The Quality of Responsible Finance
In 2015 the Community Development Finance Association became Responsible Finance. We knew that the first question many people would ask is ‘So what makes you responsible?”
It is a question we welcome. We are keen to have that debate.
The term is now widely used – Wonga, First Direct, Liberis, Brighthouse and Nationwide are among the countless financial firms that state they are responsible lenders.
But we know that our members have a unique approach to fairness and responsible practices, which we are all proud of. That is not to say other lenders are all irresponsible, but we think we stand apart in our committed, ethical approach.
All Responsible Finance members must support the following goals:
- Increasing access to finance – serving customers not supported by mainstream lenders;
- Mission-driven – social enterprises re-investing profits to deliver economic and social benefits, not distributing them for shareholders’ private gain;
- Treating customers fairly – clear and transparent about the costs of borrowing, lending only to those who can afford to repay and ensuring customers get the best deal and the best outcome;
- A personal service – a supportive approach, with decisions made by people for people; and
- Quality-assured and professional – meeting all Financial Conduct Authority (FCA) requirements and complying with the Responsible Finance Code of Practise.
But we understand that it isn’t always easy for customers to determine who acts responsibly, and which lenders have their interests at heart.
And we know that it isn’t always easy for funders and investors to identify which lenders employ responsible and transparent management and lending practices. Government, commercial, and social investors have told us that variation in processes, financial accounting, and loan book management act as a barrier to investment into the responsible finance sector.
Both investors and customers are looking for assurance of quality.
So as the trade body for responsible finance providers, that is what we’re working on right now.
The Citi Foundation has funded us to develop a quality mark for the responsible finance sector. Our quality assurance framework will build on the performance framework already implemented by members as well as regulation and quality standards that members already adopt, such as FCA regulation and the European Code of Conduct for Microcredit Provision.
Work is underway to develop an easily recognizable but robust, evidenced based quality mark.
We are working with an advisory group of members, and consulting other ratings agencies and investors to develop a framework and assessment process. We will test this out with three members over the summer, and hope to launch it with all our members by the end of the year.
All members will go through a quality mark assessment, resulting in a detailed report covering:
- Operations and management
- Social impact measurement and reporting
- Financial health and management
The final quality assurance report will also analyse and extract key financial information that investors currently report they struggle to understand across the sector: net worth, sustainability, ability to service debt. Our aim is to provide investors with a useful tool to supplement their due diligence process, and ultimately make it simpler for them to approach and invest in responsible finance providers.
We are also aiming to make our sector more clearly recognisable to customers. And of course, in doing so to bring benefits to responsible finance providers; we need to get this right so that our members are recognised as trusted and transparent lenders, sustainable organisations that develop stronger relationships with all stakeholders.
By working together we can drive quality and drive our sector forward.