A regulatory framework for community development financial institutions
| Published date | 01 February 2001 |
| Date | 01 February 2001 |
| Pages | 111-123 |
| DOI | https://doi.org/10.1108/eb025067 |
| Author | Andy Mullineux,Ed Mayo |
| Subject Matter | Accounting & finance |
Journal
of
Financial Regulation
and
Compliance
Volume
9
Number
2
A regulatory framework for community
development financial institutions
Andy Mullineux and Ed Mayo
Received (in revised form): 26th January 2001
The
University
of
Birmingham,
Department
of
Economics,
School
of
Social
Sciences,
Edgbaston,
Birmingham
B15 2TT; tel: 0121 414 6640; fax: 0121 414
7377
Andy Mullineux is Professor of Global
Finance in the Department of Accounting
and Finance in the Birmingham Business
School at the University of Birmingham.
He has published extensively on financial
sector restructuring and regulatory and
supervisory reform in various countries
and regions, including Central and Eastern
Europe and East and South-East Asia.
Ed Mayo is Executive Director of the New
Economics Foundation (NEF) and Chair of
the London Rebuilding Society Network, a
practising community development finan-
cial institution. He has led research
under-
taken by the NEF for the government's
Social Investment Taskforce and has
served as an advisor to the Treasury on
financial and social exclusion.
ABSTRACT
This paper reviews the current
regulatory
fra-
mework for community development financial
institutions (CDFIs), which aim to enable
'socially excluded' people and enterprises to
access
finance. Its focus is primarily on the
UK, though account is taken of developments
in other EU member countries and at the EU
level. In the UK the most developed
regulations
relate to industrial and provident societies,
which are essentially financial cooperatives
lending to small enterprises and not for profit
organisations, and credit unions, which tend to
concentrate on personal savings and finance.
CDFIs lie on the boundary of what is currently
understood
to be
charitable
status, but the Char-
ity Commission announced a new charitable
purpose, 'community capacity building', in
December 2000 and committed to developing
clear guidelines on the charitability of CDFIs
by the end of
2001.
Current regulatory
arrange-
ments are assessed and it is found that, apart
from credit unions, which have been brought
under the supervisory wing of the Financial
Services Authority, CDFIs tend to operate in a
context of 'benign neglect'. While recognising
that heavy-handed regulation might stifle
growth, it is argued that the downside of
neglect
could be uncertainty, which might also blight
the development of the sector. An alternative,
relatively liberal,
regulatory
framework is pro-
posed,
including
self-regulation
for the smaller
institutions via
associations.
It is
concluded
that
the type of regulation should vary with the
size, status (mutual vs non mutual), and
source
of finance (deposits vs risk capital).
INTRODUCTION
Perhaps as significant as any event in the
life of an organisation is the choice of legal
and regulatory status. The nature of that
choice can determine whether it starts
operating, how it operates and whether it
succeeds. Community development finan-
cial institutions (CDFIs) promote social
benefit by enabling 'excluded' people and
enterprises to access finance. Examples
include micro-finance funds, which have
Journal of Financial Regulation
and Compliance, Vol. 9, No. 2,
2001,
pp. 111-123
© Henry Stewart Publications,
1358-1988
Page
111
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