23.04.2013
The seven million people currently using payday and doorstep lenders could save £2.1billion if they used ethical alternatives, according to new research released today. Community development finance institutions (CDFIs) are non-profit lenders that operate across the UK. Last year demand for their services more than doubled.
CDFIs charged an average APR of 39% compared to the high cost lender equivalent of 272%, and the payday lender equivalent of 2,214%.
Ben Hughes, Chief Executive of the Community Development Finance Association (CDFA) the trade body for CDFIs, said:
“As banks retreat from the high street and payday lenders move in, CDFIs have never been more needed. They offer a lifeline for families who may otherwise fall prey to the extortionate interest rates and unscrupulous behaviour of payday lenders.”
One of the CDFIs that has witnessed soaring demand is Lancashire Community Finance. Chief Executive Elaine Rimmer commented:
“We see people on a daily basis who’ve been using payday loans. They are working people and people on benefits. They start borrowing a bit, and then a bit more. And before you know it all of their wages go on repaying the loan, and they have to borrow again just to live. Eventually there’s a tipping point and they can’t borrow enough to live on. And then some of them come to us.”
A 26-year-old dental practice worker who was using five high cost credit providers recently turned to Lancashire Community Finance for help. Eighty per cent of her salary was being spent on loan repayments, and she took new loans each month to get by. Elaine continued:
“We sat down with her to review her finances and work out what was affordable. We provided a loan of £860 so she could clear her debts and start again.”
Hughes added,
“Today we are launching our flagship publication, Inside Community Finance, which provides a full picture of how and why CDFIs are reaching more people. It demonstrates that CDFIs are a vital part of the financial landscape, and if given more Government support, could transform more lives and put money back into more local economies.”
Inside Community Finance, supported by Unity Trust Bank, is available here.
Peter Kelly, executive director of Business development at Unity Trust Bank said,
“As both a social enterprise ourselves, and the leading provider of sustainable finance to CDFIs, Unity Trust bank is really encouraged by the growing confidence in alternative finance. CDFIs play a vital role in providing finance and support to those individuals and businesses whose access to mainstream banks is limited. This report shows that demand is increasing, and through our ongoing support for CDFIs we will continue to promote fair lending, job creation and economic prosperity in communities around the UK.”
Notes
1. The Community Development Finance Association (CDFA) is the voice for providers of fair and affordable finance. Our mission is to create a thriving community finance industry, bringing social and financial benefits to neighbourhoods across the UK. We represent a national network of community finance providers. For more information about the CDFA please visit www.cdfa.org.uk
2. Community Development Finance Institutions (CDFIs) are social enterprises that support communities by providing affordable finance that would otherwise not be available. By making loans, they are able to recycle this finance again and again into neighbourhoods where it is most needed.
3. Unity Trust Bank is a specialist bank for civil society, social enterprises, CICs, councils, and trade unions. It supports customers with socially responsible banking services. And because it is a social enterprise in its own right, the bank understands the sectors its customers work in. For more information, visit: www.unity.co.uk