Scaling up the UK personal lending CFDI sector: opportunities and limitations

February 6, 2020

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The Carnegie UK Trust has published new research by Community Finance Solutions, University of Salford examining how the Community Development Finance Institution (CDFI) sector can achieve a step change in growth to make a greater impact on the need and demand for affordable credit.

The CDFI sector provide small loans (around £500) and linked gateway services such as advice and savings to households unable to access mainstream financial services. Customers using CDFIs are among the poorest and most vulnerable households in the UK, such as the unemployed, benefit recipients and single parents. However, the number of loans provided by CDFIs barely registers in relation to the need for affordable credit.

The Carnegie UK Trust commissioned Community Finance Solutions, University of Salford to develop proposals for how, and whether, a 10x increase of operationally sustainable lending could be achieved by CDFIs in the UK within 10 years.

Prof Karl Dayson, Community Finance Solutions, University of Salford said:

“This research shows that CDFIs are able to reach those in most need of affordable credit. However, they are currently too small to meet the scale of the problem. If CDFIs are to fulfil their potential, there needs to be a revolution in the nature and scale of investment, along with technical assistance to transform their capacity.”

Sarah Davidson, Chief Executive, Carnegie UK Trust said:

“The Carnegie UK Trust is committed to highlighting the importance of fair and affordable credit alongside gateway services, and supporting not for profit lenders in their growth ambitions. We want to see an increase in the scale and sustainability of those providers, where the needs of the borrower are aligned with the motivation of the lender. We are pleased to see this report contribute to the debate on how the sector can and could meet these aspirations.”

Theodora Hadjimichael, Chief Executive, Responsible Finance said:

“The new Carnegie UK Trust report highlights the critically important role of CDFIs in improving people’s financial wellbeing.

“Looking at the macroeconomic trends highlighted by the authors we can expect the demand for affordable credit to intensify, particularly as commercial lenders continue to exit this market. The report recognises the CDFI sector’s potential and ambition to scale access to affordable credit in the UK – with the right environment and support. We welcome the recommendations, which would increase investment into the sector and therefore its ability to reach more people, and support this through our advocacy for a tax relief for personal lenders.

“This robust and welcome report scrutinises the CDFI business model and impact; we must all act on its recommendations to increase access to affordable credit from CDFIs for those who need it.”

Sacha Romanovitch, CEO, Fair4All Finance said:

‘This is a great piece of work that further builds the evidence base for what it will take for transformational change in this area. We call it a 10x challenge as this moves us from incremental thinking to what it really takes to scale and create a new normal. Those in vulnerable circumstances who can afford credit should be able to access it in a way that improves their life situation – we are committed to working with Carnegie in showing that it is possible to make this a reality.’

The report can be downloaded here.