Repayment of Community Regeneration Loans

Loans totalling £8 million were given to community groups between 1989 and 1996, under economic regeneration schemes run by the Department for Social Development (which took over responsibility from the Department of the Environment in 1999). A report published today by the Assembly’s independent auditor John Dowdall, states that the track record of loan repayment to date has been extremely disappointing and it is likely that as much as £2.5 million of this money will not be repaid.

Since 1989, the Department and the International Fund for Ireland have jointly funded local community projects under the Community Economic Regeneration Scheme (CERS) and the Community Regeneration and Improvement Special Programme (CRISP). Until 1996, 20 per cent of funding was given as a loan, provided that schemes were shown to be viable and capable of repaying the loans within ten years. Loans were discontinued from September 1996 because of the poor level of repayment.

Many groups are nearing the end of the ten year loan period, but only £3.3 million of the £8 million total has been repaid. The bulk of this (£2.3 million) is from only two groups. One, Dairy Farm in Poleglass, sold its premises in 1998, repaying the loan from the proceeds. The other, Twin Spires on the Falls Road, repaid its loan from the sale of another publicly-funded asset owned by the group. Other groups have repaid less than a fifth of the outstanding debt.

Loans were given at much lower rates of interest than anything available commercially, but of £1.5 million in accumulated interest, only £600,000 has been repaid and the Department has written-off £700,000.

The Dairy Farm project received £5.4 million from CERS including a loan of £1.2 million. It was never financially viable and was sold to a local property developer in 1998. The sale allowed the repayment of the loan but resulted in a publicly funded asset which cost £5.4 million being transferred to the private sector for £1.6 million. The sale was conditional on retention of the shopping centre and community facilities but in NIAO’s view, it has created uncertainty about the future of the centre and could undermine the community regeneration objectives for which a significant public investment was made.

Twin Spires received £5.7 million under CERS including a loan of £1.1 million. It has never been in a position to repay its loan from income but in 1996, the group sold another of its properties, the Kennedy Enterprise Centre, which had been bought with £1.8 million of government and IFI money in 1989. The group offered to repay the loan from the proceeds of the sale, provided that the Department waived over £200,000 in interest. The Department agreed. In NIAO’s view, recovery of the full amount of loan capital and interest should have been pursued, especially as the sale proceeds from the Kennedy Enterprise Centre amounted to some £2.5 million.

Departmental reviews found that the original projections of income for these projects were too optimistic and many groups simply cannot afford to repay their loans. However, the reviews identified two other factors contributing to poor levels of repayment. Repayment terms were too flexible with no requirement for regular repayment and there was a perception among groups that if loans were not repaid the Department would simply write them off.

In February 2001, the Department transferred ownership of outstanding loans valued at £5 million to the Ulster Community Investment Trust (UCIT). These will be used along with another £4.5 million of government grants, to set up an investment fund to provide loans at low rates of interest to Community Economic Development Organisations. The Department expects that UCIT will improve the level of repayment by taking a more commercial approach to the management of loans, but UCIT has estimated that existing loans worth £2.5 million may be difficult to recover.