There are times in life when obtaining credit is vital. Moving house, for instance, can involve new furniture and white goods, as well as finding the cash for a removal van, rental deposit and other fees. If you don’t have savings, wealthy friends or an overdraft agreed with the bank, where do you turn?
In recent years, we’ve seen an enormous growth in credit providers offering quick loans to people on low incomes. These customers do not always have easy means of making regular repayments, so there remains the risk of racking up hefty debts.
Many high-cost credit providers continue to target people with little money
Although an outcry over extortionate payday loan rates forced the government to impose tougher lending rules two years ago, many high-cost credit providers continue to target people with little money and fail to offer them the flexibility their unstable incomes require.
To make matters worse, the country’s poorest families are liable to pay the highest prices for basic goods: hire-purchase retailers charge a premium for essential items paid off in instalments.
Yet small loans remain vital. At Big Issue Invest – The Big Issue Group’s social investment arm – we think there is a compelling need for more ethical, affordable alternatives to fill the vacuum, since many people still struggle to access mainstream credit through banks and building societies.
And thankfully a growing number of responsible lenders are trying to do things differently. One of a new breed of online lending companies is Fair For You, a social enterprise that bills itself as a community-minded alternative to the hire-purchase payment stores.
Their online catalogues allow people across the UK to choose essential household goods, everything from fridge-freezers to rugs, prams and bikes at a simple, transparent rate.
Because the charge is standardised, staying at three per cent interest a month regardless of how long the loan goes on for, it prevents repayments spiralling out of control. The representative APR is 42.6 per cent – lower than the mainstream hire purchase companies catering to the same audience.
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Founder and CEO Angela Clements previously ran a credit union in Birmingham, and says she wanted to bring its community-minded ethos to Fair For You. “Our business is about charging a fair price to people who need basic things without getting ripped off,” explains Clements.
The average, median income of Fair For You’s customers is just £170 a week, and Clements says many are single mums struggling to balance occasional or part-time work with family responsibilities. “We want to help homemakers stuck on low incomes to create a stable place to live for their family,” says Clements.
Unlike the mainstream “rent-to-own” firms like Brighthouse, where customers don’t own the goods until the last payment, Fair For You allows its customers to own their purchases outright from day one.
There are no delivery fees, no late-payments fees, and if customers miss a repayment for whatever reason, Fair For You works with them to come up with a new repayment plan. “We believe in treating all of our customers with dignity and respect,” says Clements. “We’re really not interested in tough collection tactics if customers are in any difficulty.”
Fair For You is part of an emerging movement of community development finance institutions (CDFIs), a movement Big Issue Invest is keen to help grow. Both Street UK and Moneyline have benefited from financial support from Big Issue Invest to expand their work.
Based in the West Midlands, the social enterprise Street UK was set up to “displace the abuses of high-cost, predatory lenders” and to show that “the least well-off members of our community could be shown to be credit worthy”.
The least well-off members of our community could be shown to be credit worthy
Moneyline is driven by similar aims. It is also run as a not-for-profit social enterprise, with all profits ploughed back into its community work, mainly in the north-west and South Wales. Like Street UK, it does not compound the interest it charges, so its customers are much less likely to spiral into debt.
Moneyline’s CEO Diane Burridge says the organisation’s clients “live on limited incomes but are really good at managing their income day to day. It’s just that when an unexpected expense comes along, they need credit to be able to spread the cost over time.”
Based in Teesside, Five Lamps is another organisation determined to remove barriers to financial inclusion, and serve people finding it hard to access affordable credit. As well as offering affordable personal loans, Five Lamps offers home care, youth clubs and enterprise coaching.
These organisations are making sure everyone has the right to access affordable credit. No one living in Britain today should be forced into debt for basic necessities. That’s why we’ll continue to support the responsible lenders putting customers’ needs above profits.
Ed Siegel is managing director of Big Issue Invest