CSFI

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Other new short-term credit initiatives
An obvious way to mitigate the impact of high-cost, commercial financial services
on vulnerable consumers is to improve the offering from legal, ethical and affordable
providers. As discussed in Chapter 4, credit unions have significant potential, but
one has to accept that it will take time to develop them as a serious alternative for
short-term credit provision. Indeed, many would say that it will take at least ten years
given the challenges facing the sector – namely leadership, fragmentation, capital,
technology, product and service innovation, capacity and skills.
So, what of other alternatives that can provide the right sort of products and services
to low and volatile income people in the here and now?
Responsible
finance
providers
One possibility is what are now known as responsible finance providers – hitherto
(and more commonly) known as Community Development Finance Institutions (or
CDFIs).
These typically offer small consumer loans (less than £500) over terms of up to a
year. There are currently ten RFPs in operation around the country (down from 12 in
2015). The better-known names include Fair Finance (London), Five Lamps (North
East and Yorkshire), Scotcash (Glasgow), Street UK (the Midlands) and Moneyline
(national).
In 2015, RFPs lent £22 million to 45,185 individuals, an increase of 14% over the
previous year. Consumers accessing this segment of the market are characterised by
the familiar, inter-related social and financial challenges of low-income households
with no, or poor, credit history. They are predominantly women living in social
housing, often single parents, and heavily dependent on benefit payments as their
main source of income. Unlike the commercially motivated short-term credit
providers, RFPs offer a more inclusive approach, with products and terms that take
account of a customer’s ability to repay, and they try to build financial capability
through face-to-face advice and signposting to debt and money advice services.
RFPs sit alongside home credit and pawn shops in terms of their customers’ credit
scores (poor/none), but charge a lower interest rate on loans (on average, 78% APR),
though higher than credit unions where interest is capped at 42.6%. Debt writeoff
for responsible finance loans is around 14%, middling for this segment of the
unsecured personal finance market.
Unlike credit unions, RFPs do not take deposits. Capital for on-lending comes in
various forms, from grants to commercial funding and a variety of other sources,
including central and local government, the EU, housing associations, trusts and
foundations, social investors and banks. In recent years, there has been an increase
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