How responsible finance is unlocking economic potential in the UK’s most deprived areas
It’s been a bad week for tackling inequality, says Responsible Finance Chief Executive Jennifer Tankard.
At the weekend the board of the government's Social Mobility Commission stood down in protest at the lack of progress towards a "fairer Britain". On Monday the Joseph Rowntree Foundation published research highlighting that an additional 700,000 pensioners and children had fallen into poverty.
Economic instability, squeezed household budgets, and living costs outstripping incomes have exacerbated the precarious position of many and caused consumer borrowing to soar. According to the Financial Conduct Authority, over 4 million people have either failed to pay domestic bills or meet credit commitments in 3 or more of the last 6 months.
But there is some good news.
Responsible finance providers are stepping in to support those excluded by mainstream financial services. They are stimulating economic activity in our most disadvantaged communities, and last year supported over 12,700 jobs.
New research released today by Responsible Finance shows that these ethical lenders are helping more people than ever. In 2017 55,000 people benefited from their affordable credit and financial capability services.
Access to affordable credit from responsible finance providers helps people on low incomes with no savings buffer to avoid taking on high cost unmanageable debt. Last year responsible finance providers made affordable loans totalling £22 million, while also helping customers deposit over £3 million in savings accounts.
Customers like Sarah have been helped by responsible finance providers. Despite working full-time, Sarah struggled to manage her household expenditure and started to take payday loans to cover her bills. She soon found she needed to take larger loans to cover the interest and loan repayments and eventually the repayments took up her entire salary. Fortunately she went to her local responsible finance provider, Lancashire Community Finance, who worked through Sarah’s budget with her and helped her find ways to make savings. They also provided a loan to pay off all the payday loans, which Sarah paid back over a nine month period at an affordable rate, helping her stabilise her finances.
Small and micro businesses are the engine of the UK economy and they also need responsible finance. Accessing appropriate finance to start-up, survive and grow remains a challenge for many. Almost 100,000 small business applications for bank loans are rejected each year, despite the fact that the businesses are viable.
In 2017 responsible finance providers helped over 5,000 small, micro and start-up businesses access £67 million in loans, supporting employment and job creation, catalysing growth in some of the most deprived parts of the UK.
For every £1 million responsible finance providers lend; 64 businesses and 88 jobs are created.
One of the businesses supported by a responsible finance provider is Alpkit, which designs and manufactures outdoor equipment. A loan from Enterprise Loans East Midlands supported its growth. It now manufactures more than 375 products per week at its Nottinghamshire factory and employs 63 staff.
As well as generating new economic activity, the responsible finance industry is stimulating environmental and social impact. The industry provides critical help for the UK’s social enterprises, which are addressing significant environmental and social challenges while creating wealth that circulates in local communities.
In 2017, responsible finance providers lent £142 million to 363 social enterprises, enabling them to maintain, grow and innovate their services for local communities.
The Real Junk Food Project, which takes surplus food destined for landfill and diverts it into pay-as-you-feel cafes, is one of the social enterprises that has benefited from a loan from a responsible finance provider. Key Fund provided a loan to grow its operations.
In 2017 the responsible finance industry supported 34% more customers than in 2016. And demand for services is growing.
But in order to match the demand, responsible finance providers need the right tools and support. Responsible Finance is calling on the Government to create a £150 million responsible finance fund and a personal lenders’ tax relief, to create a marketplace for a thriving responsible finance industry.