Business free grant small woman

From Bangladesh to Bolivia, London to Nairobi, people are trying new ways of tackling financial exclusion.

In one of the most disadvantaged areas of London, Helen Awobajo is finally fulfilling her dream of starting a catering business. "My customers are everybody who eats cakes. I have pineapple upside-down cake, carrot cake, coconut cream cakes and flying jet, that's one of my creations . . . all delicious."

The odds against Helen setting up Jet Catering have been formidable. "Initially, as a black woman, where you approach people for finance they are a bit suspicious," she explains. "In our area, for businesses like mine, the first year is so difficult. I couldn't get anywhere. It's like hitting a brick wall."

This area of east London is two miles from the prosperous financial heart of the City. But money does not flow easily across the invisible line between them. The lack of investment in Helen's neighbourhood is visible in high streets and back streets dominated by boarded-up shops, run-down housing, poor facilities and a dearth of small businesses.

Helen Awobajo's luck turned when she came across one of the UK's first community loan funds helping to regenerate disadvantaged neighbourhoods by giving local people and voluntary groups access to finance. "The moment I got in touch with Hackney Business Venture, the loan fund manager was able to help me," she says. Hackney Business Venture provided part of the funding and persuaded one of the high-street banks to co-finance the business. Jet Catering has four employees and Helen's aim is to employ four more by the end of her first year of trading.

Hackney Business Venture is one of a new breed of community finance initiatives. These date back to the 1960s and 1970s, when pioneers in the co-operative sector established the first credit union and the first community loan fund in the UK. There have been state-led initiatives, for example for soft credit and enterprise grants, but these were different. They were market-based and led by the non-governmental sector.

Beyond building societies, four models have emerged of a new mutual approach to finance:

* Credit unions are not-for-profit, co-operative institutions for saving and borrowing, where members with a common bond save in the form of shares which are then re-lent to members. Four hundred thousand people now benefit from the services of more than 700 credit unions in the UK.

* Community loan funds serve regeneration initiatives by making capital available. Loans are often co-ordinated with or used to lever other sources of capital as well as subsidy.

* Micro-finance funds make very small loans to micro-entrepreneurs, typically working as sole traders, or in business with family and friends.

* Mutual guarantee societies are formal associations of small and medium-sized enterprises who pool their savings to win better terms from banks. Eight mutual guarantee societies have started in the UK.

Each of these has innovated in the way they deliver financial services, for example using a non-profit, self-help or mutual orientation to lower transaction costs and reduce risk. Many operate as partnerships, allowing private sector companies to contribute financial skills and capital.

There is a long history of mutuality in financial services. Municipal banks in France and the Netherlands date back to the example of an Italian monk who founded the Monte-di-pieta in 1462 to fight usury. Lending to small farmers and artisans was core to the mutualist movements in France and Germany inspired by Proudhon and Raiffeisen. The first building society in England predated the publication of Adam Smith's Wealth of Nations.

In each case mutuality has been used by social movements excluded from economic opportunity. Early credit unions in Ireland, for example, were pioneered by women in the face of social and financial discrimination. Today's mutuality reflects the more complex and fractured ideologies of social change. For some, such as the Rebuilding Society Network, an emerging alliance of community loan funds, mutualism is a core objective. Finance is not an end in itself but another way of enabling communities to organise. For others, mutuality is a tool to be used where the occasion suits.

There are three levels of mutuality demonstrated among these new initiatives: mutual ownership - such as credit unions and some community loan funds; mutual methods - including peer lending, for example by a proposed new micro-finance initiative, Street UK; and mutual partnership - such as the Local Investment Fund, set up as a partnership of public, private and community sectors.

Some initiatives may operate at more than one level. Triodos Bank, a private social bank, has pioneered the use of group guarantee schemes, for example to underwrite financing for village shops. Lloyds TSB is supporting a proposed industry-backed National Credit Union Development Fund.

The New Economics Foundation has recently been working with VanCity, the world's second largest credit union, in Vancouver. VanCity confronted the challenge that sank the former building societies in the UK: how do you make large-scale mutual ownership meaningful to members? VanCity's hugely successful answer has been to reintroduce mutual methods. One such is "peer lending" (a form pioneered by the Grameen Bank in Bangladesh), in which the credit union lends money not to an individual but a group, which agrees to take collective responsibility for each member's borrowings and repayments. Another example is social audit: VanCity reports on the impact of its operations not just for its own members but a wider constituency including local communities, regulators and staff.

In northern Italy there are thousands of mutual guarantee societies, which in essence operate as credit unions for small businesses. And this is not just an industrialised country phenomenon. Micro-finance institutions in the developing world have lent more than $8 billion. The most celebrated case is Grameen Bank, but examples range from Bank Rakyat Indonesia to K-Rep in Kenya to Banco Sol in Bolivia, and cover anything from small savings and credit groups of, say, 20 women, to large commercial banks.

The rationale for policy action is that these initiatives are furthering public policy goals, such as employment creation, social inclusion or environmental sustainability. Rather than rely on a dependency-creating public grants regime, they offer the prospect of a more sustainable financial infrastructure for community action.

In the United States, legislation has gone further and has aided efforts to establish 310 community finance initiatives which control capital of more than $6.5 billion for community economic ventures. The Community Reinvestment Act 1977 is the centrepiece of community reinvestment legislation. It states that banks have an obligation to meet the credit needs of communities they are supposed to serve. These obligations are assessed by regulators on evidence submitted in a mandatory annual report. Since 1990 the ratings of the regulators on performance have been publicly available, and each lender must provide a narrative summary alongside the rating and the regulators' evaluation and commentary on its performance. More recent amendments in 1996 further streamline the reporting process.

So far, the UK government has ruled out the stick of a community reinvestment act, but has started to consider carrots for banks to get involved. In doing so, it is learning the policy ropes on how to enable new mutuals to emerge. State policy initiatives can drown self-help and mutual aid. But equally, mutual aid cannot succeed spontaneously at the scale required to tackle social problems such as financial exclusion.

The jury is out on whether the government yet understands how to achieve this balance. The best bet in the long term will be the creation of a more mutual approach to government itself, in part through local and regional decentralisation.

RELATED ARTICLE: CASE STUDY 4: WELLPARK MICRO-CREDIT

An offshoot of the Wellpark Enterprise Centre in Glasgow, this commercial enterprise claims to be the first venture in Europe to cater specifically for women's business needs. The centre was founded in 1996 by a team of professional local women; the micro-credit project started up a year ago. Its intention is to create and aid small co-operative networks of women, each of whom is launching her own business.

Each group's four to six members can jointly plan, save, apply for funds and provide mutual support. The groups are offered supervision by the project's co-ordinator, and given access to the centre's facilities.