CITM3005 - Investment by CDFI: Outline
SI2003/96 Regulation 8
Accreditation as a Community Development Finance Institution (CDFI) is conditional. The accredited body must invest most of the funds raised under the CITR scheme in ‘relevant investments’ in ‘qualifying enterprises’. Failure to achieve the required levels of onward investment may result in the withdrawal of accreditation (CITM2110).
The proportion of funds that must be invested in relevant investments in qualifying enterprises increases over the years that follow the date on which the CDFI was first granted accreditation.
CDFIs accredited on or after 1 April 2013 will have a different date from which the years will be calculated. It will be the anniversary date of the first investment into the CDFI (Regulation 8 amended by SI2013/417).
With effect from 11 March 2008 the required levels of onward investment are as follows:
Year 1
Within one year of that date:
- at least 25% of the CDFI’s ‘investment fund’ (see CITM3010)
- must have been invested in ‘relevant investments’ (see CITM3030)
- in ‘qualifying enterprises’ (see CITM3020).
Year 2
Within two years at least 50% of the investment fund must have been so invested.
Year 3
Within three years at least 75% of the investment fund must have been so invested.
Year 4 and subsequent years
For each year ending of the fourth or later anniversary of the date on which it was first granted accreditation the CDFI must ensure that an average of at least 75% of its investment fund must be invested in relevant investments in qualifying enterprises.
The CDFI can choose between two methods for calculating this average for any year. If either method gives a result of at least 75% the CDFI has met the requirement for onward investment for that year. The method does not need to be chosen before the end of the relevant year.
Method 1: Daily calculation
This method looks at the proportion (percentage) of the investment fund that has been invested in relevant investments in qualifying enterprises at the end of each business day within the year and calculates the arithmetic mean of those values.
Method 2: Quarter day calculation
This method involves the CDFI selecting four dates within the year, spaced at roughly three-monthly intervals, and calculating the average of the proportions of the investment fund that were invested at the end of business on each of the selected days.
The four selected dates must meet the following requirements:
Date 1 - Must fall within the first three months of the year.
Date 2 - Must fall within the second three months of the year and be at least 87 days and less than 95 days after Date 1.
Date 3 - Must fall within the third three months of the year and be at least 87 days and less than 95 days after Date 2.
Date 4 - Must fall within the final three months of the year and be at least 87 days and less than 95 days after Date 3.
Daily onward investment levels are restricted to 100%
Because the calculation of the amount of the investment fund involves a disregard of amounts raised within the previous three months and pre-recognition of amounts due to be repaid in the next three months (CITM3010), it is possible for the proportion of a CDFI’s onward investment in relevant investments in qualifying enterprises to exceed 100% of the amount of the investment fund.
If such a situation arises in relation to a business day that is involved in a calculation under either Method 1 or Method 2 the amount of onward investment for that day is limited to 100% of the amount of the investment fund.
Requirements prior to 11 March 2008
SI2008/383 relaxed the onward investment requirement for periods following the third anniversary of the date on which the CDFI was first accredited. Prior to that date the requirement was not based on the average level of onward investment. Instead it required that the CDFI should at all times ensure that at least 75% of its investment fund was onward invested in relevant investments in qualifying enterprises.