Funding for Lending Scheme shows signs of ineffectiveness

According to the source, these signs are visible from the recent reports which reveal that net lending from high street banks to SMEs was at –GBP 719 million in Q1 and –GBP 435 million in Q2 2014.

The Funding for Lending Scheme was originally launched in July 2012 through the Bank of England, with the support of the coalition government. The scheme was designed to allow banks and building societies to borrow from the Bank of England at rates far cheaper than they would find in the market for up to 4 years.

Though the scheme has been extended to January next year, recent reports show that incentives to lend to small and medium businesses have been distinctly ineffective. Of the 36 banks that took part in the scheme since its inception, net lending was at a flat rate or worse among 24 of them. The worst offender on the list was Nationwide, whose net lending was at a low of – GBP 501 million in Q2, closely followed by the recently bailed-out bank RBS, whose lending to SMEs had dropped to –GBP 360 million.

All of this is occurring despite major incentives provided by the Bank of England for high street banks to take part, including the benefit of being allowed to borrow GBP 5 for every GBP 1 of lending to SMEs.

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