04.10.2012
Demand for Community Finance soars as ethical lenders take on the Wongas –
but whilst ethical lenders are lifeline for many households, they cannot meet demand, according to a new survey of community finance providers published today.
Enquiries to ethical ‘community finance’ providers have more than doubled in the last year as individuals seek routes out of high interest debt traps, according to new figures released today by the Community Development Finance Association (CDFA).
The CDFA’s figures reveal that enquiries soared by 119% last year with around 78,000 individuals seeking a community finance loan. Providers could only serve around 37% of these customers. They made almost 29,000 loans – an increase of 40% on the year before.
Over half of their customers – 65% – had previously been using illegal or high interest credit providers.
Community finance providers are locally based, not for profit lenders offering financial products to individuals (and businesses) unable to access bank loans. They provide affordable personal loans, as well as advice and support, to vulnerable households.
They offer an affordable and flexible alternative to high street lenders such as Provident, Moneyshop, QuickQuid and payday loan provider Wonga. A typical community finance loan of £400 repaid weekly over one year is £260 cheaper than the current market leader. Community finance providers look closely at borrowers’ individual circumstances, offer flexible repayments and often money advice and budgeting tips alongside their lending. They lend responsibly and will only lend if the customer can afford the repayments.
Community finance is a lifeline for many households and an essential solution to the problem of over indebtedness in the UK. Low-income, over-indebted consumers create strains on government and community services to meet basic living costs due to income being relegated to debt repayment. By taking a loan from a community finance provider rather than the current market leader last year customers saved £7.5m in interest repayments.
Case study: ‘My Home Finance’ (a member of the CDFA) provides affordable loans to people across the West Midlands. Last year they were approached by a 27 year old woman with a new baby and unemployed partner for a loan to help with water bill arrears. After an assessment of her income and expenditure, My Home Finance provided a loan of half the amount requested, and also provided advice on managing her finances. The customer, who had never received budgeting advice before, managed to stay on top of her incomings and outgoings, paying all her bills on time. She later secured a part-time job and paid off the loan in full.
Ben Hughes, CDFA’s chief executive, said:
“Users of high cost credit have quadrupled in the last four years to four million. It’s easy to see why: according to the Economist, 15% of the population are excluded from mainstream bank lending; household and energy bills are increasing; and high-interest lenders are taking an increasingly aggressive approach to marketing.
“The growth of doorstep and payday lenders demonstrates a need for investment into affordable alternatives. Community finance providers offer a lifeline of finance and support to individuals and businesses in the UK. They need infrastructural support to enable them to scale up and deliver tailored financial products to a market where the demand is growing.”
CDFA suggests policy changes and new structural and funding frameworks to redress gaps in the market, so that existing community finance providers can expand and new ones launch where none exist, creating a more just financial system where access to fair and affordable credit is a given right for all UK businesses, civil society organisations and households.
CDFA released the figures on the first day of its annual conference, “Community Finance > Forward Thinking”, attended by delegates from all over the UK and speakers including the BBC’s Simon Gompertz, the Rt. Hon. Dr Vince Cable MP, Secretary of State for Business, Innovation and Skills, the Rt. Hon Don Foster MP, Parliamentary Under Secretary of State Department for Communities and Local Government, and a range of community finance experts.
What next?
- Case studies about community finance providers specialising in personal lending are available on request.
- New figures are also available about a significant increase in community finance lending to, and demand from, businesses
- Ben Hughes, chief executive of the CDFA, and Harry Glavan, head of policy and communications, are available for interview / comment. Contact Jamie Veitch on 07904 272 200 OR Sam Collin, Communications Officer [email protected], t 020 7430 0222 x207 m 07866241087
In 2011-12 community finance providers:
- lent to nearly 29,000 households, an increase of 40% compared with 2010-11.
- over half of community finance customers (65%) were using high cost or illegal credit providers
- vulnerable customers were saved £7.5m in high cost credit repayments
- 1420 personal loans were made to cash-poor homeowners for home improvements and to improve substandard housing, a 175% increase on 2010/11
- personal lending community finance providers received over 77,000 enquiries, an increase of 119%