EMCC European Monitoring Centre on Change
Street UK, United Kingdom
Street UK is a non-profit organisation specialising in the provision of a range of financial services for those who cannot access mainstream credit and banking services. These services include not only the provision of loans but also of business advice and support, enabling micro-enterprises and self-employed people to make the transition from undeclared work into the declared economy.
Street UK is a non-profit organisation specialising in the provision of a range of financial services for those who cannot access mainstream credit and banking services. Operations are supported by charitable and governmental donations, while its loan book is funded by loans from commercial banks and community bonds. The initiative was launched in 2000 and is still ongoing.
This relatively small-scale community development finance initiative (CDFI) aims to provide loans, support and advice to help micro-enterprises and self-employed people formalise their business and make the transition from largely cash-based enterprises to legitimate businesses. Its clients fall into two main categories and broadly encompass low-income groups as well as self-employed and unemployed people. On the one hand, the clients include people claiming benefits, such as disability benefits. On the other hand, they include those not claiming benefits but who are either not declaring or under-declaring income from their business activity. Street UK’s approach is to provide these people or enterprises with the tools necessary to make the transition into the formal economy. The activities of this organisation cover three areas: providing tailored financial services and business development support tools; offering a back-office loan administration and system support service for other community loan funds; and undertaking research, policy recommendation and advocacy work.
Street UK’s mission is to provide a range of specialised financial services to Britain’s population of financially excluded individuals and the communities in which they live and work. These services include not only the provision of loans but also of business advice and support, enabling micro-enterprises and self-employed people to make the transition from undeclared work into the declared economy.
The specific measures which Street UK pursues include the following:
- providing a loan service to financially excluded individuals;
- offering a micro-enterprise development advice and support service. Since Street UK clients include a wide variety of people at different stages of development of their enterprises, the approach is to monitor the progression of clients in each of the following 12 areas:
- moving from part-time to full-time work
- moving from home to business premises
- keeping basic-level records
- keeping higher-level accounts
- purchasing public liability and employers’ liability insurance
- hiring employees on a pay-as-you-earn (PAYE) income tax basis
- using a bank account for their business transactions and/or opening a separate business bank account
- obtaining the required licences and permits to operate the business – for example, health and safety inspection certificates, a driver instructor licence
- graduating of all non-work benefits
- graduating from majority cash revenue to majority invoiced revenue
- incurring formal business tax liability
- registering for value-added tax (VAT).
Street UK tries to ensure that in any 12-month period, at least three of these steps are taken with each client, although the order in which they are taken is tailored to the specific business. The intention is to ensure that clients can move along the continuum towards becoming legitimate enterprises.
It also provides the following two services:
- a back-office loan administration and system support service for other community loan funds;
- research, policy recommendation and advocacy work, especially with regard to the development of business support and offering advice to micro-enterprises to help them make the transition to the declared realm.
Evaluation and outcome
This evaluation is based on the analyses of Copisaraow (2004) and Copisarow and Barbour (2004).
Achievement of objectives
Provision of loans to financially excluded individuals
In its first three years of operation, Street UK distributed 259 loans worth a total of £606,000 (about €812,887 as at 5 February 2008), with the average loan amounting to about £2,300 (€3,085). By March 2004, the scheme had just over 100 clients, with many borrowers taking successive incremental loans. Loan repayment rates range from between 12% and 26% (Copisarow, 2004). By 2007, it had lent over £1.5 million (about €2.01 million) to individuals, who borrowed an average of £600 (€805) each.
Provision of advice and support to micro-enterprises
Incorporated into its lending activity, Street UK also provides budgeting and debt advice and ongoing support to its clients. This assistance has been provided to well over 1,000 clients, most of whom are ‘one-person’ businesses run by sole traders; many of these have been operating on a wholly or partially undeclared basis.
Providing a back-office loan administration and system support service for other community loan funds
Street UK has also successfully provided back-office loan administration and system support for 20 other community loan funds.
Research, policy recommendation and advocacy work
In relation to the issue of undeclared work, Street UK has called for greater recognition of the fact that people engaged in undeclared work represent a hidden enterprise culture, which needs to be actively supported to make the transition into the declared economy. To date, the organisation has had limited impact on national government policy.
Obstacles and problems
In order to achieve a high-impact, sustainable micro-finance organisation, three key components are required: high loan volume to achieve economies of scale; high loan repayment rates; and low transaction costs.
Street UK has found it difficult to achieve high loan volume, making only 259 loans in its first three years of trading.
Loan repayment rates have also had to be revised by up to 8%–10% because:
- the loan officer calibre and relationship with their clients is not strong enough to overcome most clients’ lack of financial literacy and cash-flow management skills;
- the client ‘empowerment’ factor, which derives from being given tailored support to formalise their business, is greatly weakened by the supply of alternative initially attractive services;
- transaction costs, particularly time taken travelling between branches and fundraising, have been higher than expected.
The low volume of loans and high transaction costs incurred has resulted in Street UK shifting its business model from a national to a regional (West Midlands) scale. At the same time, it has diversified into providing a ‘back office’ loan administration service for other community loan funds, which is now providing a significant proportion of its trading income.
To date, some 1,000 clients have been assisted in taking steps towards formalisation. The majority of these clients are sole traders operating cash-based micro-enterprises,
It is estimated that for every four loans, one new full-time job is created by the initiative’s clients, while 1.25 full-time jobs are protected with every two loans. Given that the average loan size is currently £3,064 (€4,110), this suggests that for every £12,256 (€16,443) given in loans, one new full-time job is created and 2.5 full-time jobs are secured.
Moreover, for every 10 businesses to which loans have been made, four businesses (40%) – which would very likely have been liquidated within the subsequent 12 months – have been safeguarded. At the same time, the same proportion of businesses – which would very likely not have been liquidated within the subsequent 12 months – have been helped to grow and create new jobs. On average, 2.5 new jobs have been created by these ‘growth’ businesses since they first became clients of Street UK.
The idea of providing loans, support and advice to businesses currently operating wholly or partially on an undeclared basis, to help them make the transition into the declared economy, has been widely discussed in recent years. The business model of this particular CDFI is transferable to many other countries.
Street UK is similar to many other CDFIs, or what are sometimes referred to as micro-enterprise development programmes (MDPs). However, two distinguishing features of this initiative are: firstly, its explicit recognition that many micro-enterprises are operating on an undeclared basis; and secondly, its focus on providing intensive and tailored advice and support to help enterprises make a smooth transition into the declared economy.
Main organisation responsible: Street UK, Studio 12, Style Works, 5–54 St Paul’s Square, Birmingham B3 1QS, United Kingdom.
Tel: +44 (0)121 230 1060.
Copisarow, R., Street UK – A micro-finance organisation: Lessons learned from its first three years’ operations, Birmingham, Street UK, 2004.
Copisarow, R. and Barbour, A., Self-employed people in the informal economy: Cheats or contributors?, London, Community Links, 2004.
Williams, C.C., ‘Harnessing the hidden enterprise culture: The Street UK community development finance initiative’, Local Economy, Vol. 21, No.1, 2006, pp. 13–24.
Colin C. Williams