“In the past I’d had loans, people knocking on my door saying ‘you owe me money.’ That should be left behind. A responsible lender should look at the person you are now. If you’re working and you can pay for it, why would a company not give you a chance?”
This quote comes from Gary. Gary works for an organisation which provides quality care to people with complex needs. But a sudden stroke in a B&Q car park left him in need of help himself. He needed a support dog as he learned to walk again, but dogs are expensive, and Gary couldn’t pay upfront. His credit score also meant that the only loan companies willing to help him charged eye-watering rates.
Gary’s experience of not having anywhere to turn in an emergency is not unusual. The Financial Conduct Authority’s most recent Financial Lives survey found that nearly one quarter of adults have low financial resilience, and of these, 7.6 million have low savings and therefore little capacity to withstand financial shocks[1]. This doesn’t impact a person’s financial stability on its own, it has knock on effects to their health, wellbeing and productivity in work.
Financial inclusion is critical to achieving the Government’s growth mission. It enables people to be productive and resilient, therefore contribute more fully to the economy. Recent research has found that better financial wellbeing would add £5.9 billion a year additional GDP by reducing work absence and improving productivity[2]. This makes the timing of the Government’s upcoming Financial Inclusion Strategy critical.
To achieve financial inclusion, we need ways to unlock more investment in affordable credit providers like Community Development Finance Institutions (CDFIs) to scale up their lending. One proven method for this is first-loss funding. It is grant that provides a buffer for investors by absorbing a portion of initial loan losses. This de-risks lending and encourages private capital to flow into CDFIs where it previously would not have been possible.
Thankfully, Gary eventually found Salad, a CDFI. CDFIs provide regulated, transparent, and ethical credit to people who would otherwise be left behind. “I applied for it, and within 15 minutes it was in my bank.” His £1,000 loan helped him to cover the cost of the new dog and clear a longstanding credit card debt. For people like Gary, access to fair, affordable credit can be the difference between stability and crisis. Yet many people still do not have this lifeline.
In 2024, City Bridge Foundation and Responsible Finance launched a £600,000 first-loss funding pilot with three CDFIs serving people in London – Fair Finance, Fair for You, and Salad. Alongside this, Fair4All Finance contributed £200,000 to Moneyline with the aim of increasing lending in the Midlands. The goal was to test whether the funding could unlock private investment and expand access to affordable credit, and WPI Economics – which is responsible for evaluating the pilot – has just completed its interim findings.
The early results are incredible. For every £1 of funding, the pilot has leveraged £3.32 in private investment totalling nearly £2 million. When loans are repaid to CDFIs, funds are recycled and can be lent out again – meaning that over time the same funding reaches many more financially underserved customers by being lent over and over. Over 7,000 loans have been issued, totalling £5.75 million, giving as much as £8.60 of lending for every £1 of first-loss funding. These loans are not just numbers – they were lifelines for the people receiving them.
The CDFIs involved use different models: one offers prepaid shopping cards, another focuses on NHS and public sector workers, and a third provides small personal loans. Despite serving what are often considered higher-risk demographics, they maintained low arrears (5.4%) and write-offs (3%).
Crucially, the borrowers reached in London were those who are most at risk of financial vulnerability:
- 67% were women (vs. 51% in London’s general population)
- 18% were Black (vs. 11% in the comparable group)
- 45% lived in social housing (vs. 21% in the comparable group)
- 26% earned £21,301 or less (vs. 21% of the comparable group)
- 20% were lone parents (vs. 13% in London’s general population)
- 29% received benefits
- 19% reported living a disability
Moneyline’s customers in the Midlands showed similar patterns of vulnerability, with 69% earning under £25,824 and 39% receiving benefits – nearly triple the regional average.
Without first-loss funding, this lending wouldn’t have been possible.
These findings show that first-loss funding works. It gives CDFIs the firepower to reach people who are otherwise excluded, offering them not just credit, but dignity, stability, and a path forward. It also reduces reliance on high-cost credit providers, whose average APRs can exceed 1,200%, compared to the 60% average of the lending through this pilot.
The benefits go beyond the individual and directly impact economic growth. By reducing financial stress, CDFIs improve health and wellbeing, support continued employment and education, and reduce the social costs of debt and exclusion.
We now need the Government’s backing through its Financial Inclusion Strategy. This would enable us to use the learnings from this robust pilot to source funding from the wider industry for a long-term first-loss funding structure. The funding can come from a variety of sources (such as mainstream banks, philanthropic sources or existing schemes), and would be highly targeted for impact. £25 million of first-loss funding over 3 years could leverage in £83 million of private investment and unlock £215 million in lending to 250,000 underserved individuals. This would double CDFIs’ lending to help fill the gap in access to affordable credit.
First-loss funding is not a new concept. The UK Government used it to support CDFI lending to enterprises through the Regional Growth Fund for over 10 years; a programme which turned £30 million of funding into £107 million of lending to small businesses, supporting nearly 14,000 jobs[3]. This was boosted recently by the £150 million funding programme from the British Business Bank. But the retail credit segment continues to lack long-term funding solutions.
Since taking out his loan with Salad, Gary’s finances are in a very different position than they were a few years ago. He’s thankful Salad could offer him a cheaper loan than anywhere else. “I work a lot of hours a week,” he says, “and I knew I could afford the repayments. I’m a working person, but I was getting penalised by other lenders in the past, and it builds up. You try and build your credit score up but it’s hard.”
The evidence is clear: first-loss funding works. It unlocks investment, expands access to fair credit, and delivers social and economic returns that wouldn’t be possible otherwise. First-loss is a way to turbocharge CDFIs and increase access to affordable credit quickly and sustainably. The government should work with the wider industry to find a source of first-loss capital to make this happen.
[1] Financial Conduct Authority (2025) Financial Lives 2024: Key findings from the FCA’s Financial Lives May 2024 survey.
[2] WPI Economics (2025) Financial Inclusion and Growth.
[3] Responsible Finance: The Role of First Loss Funding in Financial Inclusion and Economic Growth