Ethical lenders build better future for 31,000 people

The little-known community development finance sector has helped 31,000 people save £11m in interest in recent months, according to a new report.

The report by Responsible Finance highlights the impact Community Development Finance Institutions (CDFIs) can have.

According to the report, these locally-based, not-for-profit providers lent £36m to people with low or variable incomes, unable to access finance from mainstream lenders.

And unlike many commercial, high-interest lenders serving the so-called ‘subprime’ market, CDFIs are improving the ‘financial lives’ of their customers, saving each customer an average of £207 compared with an equivalent high-cost loan, offering high-quality money and debt advice and working in partnership with banks, social landlords and even a supermarket chain to help people’s money go much further.

The report shows CDFIs lent £36 million to 31,000 customers in 42,000 small (mainly under £1000) loans between April 2019 and December 2020, offering affordable finance to people excluded from mainstream credit.

• 70% of borrowers identified as female
• 74% had an income under £23,300
• CDFIs have partnered with banks, housing associations, councils, corporations, charities, money advice services and even the supermarket, Iceland, to boost access to alternatives to high-interest credit
• This year’s Woolard Review, published by The FCA, highlighted the need to boost these community development finance institutions

The report also calls for banks, businesses, charities and public sector organisations to work more closely with CDFIs so more people can take control of their finances and access appropriate and affordable financial services.

‘Covid-19 exposed how quickly financial stability can become financial fragility,’ said lead author of the report, Eleanor Pughe.

‘The financial system is designed around people with predictable incomes, but for those with less predictability such as people on low or variable incomes, traditional products are not available and the odds are often stacked against them.’