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The RSA has a bit of a soft spot for the West Midlands, what with our Academy, lots of interesting local Fellows, and Matthew's abiding obsession with West Bromwich Albion.

The RSA has a bit of a soft spot for the West Midlands, what with our Academy, lots of interesting local Fellows, and Matthew's abiding obsession with West Bromwich Albion.

So it felt natural to go along and celebrate another West Midlands success story yesterday afternoon.

In the hushed and Hogwarty splendour of the House of Commons (I know it's uncool to admit it but that building always gives me a thrill) there was a gathering of entrepreneurs, economists, analysts, policymakers and civil servants, hosted by a local MP, Margot James. We had all gathered to learn about how one enterprising group of Black Country business leaders had found a successful way to provide much needed lending to local micro and small businesses.

Set up in 2002, the Black Country Reinvestment Society (BCRS) provides an interesting alternative route to SME funding that seems to be getting people's attention, certainly if the presence of some senior politicos is anything to go by.

In essence they help to plug a gap created by the contraction of bank lending to the smallest (and therefore riskiest) end of the business spectrum. It's much needed because micro businesses - i.e. with a turnover between £50k and £1m - represent 90% of the UK's companies and the vast majority of private sector jobs. Any talk of a private sector recovery has to be backed up by practical ways to finance this part of the economy, and the entrepreneurial capacity it represents.

BCRS are based on a mutual, CDFI (Community Development Finance Initiative) model in which the resilience and growth of the recipient's business is the goal of the fund, rather than the return on the investment, which is pumped back into the fund and reinvested, rather than going into bank profits and bonuses.

They provide close, personal business mentoring and support to maximise the chances of recipients' success over the long term and are able to tolerate lower returns, as well as a higher failure rate - all things that the mainstream banks aren't commercially able to do - even if they want to - to the same degree.

As a result they've expanded from their initial Black Country base to encompass a decent chunk of the West Midlands. And they've doled out over £6million worth of loans, each worth from £10 - £50k, to a wide spectrum of conventional and social enterprises.

From the anecdotes and examples given at the event, it's often short term working capital for these hard pressed businesses that can make the difference between life and death. In such cases, and many others, BCRS seem to have developed a kind of home-grown life support system.

How? Well it seems to be based on a combination of mixed funding sources, tenacious, bank-schooled business managers, and rigorous attention to the health of the businesses they invest in, as it is obviously in their interests for the loans not to fail.

The funding model in particular is critical to success. They have used initial EU funding to cover the risk of failed loans, and this has acted as leverage to attract investment from mainstream banks, large local corporates, high net worth individuals, local authorities and others. With some favourable tax relief and BCRS as the sole loan agent, these funders are thereby able to reduce their investment risk to acceptable levels, maximise the beneficial  impact of the loan and remove the complexity of dealing with multiple agents. This mixture of funding sources has also allowed the fund to grow in size and geographical reach.

This ability to carry a greater degree of risk, underwritten by the public purse, is of course an advantage the banks say they do not have (erm, hang on a sec!). One banker at the event argued that while BCRS can tolerate 8-10% loan failure, a mainstream bank cannot exceed 1%.

BCRS are looking to grow both in the size of loans, and also their geographical reach. Talking to them last night, they are happy to discuss and share their model with other local areas keen to experiment with alternative funding models to sustain their local economy through tough times.

Another feature of the event was an engaging presentation given by Prof David Bailey of Coventry Business School. He highlighted a number of ways in which UK businesses have proven unexpectedly resilient in their responses to the economic crisis and recession, through a collaborative dialogue between employers and staff about how to reduce costs but retain talent. This stands in quiet, effective contrast to all the tub-thumping rhetoric about inevitable conflict between unions and management about how best to handle the downturn.

So for all the fears of economic fragility and looming industrial unrest there are also signs that a new kind of mutually supportive, resourceful and resilient model of enterprise is emerging. And it's speaking Brummie.





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