Some people, to put it simply, have it harder than others. Not everyone is born in a wealthy family, a working mother and father that can lend a financial hand and not everyone has the job they want.
Because of this, some people are in a better financial situation, while others have it way worse. No one deserves to live in poverty, although a lot of people do.
Not everyone can afford the things they want, but some can’t even afford basics. It is because of specifically these reasons as to why community finance exists.
Although very few words are said about it, we’re going to try and explain everything there is to it.
What is Community Finance?
Community finance allows people the chance of affordable financial services. Financial services can include anything from loans, management support, savings, and it accounts for both individuals and organizations.
The main use of this service is to provide individuals and homeowners with the much needed financial relief to get their lives back on track. This service is used so that the recipient can enjoy some economic benefits that will improve his/her financial and social situation.
The social finance sector is surrounded by this service, and it’s used heavily by individuals to deliver economic freedom.
Community finance offers its services to a few recipients. These could be individuals, organizations, businesses, etc. There are predominantly four of these recipients, and they include:
Businesses and Individuals
Every business or institution that cannot secure a bank loan for resuming business operations can benefit from these services. Most of these establishments find it difficult for mainstream commercial relief streams to approve a financial loan, so community finance can come in and help out such businesses in disadvantaged communities.
Civil Society Organizations, or CSO’s, can also benefit from community finance services. The main thing to note here is that such establishments focus on social or environmental impact, and making such objectives improve people’s lives. These establishments mostly include charities, voluntary organizations, and enterprises of social types.
The third type of recipient is any individual that finds it difficult, or unable, to access any affordable financial service. This can include anything from a short-term loan with favorable terms, any long-term loan, low-value credit, etc. The most characteristic thing regarding individual community finance is that the individual has mostly fluctuating income.
The last eligible recipient of community finance is the homeowner. A home is considered a necessity, and it must be in top shape. So, this service helps our homeowners in dire need of home repairs, but cannot secure a commercial loan to carry out those repairs. Any adaptations or improvements to the property are also included as the cause for raising such services.
These are the four recipients of such services. However, community finance recognizes two distinct types that sit in the middle of the social finance sector. Both types are equally responsible for delivering the before-mentioned recipients an affordable financial service, and those include:
An acronym for Community Development Finance Institutions, CDFIs are responsible for providing recipients basic economic help. This can include anything from a simple loan to financial support, training and advice, mentoring for businesses, institutions, and individuals.
CDFIs focus around any single individual or organization that is in dire financial state, has trouble accessing the financial service sector, and wants to contribute towards the economy, says Eyal Nachum here.
You might associate credit unions with banks, but this is far from the case. Credit unions operate through self-help. This means that these establishments accept members that also run and operate the union. Also, credit unions offer their services solely to their members, hence the self-help type of operating
The main difference between a bank and a credit union is that banks distribute profits between stakeholders, while credit unions between members. This simple, yet highly effective, way of operating makes sure that money stays in our communities and in the hands of members.
Why Is the Need for Community Finance?
Every market offers the buyers a unique choice. If the buyer is in a good financial state, then the business will also profit. If there is no one to buy your product, you will soon join the ranks of those in a poor financial state.
However, economics is all about having a large number of sellers and an even larger number of buyers. That way, the buyers outnumber the sellers and create a diverse market where each seller can reap the rewards. If there are too many sellers but not enough buyers, chances are a large number of the sellers will go bust.
The thing with community finance is to elevate the buyer so that the seller can enjoy financial success. This can only be achieved if the customer is informed and can compare prices, but also if the government is out of the market and doesn’t create barriers for new businesses.
However, judging by our current situation, this isn’t the case as we explained it above. People have a difficult time accessing information regarding credit options, too many people are in poverty, the markets are very limited in terms of competition, and the government interferes way too often and in a large scale.
One thing that we have in abundance is payday loaners. They operate because the government makes it hard for the individual to enjoy financial success. Since the government and banks shake hands on the topic credit, the banks can dictate the cost for it making it very difficult for the individual to pay it off.
And while SMEs have it somewhat better than social organizations, enterprises, and workers, it’s still not enough as the latter-mentioned weigh down the economy.
You might find it difficult to access these services, and we’re going to tell you how. By simply doing a Google search you can discover your options with both CDFIs and credit unions. With a lot of startups and businesses hoping to eliminate traditional barriers of such services, we’re on an even better path towards relieving people of financial strains.