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, it has worked with trade body Responsible Finance to deliver a package enabling three not-for-profit, community lenders – Fair Finance, Fair for You and Salad Money – to lend up to £10m to between 10,000 and 13,000 Londoners over the next two years.
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.
These three organisations, also known as ‘community development finance institutions’ (CDFIs), 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.
Graham, a retired security guard from Abbey Wood in Greenwich and a Fair for You customer, said: “Last winter we’d only be turning the heating on if our grandkids came over. Knowing we could get a Fair for You loan to help with groceries here and there was a huge weight off our mind. Every time we spoke to them, they were understanding and we really felt like they cared.”
Faisel Rahman, founder of Fair 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. Responsible non-profit lenders like Fair Finance make affordable personal loans to households across London and the UK helping them avoid loan sharks and high cost credit providers.
“Demand for our service has increased sevenfold since Covid and through the cost-of-living crisis, this funding will help us continue to grow the sector’s lending.”
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.”
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.
Three grants of £200,000, one to each of the three lenders, will enable an expansion of their activity in the capital.
Theodora Hadjimichael, CEO of Responsible Finance, said: “This funding will enable CDFIs to reach almost twice as many 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.”