CITM3030 - Investment by CDFI: Meaning of 'relevant investment'

SI2003/96 Regulation 11; FA05/S54A

Accreditation as a Community Development Finance Institution (CDFI) is conditional on the accredited body investing specified proportions of its ‘investment fund’ within defined time limits in ‘qualifying enterprises’ (see CITM3005).

But not all investments by a CDFI in qualifying enterprises count towards the 25%, 50% and 75% minimum investment tests set out in SI2003/96 Regulation 8, only ‘relevant investments’ are included.

Relevant investments are limited to:

• secured or unsecured loans to an enterprise, and
• issues of securities of, or shares in an enterprise, which have been subscribed for by the CDFI and issued to it

• an investment cannot be a relevant investment if it is listed within Schedule 1 of SI2003/96 (‘Investments that are not relevant investments) - (see CITM3040).

For these purposes ‘loans’ do not include overdraft facilities provided by the CDFI. Neither is a CDFI regarded as making a loan to an enterprise by subscribing for, or otherwise acquiring, securities of an enterprise.

Where a loan agreement provides for the enterprise to draw down amounts of a loan over a period of time,

• the loan is treated as made at the time when the first amount is drawn down, but
• the amount of the relevant investment at any time is the amount drawn down at the date in question.

Alternative Finance Arrangements

For the purposes of CITR references to ‘loan’ include certain Sharia’a-compliant financial products that in substance, but not in form, are equivalent to interest-bearing loans will be treated as loans for the purposes of the scheme See CITM4300 for details of the types of arrangement that qualify for this treatment, and how the CITR rules are modified when dealing with such arrangements.