Part C:Application Information for the

Financial Management Program (FMP)

Renewal of Funding Process

Microfinance Activity

Extension of Funding for the

Community Development

Financial Institutions

(CDFI) Pilot

(February 2013)

Version 1.0

Preface

The Australian Government Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA or the Department)has a suite of documents (the Program Guideline Suite) which provide information relating to the program. They provide the key starting point for parties considering whether to participate in the program and form the basis for the business relationship between FaHCSIA and the funding recipient.

They are:

Part A: Program Guidelines which provides an overview of Program and the Activities relating to theprogram;

Part B: Information for Applicantswhich provides information on the Application, Assessment,Selection and Complaints processes; Financial and Funding Agreement arrangements.

Part C: Application Information providesspecific information on the Activity, Selection Criteria, Performance Management and Reporting.This part should be read in conjunction with the TermsandConditions of the Standard Funding Agreement.

TheApplication Form which is completed by applicants applying for funding during a selection process.

FaHCSIA reserves the right to amend these documents from time to time by whatever means it may determine in its absolute discretion and will provide reasonable notice of these amendments.
Table of Contents

Preface

1.Program Overview

1.1Program Outcomes

1.2Objectives

2.Activity Overview

2.1Aims and objectives

2.2Service provider eligibility

2.3Participants/clients/recipients/target group

2.4Funding for the activity

2.5Eligible and in-eligible activities

2.6Activity links and working with other agencies and services

2.7Specialist requirements

2.8Activity performance and reporting

3.Application Process

4.Contact information

1.Program Overview

The Financial Management Program(FMP) aims to build financial resilience and wellbeing for vulnerablepeople and those most at risk of financial and social exclusion and disadvantage. Ithelpspeople across a range of income and financial literacy levels to overcome financial adversity, manage their money, participate in their communities and plan for the medium to long term.

FMP service strategies (i.e. activities) include:

  • emergency relief;
  • financial counselling;
  • money management information and education;
  • microfinance and matched savings initiatives;
  • information about saving for retirement;
  • research into problem gambling and its impacts; and
  • assistance with energy efficiency.

Additional information about the FMP is available on the Department’s website:

1.1Program Outcomes

The FMP contributes to improved outcomes for vulnerable people, families and communities by:

  • fostering the improved use and management of money;
  • helping people address immediate needs in times of financial crisis;
  • providing access to safe, affordable funds that may not be available through mainstream financialservices and assisting in asset building; and
  • undertaking research to inform policies to reduce the impact of problem gambling.

1.2Objectives

The FMPaims to build financial resilience and wellbeing for vulnerable people and those most at risk offinancial and social exclusion and disadvantage.

2.Activity Overview

This direct selection (renewal of funding) process – for the CDFI Pilot Extension – is part of theFMPMicrofinanceservice strategy.

Microfinance

Microfinance encompasses a variety of types of financial services and productstargeted at financiallyvulnerablepeople, including people with low or limited income and people who are financiallyexcluded orat risk of financial exclusion.

Microfinance activities fill a number of roles, including helping to build financial inclusion by providing financially vulnerable people with access to funds that are not available through mainstream providers offinancialservices and products or that are only available through high risk financial products.

Examplesofmicrofinance activities in Australia include loans (e.g. no interest loans, low interest loans), savings schemes (e.g. matched savings), buying schemes and financial education.

In Australia, sources of mainstream financial services and products include Authorised Deposit-taking Institutions (ADIs) (e.g.banks, building societies, credit unions) and Non-Authorised Deposit-taking Institutions (nonADIs) (e.g. finance companies). Providers of mainstream and non-mainstream financial services and products are also involved in thesupport, funding and/or delivery of microfinance services and products.

The FMP provides funding for a range of microfinance activities delivered predominantly by notforprofitcommunity organisations in partnership with financial institutions, with the aim of buildingfinancialresilience of vulnerable Australians.

Community Development Financial Institutions (CDFI)

Australia has a small and developing Community Finance Sector, within which Community Development Financial Institutions (CDFIs) focus on under-served financial markets, including in relation to financial products and services, such as microfinance, forfinancially excludedindividuals, enterprises and notforprofit organisations.

In market terms, CDFIs fill the gap between welfare and mainstream financial institutions, a space whichis also occupied by payday lenders.

Overseas, in the USA and the UK, CDFIs have played a key role in providing appropriate access to financialservices and products to those who would otherwise be excluded from mainstream financial institutions. Through an emphasis on social, as well as financial outcomes, CDFIs have:

  • assisted disadvantaged individuals to be financially included and not-for-profit organisations tobecome more self-sustaining;
  • assisted mainstream financial institutions to connect with new customers; and
  • contributed to economic and social development through the creation of new businesses, employment and community improvement.

In January 2010, the Minister for Families, Community Services and Indigenous Affairs, Jenny Macklin, announced funding for a CDFI pilot (2010 CDFI Pilot)to help develop the CDFI part of the CommunityFinance Sector. At that time, there were only around 10 CDFI-likeorganisations inAustraliaand a comprehensive CDFI support framework was yet to be developed.

The2010 CDFI Pilot was in response to a need for new approaches to supporting people in building theirownfinancial security, including looking at innovative ways to provide vulnerable people, whohavethecapacity to repay a loan but who are excluded from mainstream financial services andproducts, withaccess to fair, affordable and appropriate financial services and products. The2010CDFIPilot recognised that financial services and products provided by CDFIscan be animportant stepping stone to mainstream financial services and products andfinancial independence.

In funding the 2010 CDFI Pilot, the Australian Government demonstrated its interest in working with emergingAustralian CDFIs, mainstream financial institutions and the philanthropic sector to develop thepotential ofa CDFI sector in Australia.

Under the 2010 CDFI Pilot, the Australian Government provided FMP funding of approximately $6.3million in2010-11, with total funding of approximately $6.03 million approved for fiveretail CDFIs (i.e. CDFIs providing financial services and products direct to individuals) to undertake activities until 30June 2012 and funding of approximately $0.3 million for CDFI research and evaluation.

TheFMPfunding provided to the CDFIswas for business development purposes and to helpfacilitate acircle of investors – thisFMP funding was not to be used for the purpose of providing loancapital.

The organisations selected for the 2010 CDFI Pilot were:

  • Community Sector Banking (with consortium partners operating in NSW, WA, NT, Qld, Vic, SA, Tas);
  • Fair Loans Foundation (nationwide coverage through the internet);
  • Fitzroy and Carlton Community Credit Co-operative (Vic);
  • Foresters Community Finance (Qld);
  • Many Rivers Microfinance (NSW, WA).

As part of the 2010 CDFI Pilot, the Department commissioned the Centre for Social Impact (CSI) todevelop options for growing the CDFI part of Australia’s Community Finance Sector.

In June 2011, the social evaluation company, WestWood Spice, was contracted to undertake an independent evaluation of the effectiveness of the CDFI pilot.

Broadly, the draft evaluation found that CDFIs were successful in targeting individuals who were financially excluded, including a large proportion of Indigenous clients. Some clients experienced financial exclusion as a result of a poor credit history or overindebtedness. For these individuals, the CDFI pilot helped them to manage debt and create a positive credit history, enabling them to transition to mainstream services.

Other clients experienced financial exclusion as a result of low income. These clients were assisted to purchase an asset through a CDFI loan or manage unexpected or uneven expenditure. For both groups, a key objective met by the pilot was to provide clients with a detailed understanding of their financial circumstances and assist them in better managing their money.

During the 15 month pilot period (March 2011-June 2012), participating CDFIs loaned more than $2.8million to around 1200 financially excludedindividuals. Nearly 1500 people accessed some form of financial literacy or business planning support. In addition, the pilot organisations successfully leveraged private investment of $3 million for loan capital. At the end of the pilot, the majority of clients were on track to repay their loans and none of the pilot organisations reported concerns with the level of arrears. Thisdemonstrates the capacity and willingness of financially excluded clients to repay an appropriately priced and targeted loan product.

The draft evaluation recommended extending the pilot by a further three years to obtain a better understanding of longitudinal impacts of the products and services provided by CDFIs.

The need for the CDFI Pilot Extension selection process arises from the Australian Government’s decision to continue funding the CDFI Pilot in 2012-13, in recognition that a longer period of activity will enable the effectiveness of the CDFI Pilot to be more fully evaluated.

2.1Aims and objectives

Microfinance is targeted at financially vulnerablepeople, including people with low or limited income and people who are financially excluded orat risk of financial exclusion.

Microfinance contributes to the FMP outcomes by supporting a variety of financial products and services for financially vulnerablepeople, with the aim of building financialresilience of vulnerable Australians.

CDFIs focus on under-served financial markets, including in relation to financial products and services, such as microfinance, forfinancially excludedindividuals, enterprises and not-for-profit organisations. Development of a CDFI sector in Australiaaims to help facilitate new approaches to supporting peopleinbuilding their ownfinancial security, including in providing stepping stones to mainstream financial services andfinancial independence.

CDFIs aim to provide fair, affordable and appropriate financial services and products, withtheorganisational focus being on the interests of the clients, rather than the generation of profit. Forexample,in some cases, aCDFI might suggest that a client considers an alternative to a loan.

As CDFIs operate within the microfinance sphere, personal loans approved by CDFIs are often for a relatively small amount of money and for a relatively short period of time, with the loans being for a range of purposes, including household items, medical expenses and car repairs.

The objectives of the CDFI PilotExtension are to:

  • increase the financial inclusion of vulnerable Australians through the injection of business development and maintenance funding;
  • facilitate capital and loan funding through a circle of investors;
  • test and gain further evidence on the demand for financial services and products and the contributionof CDFIs in meeting this demand; and
  • in line with international evidence, provide a longer period of support to assist organisations to establish.

2.2Service provider eligibility

Eligible organisations under the FMPare generally not-for-profit and one of the following:

  • Incorporated Association (incorporated under State/Territory legislation, commonly have ‘Association’or ‘Incorporated’ or ‘Inc’ in their legal name);
  • Incorporated Cooperative (also incorporated under State/Territory legislation, commonly have ‘Cooperative’ in their legal name);
  • organisation established through a specific piece of Commonwealth or State/Territory legislation (many public benevolent institutions, churches, universities, unions, etc.);
  • company (incorporated under the Corporations Act 2001 – maybe not-for-profit or for-profit proprietary company (limited by shares or by guarantee) or public companies); or
  • non-government legal entity

Funding may be provided to for-profit or government agencies, but this is not the FMP’s principal fundingmodel.

CDFIs must be:

  • able to meet the requirements to obtain, or to be covered by, anAustralianfinancial services licence and/or meet other legal requirements relevant to the delivery ofitsfinancial products and services;
  • compliant with Australian financial and credit licencing requirements.

2.3Participants/clients/recipients/target group

CDFIs focus on under-served financial markets, including in relation to financial products and services, such as microfinance, forfinancially excludedindividuals, enterprises and not-for-profit organisations.

Retails CDFIshave a range of financial products and services targeted at financially vulnerablepeople, including people with low or limited income and people who are financially excluded orat risk of financialexclusion.

CDFIs market their activities directly in communities with a high proportion of individuals at risk of financial exclusion, including Aboriginal and Torres Strait Islander communities and migrant communities.

2.4Funding for the activity

Under the FMP, distribution of funding is based on Government policy priorities and the needs of individuals and families. A number of factors can be considered, including the number of recipients receiving certain Australian Government payments (e.g. Newstart Allowance) and indices of disadvantage (e.g. Socio-Economic Indexes for Areas (SEIFA), bankruptcy and insolvency data, and housing affordability data).

The Australian Government is providing $1.2 million in 2012-13 only for the CDFI Pilot Extension for service delivery until 30 June 2013. The funding allocation under the CDFI Pilot Extension is based on consideration of the business case put forward by each CDFI organisation.

2.5Eligible and in-eligible activities

The 2010 CDFI Pilot funding was provided to five nascent CDFIs for business development purposes – this included setting up shopfronts, marketing, website and financial literacy development. The2010CDFIPilot funding was not to be used for the purpose of providing loan capital.Activitiesduringthe 2010 CDFI Pilot included the provision of financial products (small loans generally between $1,000$3,000) and financial services (financial capability building) to financially excluded individuals.

The purpose of the CDFI Pilot Extension funding is to develop and maintain business infrastructurenecessary to deliversmall loans to financially excluded individuals. This may include, but is not limited to, staffing, ongoing maintenance of facilities (such as shopfronts or offices), information technology, support for outreach activities and publicity.

The CDFI Pilot Extension funding must not be used for the following categories of costs:

  • loan capital;
  • facilitation of loans to social enterprises;
  • costs that are not directly and specifically related to the project;
  • any costs, including legal fees, incurred as a result of any fine, civil penalty, criminal penalty or infringement notice;
  • related activities that would usually be funded from another source;
  • seed funding or establishment grants for peak bodies or other new organisations (legal entities);
  • research;
  • overseas travel; and
  • retrospective costs, including costs incurred in the preparation of the funding proposal.

2.6Activity links and working with other agencies and services

CDFIs complement other government and non-government programs/initiatives, including in the area of provision of financialeducation.CDFIs are expected to have a business plan, an activity work plan (whichoutlines its target group) and a reference group with its partner agencies(including investors). CDFIs are also expected to develop and maintain links with other relevant organisations in their region with a view to improving client outcomes.

2.7Specialist requirements

CDFIs must be:

  • able to meet the requirements to obtain, or to be covered by, anAustralianfinancial services licence and/or meet other legal requirements relevant to the delivery ofitsfinancial product and services.
  • compliant with Australian financial and credit licencing requirements.

CDFIs are also required to have a demonstrated source of loan capital, generally supplied through a relationship with a mainstream bank.

2.8Activity performance and reporting

Performance Indicators are:

CDFI Pilot Extension

  • Number of loans approved
  • Number of clients receiving financial education
  • Proportion of clients from target client group (target: 95%)
  • Proportion of clients that maintain current performance on loan repayments(target: 95%)

Reporting

Each funding recipient is required to provide the Department with financial and other reports as specified in its FMP funding agreement (e.g. activity work plan, regular performance reports, annual report, independently audited financial acquittal report).

Evaluation and Research

Funding recipients are required to cooperate with external evaluators and researchers commissioned bythe Australian Government to undertake research and evaluation of the 2010 CDFI Pilot, CDFIPilotExtension and/or FMP. In addition, funding recipients are required to assist external evaluators withcontacting clients for the purpose of undertaking a client interview (subject to approval bya relevantethics committee).

3.Application Process

In January 2010, the Minister for Families, Community Services and Indigenous Affairs, Jenny Macklin, announced funding for the 2010 CDFI Pilot.

Under the 2010 CDFI Pilot, the Australian Government provided FMP funding of approximately $6.3million in 2010-11, including total funding of approximately $6.03 million for five retail CDFIs toundertake activities until30June 2012.

CDFI Pilot Extension

The CDFI Pilot Extension is a direct selection (renewal of funding) process.

For the CDFI Pilot Extension, the Australian Government is providing $1.2 million in 2012-13 only toextend service delivery until 30 June 2013.

Under the CDFI Pilot Extension, four of the organisations funded under the 2010 CDFI Pilot are being offered funding to assist them in continuing CDFI activities until 30June2013, subject to:

  • satisfactory performance under their 2010CDFIPilot funding agreement, based on meeting of performance targets, whether there were missed milestones or unacquitted funds and whether local intelligence has identified any issues about the funding recipient;
  • provision of an appropriate business case for funding under the CDFI Pilot Extension;
  • demonstrated ability to meet the requirements to obtain, or to be covered by, an Australian financial services licence and/or meet other legal requirements relevant to the delivery of its financial product and services; and
  • being compliant with Australian financial and credit licencing requirements.

Thefifth organisation from the 2010 CDFI Pilot, which withdrew from the pilot in May 2012, is not being offered funding under the CDFI Pilot Extension.