Capitalisation

RSN's programme for capitalisation includes:-

• Share Issues

  As an Industrial and Provident Society RSN assists Community Banking Partnerships and other mutual organisations to raise capital through share issues. RSN is working with the Robert Owen Community Banking Partnership to develop local ethical investment products. It also works with the Robert Owen Community Banking Fund under the Welsh Assembly’s Strategic Action Plan for supporting the development of social enterprise loan finance.

• Secondary capital

  These are long term subordinated loans that are accepted by the FSA as equity-equivalent funds. Community Development Credit Unions in the USA need these funds to keep their ratios of capital held in permanent reserve at a level of at least 5% or more. In Britain ratios above 7% enable credit unions to secure broader lending powers from the FSA. NFCDCU provide CDCUs with secondary capital typically on 7 year terms at a low rate of interest.

• PRIDEs (Predatory Relief and Intervention Deposits)

  These are a form of specialised guarantee funds used by Community Development Credit Unions in the USA to limit their loss exposure when making high risk/high transaction cost loans to displace predatory lenders. RSN intends to secure such funds from banks, Government or policy related investors, which it will then on-lend. In the US, the National Federation of Community Development Credit Unions invests such funds at 3.5% to assist CDCUs to make ‘predatory alternative loans’. A typical PRIDE operates for a two-year term at fixed rates, currently near this level. Typically the guarantee provided is 25% but it can be as high as 40%. PRIDEs need testing prior to the completion of the Growth Fund to enable access to ongoing forms of low cost capital once the grant capital from Government disappears. Lessons should be learned here from the experience of the Phoenix Fund, as the transition planning was less than adequate.

• Revolving Loan Fund

  RSN is also establishing a specialist loan fund to assist from time to time Community Banking Partnerships with the need for access to short term capital. Development of this service relies on partnership with policy related investment supporters of Community Banking Partnerships, including charitable trusts and banks. CITR tax credits and EIS (Enterprise Investment Scheme) tax relief on ‘withdrawable share capital’ will be attracted in due course as this service develops.