable share fund grew to £1.1m. In 2007 it raised £1.3m. ICO Fund, which has now lent over £4m to over 100 democratically owned businesses, relaunches in 2017. CCF grew again in 1994. It set up ICOF Community Capital, to support community businesses unable to access conventional finance.

An industrial and provident society, this fund offers membership shares to individuals and organisations; an ethical investment with a priority for people rather than profit. The minimum investment is £250 and the maximum is £20,000, although co-operatives can invest more.

Some 65 per cent of Community Capital investors have waived their right to interest or dividends. This money goes instead to a separate guarantee company, which helps cover capital losses from Community Capital and ICO Fund.

In 2012 CCF added Community Shares ICOF to the group, so that it could invest in share issues for community-owned enterprises like pubs, shops and energy schemes.

CCF Chair Jo White explains: “We decided that we could best support community share issues by investment rather than loans, even though this is different to our core business.”

Aided by a large grant from the Co-operative Group, Community Shares can underwrite share issues and, where money is needed quickly, provide finance before the community reaches its funding target.

For investors who prefer to buy shares through monthly subscriptions, Community Shares offers funds up front, ensuring those who cannot afford a single payment are not excluded. Mr Taylor says CCF helps co-operatives raise capital while remaining democratic. “Our reason for being is to support co-ops and develop the co-operative, employee owned and community sectors,” he says. “We don’t lend to anyone else. It’s our niche market. “We look at the structures of those that are applying very carefully and measure their rules and governance against the seven co-operative principles. In an application we’re looking for co-operative and commercial viability.”

CCF offers some pre-investment advice, but refers prospective borrowers to the Co-operative Enterprise Hub and other specialists like Plunkett Foundation, Co-operatives UK, Baxendale Ownership and co- operative development bodies. Mr Taylor says: “We don’t rely on our own advice, otherwise in due diligence we’d be assessing ourselves.”

The co-op has come a long way in 40 years, but what is next? Mr Taylor expects community share issues to increase in number and ambition over the coming years, partly due to the Government’s Community Ownership of Assets and Community Right to Challenge programmes.

More capital will be needed to support them, he says. “Community Shares has £1.3m and other retail societies waiting in the wings,” he says, “but it would be good to have more people investing in Community Capital.”

Ms White, who is Executive Director of Co-operative Futures and sits on the Co-operatives UK board as well as chairing CCF, adds: “There’s increasing recognition that we need to build up the middle band of co-ops – those with £5-10m turnover.

“There’s lots of small co-ops and a few very big ones. CCF needs to help bridge that gap, by helping smaller co-ops grow and new medium sized co-ops start up. Forty years is a magnificent achievement,” she adds. “The board is mostly made up of people who have borrowed. This keeps us on track and makes us better lenders.”

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