Ian Pearson MP

MICROFINANCE CONFERENCE

Access to finance is not just an Indian problem. Businesses and financial institutions around the world are having to look at ways to meet long and short term funding needs. Governments are playing their part too in supporting enterprise, be they start ups, going concerns or larger businesses.

My own experience backs this up. As a businessman I have had first hand experience of the challenges of finance. Before entering Parliament I ran an economic development company which provided development capital to small and medium sized companies. I was closely involved in the hopes and plans of these companies to grow and develop. Many of these ambitions were dependent on finding the right source of finance.

My own constituency in Dudley South, near Birmingham, presents another good example. Around 30 per cent of people in employment in my constituency work in engineering or a related profession. At a time when the British economy is increasingly service sector driven, my area has one of the highest rates of employment in manufacturing in the country. Britain still needs a vibrant and successful manufacturing sector as the bedrock of our strong economy.

So companies have to improve continually, updating technology and skills to be competitive. And that means investing in equipment and in staff, which means finding the right mix of finance. The situation in Britain may not be directly comparable to the situation faced by many small and micro-businesses in India. But the theme of access to finance at a fair rate is common to all business people wherever they are in the world.

My current role as Minister for Trade means that I mostly focus on international trade and investment. In the past I would have said that micro finance and small business had no role in international commerce. The internet and the way global supply chains now work means the businesses of all sizes have international opportunities. The Department of Trade and Industry, where I am a Minister, has a long tradition of innovation, not just micro-credit but a range of initiatives. Let me give you a few examples.

Beneath the headline figures of British economic success, there remain differences between and within UK regions; in their ability to develop local enterprise; in the rates of male and female entrepreneurship; and perhaps most significantly in the level of entrepreneurial activity between different minority groups.

The Phoenix Fund aims to help overcome the difficulties faced by people in disadvantaged areas or under-represented groups in getting the business support or finance they need to start or run their own business. It also seeks to develop models of good practice which can be implemented more widely, including by mainstream services.

To ensure that opportunities for enterprise should be open to all, particularly to those in disadvantaged areas, the Community Development Venture Fund was set up in 2002. As well as ensuring access to finance for those who may otherwise be excluded, the Fund demonstrates to investors that commercially attractive returns can still be achieved when investing in disadvantaged areas.

This is particularly important as traditional bank finance such as overdrafts and short term loans remains the most important source of external finance for small businesses. Businesses need longer term funds to fund growth.

The Small Firms Loan Guarantee scheme has been running since 1981. It was set up to make it possible for small businesses that cannot offer collateral asset to secure borrowing. With a viable business proposal and with the endorsement of a commercial bank, new and existing small businesses can borrow money from approved lenders. Since it was set up the scheme has guaranteed almost one hundred thousand loans to British business at a value of over £4.2 billion. The scheme is still very active and currently guarantees around 650 loans a month, and we are keen to encourage even more lenders to take part in this programme.

One of the most exciting developments of recent years in the UK has been the huge growth in Social Enterprises. There are businesses whose primary purpose is social, and whose surpluses are principally reinvested back into the business or in the community, rather than maximising profits for their owners or shareholders.

The benefits of social enterprise are already being felt widely in Britain. Their innovative approach: drives up productivity and competitiveness; contributes to socially inclusive wealth creation; helps individuals and communities to regenerate their local neighbourhoods; shows new ways to deliver public services; and helps to develop an inclusive society and active citizenship

For our part the British Government has created a new legal form available to social enterprise, the Community Interest Company, to allow them to compete with mainstream businesses without being disadvantaged by their not for profit and social objectives.

2005 is the UN’s year of micro-credit. It is also the year when the British Government has put poverty firmly on the international agenda. The G8 Summit in Gleneagles, Scotland, which the Prime Minister Manmohan Singh also attended, made huge progress in debt relief for Africa. The underlying driver is poverty alleviation, wherever in the world it occurs. Government can do a lot. But so can an environment which actively encourages economic development. And, as I’ve said, access to finance is key to achieving this, regardless of whether the company is a sole trader or a multinational corporation. And that is what Standard Chartered had in mind when they asked me to speak about “Financing the missing middle”.

There is a common belief that you shouldn’t go to a banker when you need money. That’s the time when they won’t lend you money. Sort of perverse, but that’s the reality for many. When you have lots of money and don’t need them except as a depository for safe keeping, that’s when many bankers will be on your doorstep asking to be your supplier of choice to borrow money.

It was Mark Twain who said:

“A banker is one who lends you him umbrella when the sun is shining, but wants it back the minute it starts to rain.”

By sponsoring today’s event Standard Chartered is showing that it is obviously a more enlightened institution. And I commend you for supporting this initiative on micro credit.

I hope that today’s discussions will add to the understanding of micro-credit as a contributor to fighting poverty. I also hope some of the models we’ve adopted in the UK will provoke some thought and discussion among you here today. I also look forward to seeing the outcomes from the Conference when they are published.