Can social enterprise challenge the payday loan companies?

Why is so little being done to tackle the fact that the less money you have, the more you are forced to pay for household items? Items such as cookers, fridges and buggies are considered by most as essential to give their family a basic standard of living.

Much has been said about the need for the financial regulator to clamp down on rip-off high cost credit providers, including payday lenders and rent-to-own stores, and there has been some progress in this arena. Less has been said about why there are so few alternatives. That must change, and a recent independent report into the problem is calling for a radical shake up of low-cost credit provision for the 12m people unable to access mainstream credit.

A recent report by the Centre for Responsible Credit examines the social impact of Fair for You Enterprise CIC, a new not-for-profit challenger to high cost credit, and suggests that this is one of the only workable solutions to the problem.

We believe that the UK government and social investment community should be looking to back social enterprises like this that have proven financial and social return on investment (the report shows that for every £1 spent in our first year, the return is £4.56) as well as the potential for rapid national scaling.

Passion and perseverance

With passion and perseverance this community interest company has established an accessible, online low-cost loan service which is already allowing around 5,000 people from the UK’s poorest communities to buy fridges, beds, washing machines and other family staples through its retail website.

Its CEO Angela Clements has a background in the credit union world and has built an expert team which has matched credit union interest rates even whilst incurring initial start-up costs. She ran one of the most successful credit unions in the country for many years but came to realise that this was only part of the answer – just as commercial lenders have to return dividends to shareholders, even credit unions face limitations to scaling up due to their duty to their members and capital lending restrictions.

Fair for You is wholly owned by a charity (of the same name) and, as a genuine not-for-profit, it ploughs any surplus into offering the best possible rates to its customers.

The CfRC report showed that half of our customers are less anxious, stressed or depressed as a direct result of using the service; almost half have seen an improvement in their physical health and over a third report that their children’s health and wellbeing has improved as a direct result of taking a low-cost loan.

Some of these benefits arise from the freedom of no longer fearing that a slight financial bump in the road will result in their cooker or dryer being taken away by rent-to-own providers. Others mentioned their ability to cook fresh food or save money by buying in bulk. And that’s before one considers the direct cost savings, calculated at over £500 per item, compared with buying equivalent items at a large chain of rent-to-own stores.

The benefits of being a social enterprise

Operating as a social enterprise has enabled us to grow our lending pot thanks to many leading social investors. We were lucky that four investors have backed us from the day we received our lending licence. Joseph Rowntree Foundation, Esmée Fairbairn Foundation, Tudor Trust and Barrow Cadbury Trust have between them committed £2m over five years.

Just last month, this pioneering troop were joined by The Robertson Trust and Social Investment Scotland. Their investment of half a million pounds will give 3,000 Scottish households the chance to help themselves out of poverty by increasing the availability and affordability of credit on essential household items, generating an annual saving of around £1.7m for those customers.

Fair for You Enterprise CIC is not a charity, though owned by a charity. It is a lending business and we are firm and clear with customers. We expect them to pay down a loan before they take another one; we will pursue for arrears – firmly and quickly – though we won’t add on crazy fees and costs for the privilege of doing so, and we welcome back customers that have previously fallen off a payment plan.

For now, we look different to other lenders. We believe that is set to change, because whilst we have walked a path less trodden, there are good commercial reasons to be a social enterprise in this space. We are urging the government’s Inclusive Economy Unit to respond to our work and the CfRC’s report constructively – working with us and social enterprises like ours to create a better society.