16 October 2023: More than 10,000 Londoners will be able to avoid high-cost credit or illegal lenders, and save hundreds of pounds in interest on vital small loans, thanks to new funding from City Bridge Foundation.
London’s largest independent charitable funder, City Bridge Foundation has worked with Responsible Finance to provide £600,000 of ‘first loss’ funding split equally between three not-for-profit, community lenders (and Responsible Finance members) Fair Finance, Fair for You and Salad Money.
This will enable the organisations, also known as ‘community development finance institutions’ (CDFIs), to lever in more than £4.2m in other investment, in turn allowing them to lend up to £10m to between 10,000 and 13,000 Londoners. It will act as a two-year, independently evaluated pilot, providing evidence about the economic and social impacts of first loss funding for CDFIs.
In 2022, the three lenders made loans of £4.1m to 8,100 in London in 2022, saving customers an average of £308 in interest compared to other sources of credit available to them, as well as safeguarding families’ mental and physical health.
The three organisations help people excluded from mainstream credit to access vital loans for expenses such as car repairs, replacing household items or dealing with an unexpected bill or life event.
This prevents these customers from having to pay over the odds for high-cost and payday loans – suffering the so-called ‘poverty premium’, as they incur higher costs than those with greater incomes – or even feeling they have no option but to turn to loan sharks.
Theodora Hadjimichael, CEO of Responsible Finance, said: “A quarter of adults have less than £100 in savings and one in six people have no money put away. Often low-income households don’t have access to an arranged overdraft or a credit card; in the absence of savings this leaves them highly vulnerable to a financial shock. A small loan which they can repay over a few months can be their only way to buy a large item like a fridge or pay a one-off cost like a car repair.
“CDFIs make personal loans to households across London and the UK which increasingly find themselves unable to access credit from anywhere else. Demand is increasing. 2022 saw a 33% year-on- year increase in the sector’s lending. But they cannot lend to everyone who applies.
“This funding will enable CDFIs to reach almost twice as many more Londoners with affordable credit than they currently can. It’s tremendous news for Londoners who need and can afford to repay credit but don’t have enough fair options available. Without CDFIs they are locked out of access to finance and risk turning to providers who don’t prioritise their wellbeing. I’m thrilled that this funding from City Bridge Foundation will help more people save interest compared with higher-cost options.”
Paul Martinelli, City Bridge Foundation Grants Committee Chairman, said: “In the current difficult economic climate, many people face a real struggle just to cover day-to-day costs, and one-off purchases like replacing a broken fridge can push them into the trap of high interest loans, or worse still, illegal lenders.
“We’re delighted to be able to support a programme which will enable three responsible lenders to open up access to affordable credit to thousands more Londoners, making a real difference to their lives. We hope it will provide a blueprint which can be replicated more widely across London and around the country.”
Across the UK, millions of people struggle to access mainstream credit. Nearly two in five of all Londoners, and more than half in the boroughs of Barking and Dagenham, Newham and Greenwich, are in what not for profit financial inclusion organisation Fair4All Finance defines as ‘financially vulnerable circumstances’, meaning they may find it harder to access credit from mainstream lenders.
More than three million people across the UK have borrowed from an illegal money lender in the last three years, according to Fair4All Finance.
CDFIs are motivated by purpose: to help people and households strengthen their finances, but they are unable to lend to everyone who applies to them. They have a track record of more than two decades in the UK and are proven to build financial resilience and address financial exclusion. The Financial Conduct Authority, MPs from the UK’s three main political parties, the Centre for Social Justice and the Joseph Rowntree Foundation have all called for an urgent expansion in CDFIs, so people excluded from mainstream credit have better and fairer options available.
What next?
Find out more about Fair Finance, Fair for You and Salad Money at:
- FairFinance.org.uk
- FairForYou.co.uk
- SaladMoney.co.uk
- Other CDFIs which are part of Responsible Finance can be found at FindingFinance.org.uk
- Watch the BBC television coverage of this announcement: Sunday 15 October’s BBC Politics London programme coveredaccess to credit and the City Bridge Foundation support for three CDFIs for loans in London. It includes interviews with two Fair Finance customers and with CEO and founder, Faisel Rahman. The segment runs from 14:30-22:27 here.
- Media / journalists: Responsible Finance, our members and clients have featured in TV, radio, national and regional newspapers, magazines, online and in podcasts.
- We can offer interviews, comment and case studies about access to finance / affordable credit / financial inclusion / debt, relating to businesses, social enterprises and people. Please contact [email protected] // 07904 272 200 to request interviews and case studies.