CBI Director-General Urges To Reinvent ICFC

Richard Lambert, director general of the CBI employers organisation, has called on the government to consider funding a new investment corporation like 3i to provide much needed finance to SMEs in the UK. The proposal asks for an updated version

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Richard Lambert, director-general of the CBI employers organisation, has called on the government to consider funding a new investment corporation like 3i to provide much needed finance to SMEs in the UK.

The proposal asks for an updated version of the Industrial and Commercial Finance Corporation (ICFC), which was created in 1945 as a partnership between major banks and the Bank of England to provide SMEs with a mix of long-term debt and equity. In its first 50 years it provided investment capital to about 11,000 companies. The banks later sold their stakes, and the organisation became the listed private-equity group 3i.

Speaking to the British Venture Capital Association (BVCA) earlier this week, Lambert said that similar ideas aimed at providing finance to companies were being discussed by ministers in Whitehall, and that the skills of private equity investors could play a valuable role.

In the UK, as in a number of other big economies, the government now has a significant direct shareholding in the banking sector – and one which, with the best will in the world, is likely to stay in public hands for some time to come, says Lambert.

In the new and more volatile environment of 2009, one obvious question is: why not reinvent the old ICFC? Its clear that growing numbers of SMEs are going to be in need of the blend of equity and long-term capital that it used to provide – a role that turned out to be especially valuable during the turbulent times of the 1970s, thanks to the long-term stability of its portfolio, good marketing, and sound investment management.

The funding gap will widen as the economy starts to recover, and firms need more finance to rebuild their working capital and purchase new plant and equipment. Wouldnt it be great to have an ICFC-like institution in place for when that time comes?

One idea being booted around in Whitehall right now is that the governments different enterprise funding schemes might be put into a central pot alongside core equity capital from the private sector, and used to kick start a new public/private venture, continues Lambert.

This could be exactly the right stage in the business and economic cycle to launch a profit making enterprise in this area. And private equity managers have the talent and the experience that would be required to make it work.

L.D.

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