The desperate need for more CDFIs offering Fair Finance throughout the UK
In an opinion piece in October 2020, Responsible Finance, the voice of the Responsible Finance industry stated that as there was a huge need to build financial wellbeing we should champion CDFIs.
As a result, more people would know that if they need credit there are better options than exploitative lenders: a fantastic sector working to make households’ finances better, not worse.
Responsible Finance stated the following : -
9.7 million households across the UK reported a fall in income by the end of July 2020 as a direct consequence of the pandemic.
Nearly one in six households – 16% – were struggling to make ends meet and 10% were in serious financial difficulty[1].
Those in the poorest households saw the biggest hit to their earnings[2] leaving them struggling to keep up with household bill payments, and food bank usage increased substantially. The Trussell Trust expects to be giving out six emergency food parcels every minute this winter[3].
Covid-19 has had a substantial impact on household finances, but finances were already faltering before the pandemic.
Throughout 2019 unemployment, under-employment and zero hours contracts increased and wages fell in real terms[4].
The impact of the pandemic on top of this has been significant; 12 million UK adults now have low financial resilience[5].
As a direct result Pay-day loan firms are capitalising on this mass desperation. The Times recently reported that firms are saddling vulnerable families who have lost jobs with loans at interest rates up to 1700%[6].
This will hamper the UK’s recovery by harming people’s financial wellbeing and mental health, affecting their ability to get back into work.
But credit is not an automatic route to problem debt, despite a negative perception of loans for low income people.
Fair Finance / Affordable credit can be an important buffer for families to improve their financial stability and a gateway to other support.
It has a number of uses including covering unexpected expenses or expected larger payments by spreading them out over time, such as the purchase of a new washing machine.
When credit doesn’t work well people can lose control of their finances, with a detrimental impact on their health, relationships and wellbeing.
It is crucial that people aren’t getting trapped in debt with high-cost lenders now because it can trap families in a cycle of hardship that will last far beyond the Covid-19 pandemic.
CDFI
A better solution exists. There is a fair alternative available to families in need of credit, but awareness is low.
Community Development Finance Institutions (CDFIs) can play a key role in mitigating the financial hardship experienced by households during this period by offering access to affordable credit when people need it, and supporting them with advice to improve their financial stability.
The cost of borrowing from CDFIs is significantly lower and they save their customers hundreds of pounds per loan compared to high cost alternatives. As non-profit lenders their mission is always aligned with their customers’ wellbeing.
Bloom’s comments on the Report
The reports cover very specific dynamics, which we 100% agree is hugely important in any desire to “level up” and “Make Britain Better”.
One of the key drivers to economic change is the ability to be able to achieve goals linked to the Communities where people live.
One of the main problems is the lack of coverage of alternative fair finance lenders in the UK, thus limiting many opportunities and which also causes a direct loss to a Community with higher than needed interest rates.
This is why Bloom Finance Group CIC has created its own CDFI - Lending Hand Ltd, which can assist in any Community in the UK via trusted Partner organisations.
In addition Bloom Finance Group CIC has committed that Lending Hand Limited will limit its maximum rates to those offered by Credit Unions.
As further proof of the need for more CDFIs, the following facts about existing Credit Unions and Responsible Finance Organisations (RFO's) in the UK are clear.
Bank of England statistics issued on 28th August 2020, shows there are now just 277 remaining Credit Unions in England, Scotland and Wales with 145 in Northern Ireland, with Membership of just under 2 Million people.
The Community Investment Steering Group Report Nov 2019 - Scaling up Community Investment in the UK states that there are only 23 active RFO's in the UK, The Responsible Finance survey in 2019, stated that around 35,000 Loans were made to individuals.
The UK population is estimated at around 67 Million, with around 19% (12.5 Million) being under 16 - meaning the over 16’s are around 54.5 Million.
From these statistics it is estimated that only around 4% of the UK has any coverage available from a Credit Union or a RFO.
There are 69 cities and over 48,000 towns in the UK. In the last 10 years many Credit Unions have been closed and NO services replace those lost to the massive detriment of the Community in which they were based.
