Scaling Up Affordable Credit

Report of a seminar held at Coutts & Co London, 15 January 2004

Debt on our Doorstep 1 Contents

Introduction ...... 3

Mapping where we are

Karen Wood, Preston Road New Deal for Communities, Hull. .... 4 Jenny Rossiter, Church Action on Poverty ...... 4

Where do we go from here

Mandy Aitken, Impact, Sheffield...... 6 Shaun Spiers, ABCUL ...... 7 Pat Conaty, New Economics Foundation ...... 8 Liam Edwards, Money Advice and Budgeting Service, Ireland . 10

Bringing it all together

Bob Paterson, Community Finance Solutions...... 11 Andrew Chaplin, CHANGE, London...... 12 Stephen Moir, Natwest / Royal Bank of Scotland Group ...... 12

Comments and Discussion...... 13 Attendance list ...... 15

Report prepared by Catherine May (Oxfam) and Jenny Rossiter (CAP)

2 Scaling up affordable credit: Seminar report, January 2004 Introduction In January 2004, a seminar was held in London to discuss the possible policy options and institutional structures needed to scale-up access to affordable credit for those households excluded from mainstream financial services. Representatives from voluntary sector organisations, trust funds, academic institutions, government departments and the banking sector were present. The diverse nature of the participants enabled the issue to be fully explored from the needs at community level to the possible policy and implementation mechanisms at a national level. Information regarding how other countries (Ireland and the USA) respond to the problem was also provided by two of the speakers.

The purpose of the Seminar l Explore whether a major expansion of affordable credit would be an effective means of combating extortionate lending and tackling poverty, and its links with wider Government strategies in relation to financial exclusion, child poverty etc. l Engage in creative thinking as how such an expansion might take place l Examine what are the obstacles to be overcome and inputs required from the public, private and voluntary sectors to enable this to happen

The event was held under Chatham House rules – no comments made from the floor of the seminar are attributed to any individual participant.

Background to the Seminar Up to 6 million UK citizens are considered non-eligible for credit from mainstream banks, building societies and shops. This means that 6 million people are unable to access extra money as a cover for when a crisis happens, and necessity means that expenditure outweighs income. When an emergency happens, such as needing to call an emergency plumber or replace a cooker there is no potential to borrow from a bank or credit card company. At these times of crisis 3 million people turn to the doorstep lending industry (Cooper 2003), where credit is more easily available for those on low incomes, but where interest rates can be up to 800% APR or higher. These high rates of interest are often the cause of further poverty and debt. These loans are often relatively small (under £500) and short-term and include covering the financial gap faced by people between the final benefit payment to the first paycheque when moving from unemployment into paid work.

Opening remarks Niall Cooper, National Coordinator of Church Action on Poverty and chair of Debt on our Doorstep opened the seminar by welcoming participants and explaining Debt on our Doorstep’s history. The campaigning network - Debt on our Doorstep, (DOOD), is now four years old. Church Action on Poverty, (CAP) one of the founders of DOOD, first became interest in the whole area of unsustainable household debt and affordable credit following a local project based in the North-East of England which focussed on debt, social exclusion and poverty. No-one would have imagined how important the issue would turn out to be four years on. A recent Government White paper acknowledged the links between child poverty and family debt, revealing there is now a growing acceptance of debt as a social and financial obstacle to inclusion. However, there is still a great need to make the link between policy and the practice on the ground. Affordable credit is needed by millions of people; how to ensure that this access is made available was the reason for organising the seminar

Debt on our Doorstep 3 Mapping where we are

Karen Wood, Financial Exclusion Project, Preston Road Estate New Deal for Communities, Hull. The Preston Road Estate in Hull has received £55 million in government grants over the last 10 years – there are currently 86 sponsored projects in and around the estate, which is now a New Deal for Communities area. Karen Wood is the co-ordinator for the Financial Exclusion Project.

Background to the project On the Preston Road estate there is a of high level of unemployment, especially amongst young men (32%). According to local research there is an increasing number of doorstep lenders and 33% of people living there have no bank account.

The Preston Road Financial Exclusion Project aims to: - Give people, living in poverty, on the estate a voice (for example through poverty hearings) - Increase financial literacy - Develop a local Credit Union (CU) - Increase access to mainstream services – for example ensuring those without relevant ID can get a bank account

Since its founding 18 months ago the CU has over 1,000 members, 500 of whom are interested in taking out loans.

The average owed to doorstep lenders per household is £486 and on average this is paid off at the rate of £16.56 per week. These lenders are: - Retail catalogues companies - Doorstep money lenders - Cheque cashing companies and - The government’s Social Fund

Local research found that: - The cut in people’s benefits to repay the social fund often leads people to borrow from doorstep lend- ers to ensure they can make the re-payments - At Christmas time 10% of household expenditure goes on luxuries and presents, and 90% on bills/ emergencies

Reflecting on the reality of the Preston Road estate in Hull the concluding points of this presentation were that: · There is a need for joined-up thinking amongst agencies. For example in the Hull NDC project, there has been a promotion of selling computers to families at £5 a week. It should be realised that this is not a priority for people who are already struggling to make debt payments. · Telephone debt advice is pointless if someone’s phone has been cut off for not paying the bill in time. · The onus of avoiding huge debt should be on the company to act responsibly, not the borrower. · Policy makers must realise that people make decisions in the best interest of their family.

Jenny Rossiter, Policy consultant, Church Action on Poverty This presentation gave an overview of the current options available for those households excluded from mainstream financial services. The current gaps in provision were also high lighted. Recent Government initiatives to address financial exclusion include: · Basic Bank accounts & Universal Banking Services

4 Scaling up affordable credit: Seminar report, January 2004 · Saving Gateway · Community Finance Learning Initiative

These initiatives have demonstrated that the voluntary, private and public sectors can productively work together in partnership to tackle financial exclusion. It has been a good first step, but these initiatives are not sufficiently joined up and are not directly linked to providing access to affordable credit for those who need it.

Currently affordable credit is available from three sources · Private Sector/Banks · Public Sector · Community/Voluntary Sector

Affordable Credit from the Private Sector: · Sub-prime Sector - which is prohibitively expensive. While legislation may tackle some ‘unfair’ prac- tices, it will not make it affordable. · Mainstream Banking Services – Do not provide affordable credit to people on low incomes · Bank Partnership Agreements – Do provide savings and loans to some people via third party agree- ments – for example: Cambridge Housing Association & Cambridge Building Society, Prospect HA and Bank of Scotland. But these schemes are limited to specific locations and reach relatively small num- bers of people. · Support for Community Development Finance Initiatives (CDFIs) and Community Reinvestment Trusts (CRT) – many banks now have Community Banking Teams and provide grants/loans to CDFIs and Credit Unions. · Preferential Terms – sometimes banks give reasonable and flexible terms to credit unions and CDFIs

These demonstrate some very good examples of partnership agreements with banks and voluntary sector organisations to deliver affordable credit. These examples are relatively isolated and small-scale but they do provided interesting models that could be scaled up. It was noted that as both housing associations and banks have a physical presence throughout the country and are therefore well placed to provide (in partnership) extensive affordable credit schemes.

Affordable Credit from the Public Sector: The Social Fund – the total Social Fund allocation for loans is around £600 million per annum. Of this the average loan is £400 per person given to around 1 million people per annum, interest free. However the criticism of the Social Fund is that it is cash limited with only half of valid applications being successful in securing a loan. There have also been suggestions of a postcode lottery in the distribution of these funds. Another feature of the Social Fund is that it functions in isolation and not in partnership with other agencies that could collaborate in reach, delivery and signposting. The Fund is overstretched in its present form to meet the demand for loans and grants. A national debate is needed to discuss its future role, form and delivery mechanism.

Affordable credit from the Community/Voluntary Sector · Credit Unions – these are growing and offer more than financial services, however many are under- capitalised and offer few financial and human resources. People are often in the situation of having to have saved with the CU before they are able to borrow, which may not be appropriate, only about 1% of the population has access (with regional variations) · Community Development Finance Initiatives (CDFIs), some new and innovative schemes in Port- smouth, London, Salford and East Lancs · Housing Associations (HAs) – about 70 are involved in financial inclusion schemes, but few in loan schemes. HAs are sitting on £3 billion of assets and 80% of financially excluded people are living in social housing.

Debt on our Doorstep 5 · Arms Length Management Organisations (ALMOs, have been set up in some areas to manage local authority housing stock) There is a potential for ALMOs to promote loans schemes with partner organi- sations, for example Derby Loans is one such scheme · Regeneration Organisations – there are possibilities in New Deal for Community and Neighbourhood Renewal Fund areas, to set up financial exclusion projects. One such as example is the project in Hull NDC area. · Local Authorities could offer co-ordination, funding, leadership and strategy to voluntary sector organi- sations that are providing affordable and inclusive financial services.

Gaps in Provision People becoming financially included involves more than opening a bank accounts. It must also incorporate access to affordable credit and other financial products. The issue of access to affordable credit has not been tackled with the same vigour as other aspects of financial inclusion like basic bank accounts, budgeting and financial literacy

Meeting the Geographic Challenges Through systematically targeting the 88 most deprived LA areas, delivery agents such as CDFIs and CU would be able to reach many of the financially excluded households. But for any delivery agent to be successful they must a) have links and acknowledge of the local community, b) be trusted and friendly, c)have a physical presence in the area and d) have easy to use products.

Possible Solutions Financial Inclusion Partnerships (FIPs) could be a possible solution. FIPs could be based in all 88 NRF areas to provide a range of financial services including credit, savings, money advice and budgeting services. They would be partnership organisations with a lead agency which could be CU, CDFI, Bank, Building Society or Housing Association. This could be a similar model to the Sure Start system. Outside the 88 NRF areas, there would be a slightly different approach with a local agency bidding to provide leadership and coordination in areas where financial exclusion is a problem.

Conclusion · There needs to be a national joined-up approach for a comprehensive policy and delivery mechanism for all aspects of financial inclusion. · The future of the Social Fund must be opened up to debate, in order to consider the option of partner- ship in delivery with other agencies and/or the levering in of private sector money. · There is the need to change extortionate credit into affordable credit.

Where do we go from here

Mandy Aitken, Lead Organiser, Impact, Sheffield Impact is an organisation based in Sheffield that brings together institutions that are prepared to work together to create a culture where people feel safe and respected. Impact builds relationships with those who make decisions that affect national and local policy. Recently Impact has set up a not-for-profit loan company to provide small emergency loans, small loans for business start-up and home improvements.

Two main findings were evident following a community listening exercise, carried out by Impact, into financial exclusion: · Banks have been withdrawing branches from poor regions · The effects of debt on people and their families are huge

6 Scaling up affordable credit: Seminar report, January 2004 Mandy related the story of one woman she knew who had moved to the Arberthorne estate with her two children after the breakdown of a relationship. She was already hugely indebted. The repayments of these debts took £67 of her weekly benefits. These payments were to take a huge toil upon her, and her children who were sometimes unable to attend school when there was no bus fare available. Weekends would be spent with the electricity turned off in order to save money and at times the family’s existence relied on bread and candles. While the woman has been able to recover partially from these times, and is now enrolling on a university course, both her children have suffered from depression and drug-related problems. Their mother is sure that their problems have been caused by the damage done in growing up in the shadow of such huge debts.

To avoid more stories like the above, Impact set up a credit union, collection points run by mothers in the local school, This has enabled parents to access the services of the credit union at a convenient time and place. It also serves as a good example of a savings scheme amongst the children at the school. However, credit unions are unable to help everybody. They are unable to provide money immediately for emergency cover, and people may need more than the credit union can provide. Impact are now setting up a financial inclusion partnership with other local organisations including housing associations and health authorities in the Sheffield area. This should ensure access to credit and debt advice is more universally available.

Conclusion – The benefits of ending the spiral of un-affordable credit and unmanageable debts are:

· The ending the financial exclusion of people/groups of people. · The taxpayer will not be paying for debt-recovery, non-payment of services, or court cases. · A decrease in the number of people seeking NHS medical help for depression and stress resulting from debt.

Shaun Spiers, Chief Executive, Association of British Credit Unions Ltd (ABCUL) A recent IPPR leaflet reconnects the issues of financial exclusion and poverty and advocates that basic banking, while an important first step, is not enough to tackle financial exclusion. It defines financial exclusion as being a lack of the following four things: · Financial literacy · Advice/debt counselling · The availability of affordable credit · Effective delivery mechanisms on the ground.

CUs are able to deliver at all of these levels, but there is also a need to build savings and assets, as a form of safety-net insurance. At the moment, CUs are not able to give a person instant access to their money. The role of CUs has been sidelined, yet four years ago they were seen as the key solution to financial exclusion. Reasons for this are: · Partly realism - whole areas of the UK are not covered by a CU · There are only ½ million members of CUs in the UK · The regulations of CUs under the Financial Services Authority (FSA) has led to some restrictions and mergers

However, the benefits of membership of a CU by a person living in poverty are clear – access to credit with low interest (especially compared to sub-prime lenders). ABCUL are working on a PEARLS programme in Portsmouth similar to the ones developed in Guatemala where loans are not as dependent on the individual having savings at that CU.

Debt on our Doorstep 7 Future The CU movement as a whole is getting stronger, with fewer unions are representing more people. These larger unions benefit from scale and seriousness but need more funding (approx £1million in loans/assets each). The movement needs understanding from the Government (as the Scottish CUs have had from the Scottish Executive). One option would be for CUs using the Post Office network, or as distributors for the Social Fund, or benefits payment. From the private sector, CUs could work with high-street banks, using the ATMs for access to their money.

Conclusion CU coverage is fast increasing – for example there is now a credit union for the whole of East Yorkshire; one for the whole of Edinburgh, Lothian and the Borders; one for the whole of Merseyside; and more credit unions are now functioning in London boroughs.Credit Unions are becoming financially stronger. They take seriously their commitment to financial education of their members. There has been international proof of the success of the CU model. The government now needs to see CUs as part of the long-term solution to financial exclusion.

Pat Conaty, Policy consultant, New Economics Foundation Pat Conaty describe how community development credit unions, CDCUs, in the USA have helped tackle financial exclusion. The CDCU movement makes up a small but powerful section of the USA CU movement. The National Federation of the CDCUs was established in 1974, with 220 CDCU members across the USA, and their primary mission is the provision of financial services to the un-banked and under-served market. The CDCUs were set up to provide

· Technical assistance to low-income communities. Credit Unions to develop the highest quality commu- nity banking skills and business development expertise · Training services to show how to reduce costs – especially with top quality IT and most up to date systems · Strategic investment of diverse forms of capital (eg. ‘non-member’ ethical deposits) to enhance credit union assets for lending · Time-limited subsidies for operating budget and staffing The presentation was illustrated with a description of The North Side Community Federal Credit Union.

North Side Federal Credit Union The North Side Federal Credit Union, established in 1974, had a slow growth with assets under $250k and membership of under 400 until 1982, when it adopted an Economic Self-Reliance Strategy from which they:

· Appointed a full-time manager · Invested in an IT system · Prepared a Business Plan with growth targets · Implemented a local marketing plan · Attracted non-member deposits of $200K (including funds from the Federal Regulator).

By 1996, the North Side Community Federal Credit Union had over $4.2 million in assets, 3 full time employees, shop-front premises, fully repaid non-member shares and over 2,300 low-income members. The services they offered included

· Range of savings accounts · Cheque accounts

8 Scaling up affordable credit: Seminar report, January 2004 · Home-improvement loans · Personal loans for self-employment · Brokerage for other financial services through Illinois Credit Union League

Benefit of non-member shares · Increase asset base of CUs · Strengthen CU links to Community-based organisations (eg Mother and Toddler groups, Resident Associations, local voluntary bodies) · Ethical investment from local businesses, Housing Associations, local government and religious bodies

The American CDCUs’ results in 2002 were as follows: · Savings of $2.3 billion mobilised in disadvantaged neighbourhoods · New lending of over $1 billion advanced to members · Over $300 million in interest saved, otherwise paid to sub-prime and predatory lenders · Dividend income of $37 million paid to members

Turning to the UK experience, the sub-prime lenders in the UK have a profit of £3.5billion but the average profile of the largest 100 British Community Credit Unions is as follows: assets of £400,000; staffing 1 paid worker; loan size - £750; operating revenue - £35,000 (including £12,000 in grant aid) and the standard services are - savings, loans and household insurance

In contrast the profile of typical American CDCU is: · Average assets of $1.4 million · Average membership of 835 · Average staffing: 4 paid · Membership profile: 77 percent low income and over half ethnic minority · Average operating revenue: $130,150 · Non-membership deposits: 12 per cent · Average loan size: $3,500 · Average net worth (equity): $115,200 (9.8%) · Standard services: savings, loans, checking accounts/bill payment, social security benefit/pension transfer, financial literacy and financial counselling.

It was suggested that the Phoenix Fund under the DTI might be expanded to provide investment for the development of CDFI. In the UK CUs tend to offer fewer services; they could offer more, such as bill- payment. Many people struggle to pay bills and CUs could offer to pay bills and give short-term credit to act only as a buffer zone. If this model was to be adapted in the UK, it would need serious investment in IT systems, training and methods to manage risk. American CDCUs have found that many low-income households are in negative equity with debt problems. Thus they cannot save without first receiving some money advice and assistance to pay bills. The US CDCUs argue that credit unions that want to tackle financial exclusion need to offer advice, support and bill payment. The Irish Money Advice and Budgeting Services also operate similarly to CDCUs with respect to bill and debt repayment approaches. British CUs seeking to tackle financial exclusion should adopt a similar approach. Findings from NEF research has shown ways and means to deliver both bill payment and short term affordable loans.’

Birmingham Credit Union Research Project (1999) used a sample size of 445 community credit union members to prioritise additional financial services they required. These were: bill payment and budgeting service; money and debt advice; special budget account for seasonal bills (eg Christmas and school clothing) and insurance service (eg funeral plan and house contents) Financial Exclusion in Birmingham · 200,000 people lack affordable services · 60,000 residents rely on predatory lenders charging 177-1000% APR for small consumer loans

Debt on our Doorstep 9 · Low-income households in Birmingham pay £22 million a year in excessive interest payments to legal moneylenders

A project - “First Opportunities and Second Chances” is being set up in Birmingham, with the Birmingham Credit Union Development Agency and the South East Birmingham Community Credit Union Ltd. This project aims to tackle financial exclusion through improving CU access. It will provide: · Shop-front developments · Improved IT for administration services · Risk-Guarantee Fund, a city-wide additional service · Reducing the use of high-interest lenders, tacking debt, improving financial literacy · Increasing members’ savings to give choice and independence · Recruiting volunteers from low-income areas · Increasing training opportunities

Liam Edwards, National Co-ordinator, Money Advice and Budgeting Services (MABS), Ireland Lough Credit Union in Cork, Ireland first developed MABS in 1986. Its remit was to: · Provide money advice and credit union access for those with financial problems · Provide budgeting services to pay bills and repay debts · Extend small loans service to households using a loan guarantee to the Credit Union

The National MABS was piloted between 1992 and 19 94 in Dublin, Cork, Limerick, Waterford and Killrush – all were a big success. · Cork bill and payment service grew from IR£50K to IR£280K yearly · 50 MABS sites (1.5 to 3 staff per office) · 40,000 household members and IR£14 million plus turnover in 2000

These five pilots were undertaken with a budget of 330,000 euros and by 2004 there were 62 centres providing country wide service with a budget of 11.1 million euros. The MABS is a free, confidential and independent service, fully funded by the Social and Family Affairs Department of the Irish Government

The aim of MABS is to help people with debt problems and assist them in prioritising their expenditure and maximising their income. MABS initial research findings were that people: · cave into pressure rather than prioritise · agree to unrealistic agreements and · then have to undergo an unsustainable cash outflow

The objectives of the MABS are to provide: · An independent, free and confidential money advice and budgeting service · Knowledge and skills · Assistance in identifying sources of credit · Mechanisms to involve the target group · Access regardless of location · Evidence of changes needed in policy and practice.

MABS will work with individuals to make a budget plan that is reasonable and sustainable. They also work with CUs to help set up a person’s account and ensure monthly payments are met. The target groups for MABS are low income households who have limited access to financial services and who are often reliant on money lenders mail order companies

The benefits for the customers using MABS is that they regain control of their finances through: access to

10 Scaling up affordable credit: Seminar report, January 2004 affordable credit; the membership of a credit union where they can save and borrow small amounts and education to prevent further debt problems.

Some policy initiatives that have been introduced as a result of MABS include: · the use of budget meters · buying TV licenses through MABS · Local authority rents being paid through MABS · Agreement with several banks as to extended payment periods, allowing certain income retention for those is debt and the freezing of interest.

MABS may be the first opportunity that people have had to look at all their debts, priorities and make a realistic budget plan. Part of the plan is usually to introduce a person to a credit union which offers a range of financial services including debt management and access to crisis loans. The crisis loans are underwritten by a loan guarantee fund.

More information on MABS budgeting tools can be found on the web site www.mabs.ie MABS future plans are to set up a national development agency consisting of experts on development of MABS, social policy and financial literacy.

Research carried out by MABS has found the main causes of debt are : low income, no access to low cost credit and unforeseeable or un-planned incidents such as bereavement, loss of employment, marital breakdown, accident and maternity. The same research also found that people got into debt as a result of social factors such as peer pressure, lack of education, lack of access to information, inability to deal with social problems and the complexity of the system. Behavioural issues like over- commitment and addiction are also a factor associated with over indebtedness . MABS has also identified some of the effects of over-indebtedness and these include anxiety, bitterness, blame, conflict, denial, guilt, hopelessness, shame, stress, stigma, reliance on pills, eczema, increased drinking, migraines and weight loss

In the future MABS plans to set up a national development agency to promote social policy and financial literacy.

Bringing it all together

Bob Paterson, Community Finance Solutions, University of Salford and Company Secretary, Wessex Reinvestment Trust There have been three levels of solutions to “scaling up”. These are mainstream banking, Community Development Finance Initiatives and Credit Union solutions.

Mainstream Banking Solutions These have focussed on Basic Bank Accounts, Enterprise Loans and saving products such as saving gateways. All offer electronic benefit payments and bill payments, However, they offer little or no advice and support, no personal credit for low income households and no flexibility. Although banks have been engaged through the setting up of basic banking and savings accounts there has been limited support and little understanding of poverty and related issues.

CDFI Solutions CDFIs (including Community Reinvestment Trusts) offer advice and support, a wide range of loan products for higher risk consumers, business/enterprises and housing improvement loans. There is the

Debt on our Doorstep 11 potential for money advice and bill payments through CDFIs. However, they have no saving products, no insurance options available and provide limited social cohesion.

Credit Union Solutions Credit Unions( including New Model and CDCUs) offer low risk consumer loans, saving products, household insurance and bill payments. However, they do not offer business loans, higher-risk loans and only offer limited advice and support.

A Community Banking Solution What is needed is a Community Banking Partnership approach. With a proper level of investment such partnerships, made up of banks, CDFIs and Cus, could offer: · Electronic banking · Advice and support · Money advice and budgeting · Bill payments · Household insurance · Business and personal loan products · Savings products · Savings gateway · Member and non-member deposits · Grants and community investment

A second-best community banking solution would be separate CUs and CDFIs that would engage in separate and joint initiatives with banks. There would also be a community banking staff team who would offer a range of products to the customers.

Conclusions - What is needed is ambitious goals for growth. - Small is not necessarily beautiful. - Customer service is paramount. - Need a critical mass for a sustainable business to get moving - Piloting of projects to mainstreaming. - Learning from experiences to date to harness our ability to deliver. Andrew Chaplin, Project Manager, CHANGE, London The CHANGE initiative was launched a year ago to look for sustainable solution to financial exclusion for London’s social housing sector. The work is backed by ten major housing associations across London, and Barclays and Lloyds TSB banks.

Looking at financial exclusion in the widest sense, CHANGE has realised that simply throwing money at the problem does not generate long-term sustainable solutions for residents. Working in partnership and better access to financial training, affordable credit and saving opportunities (including products offered by CU and mainstream) are key components to a sustainable solution.

Stephen Moir, Community Investment Manager, Natwest / Royal Bank of Scotland Group Stephen Moir considered the role of Royal Bank of Scotland Natwest in promoting financial inclusion and gave the following examples of activities they have supported. · Providing banking services – such as Basic Bank Accounts – now being set up for every participant in the New Deal scheme · Credit and Debt management - this is difficult for banks to address, but could done through

12 Scaling up affordable credit: Seminar report, January 2004 a)signposting and b) building knowledge amongst local staff of the issues and problems of debt · Funding Independent Money Advice such as National Debtline. The RBS Natwest has provide £2.6mil- lion over 3 years to support face-to-face advice, self-help packs, and setting up www.wiseadviser., a web site dedicated to money advice. · Financial Education. RBS NatWest has been involved in 2,600 schools, setting up resources like “Money Matters” for excluded young people. This may be extend to adults in 2004. · Support for intermediaries through a Financial Inclusion Innovation Fund. £150,000 has been distrib- uted in grants to RNIB, CAB, CUs in London and Birmingham · Funding the transfer of skills and good practices. · Affordable Credit · To support the provision of affordable credit help has been given to Loan Guarantee Schemes to enable credit unions to provide loans. These schemes are still in an early stage of development.

Comments and Discussion There were wide-ranging discussions and comments about the role of different agencies and how they could work together with government to deliver affordable credit. Specific areas of concern were also aired and points of clarification were requested.

There was comment on the DTI’s White Paper on consumer credit. The point was made that the White Paper states that a cap on interest rates is unlikely at the moment. How can this be justified? asked one participant . The government seem to be prepared to spend money on tackling violent, illegal door-step lenders, but many people believe that this is not the real problem. The bigger problem concerns the legal companies like the “Provvy” whose collectors are local people (neighbours and friends). This causes additional personal and community problems. The White Paper encourages people to consult debt and money advisors like the CAB. However, it appears that funding is being withdrawn from these services.

Another point made was about the lack of furnished accommodation. People often get into debt when they move into new unfurnished housing. Registered social landlords should consider offering furnished or part-furnished accommodation, for some tenants. The provision of white goods would help prevent people getting into unaffordable debt.

There followed a discussion on the virtues of new model credit unions and community development credit unions (CDCUs). A useful comment was made about the theory behind community banking. This type of banking is quite distinct from commercial banking or commercial credit unions. CDCUs have two distinct have two parts and these provide a joined up solution to financial exclusion. The first part is about the investment needed to run in a hard-headed business manner. The second part is about community development issues such as financial education, advice and support. These development aspects are a public service not a commercial activity. Like all public services this involves public investment in the form of subsidy and/or grants.

Community Development Credit Unions should invest in home-improvement lending which would greatly increase the average size of their loans. This would support the delivery of smaller loans and sustain their industry in the long term. A big challenge for credit unions is to encourage their members to stay with the credit union after they have become more financially stable.

Turning to the profit levels of legal doorstep lenders specific comments, New Economics Foundation had examined the profits of the “Provvy” and concluded that it was a very profitable business. Although many observers may feel from an ethical stand point that these profits are excessive they are not greatly out of line with the profits of other FTSE quoted companies. This means there is a strong case for community banking pilot projects to demonstrate that there is an ethical alternative.

Debt on our Doorstep 13 A civil servant present said it would be helpful to address the following four questions: · What evidence is there that Community Development Credit Unions (or other similar vehicles) can provide affordable credit on the basis of a successful and sustainable business model? · What is the cost saving (to the public exchequer in particular) of increasing the supply of affordable credit? · Is there evidence that expanding affordable credit leads to a decline in the use of predatory lending? · Can we demonstrate that investing in affordable credit provides a better social return than any other policy option available to government?

A respondent stated that most credit union research relates to financial matters. There is currently a lack of socio-economic research that addresses the social impact and outcomes of credit unions. The point was made that all financial inclusion projects should be designed so they can be evaluated and these results disseminated to a wide audience.

There was a great deal of interest in the Irish MABS. It was confirmed that creditors are not charged by MABS for organising repayment of outstanding debts. This keeps the money clean and independent. To spread the message, people have spoken to HM Treasury and their literature has been distributed at the EU level. The MABS scheme was mentioned in the National Action Plans on social exclusion as good practice

The word “bank” is being used for the proposed community banking partnerships but one participant said that the FSA were a bit “twitchy” about this

Concern was expressed about a local credit union that was resistant to mainstream provision such as basic bank accounts. How does this fit with the notion of scaling-up and providing a range of financial services for low income households?

The point was made that there was not a one-size-fits-all solution. There are many different institutions with different cultures working in range of places, each with their own social and economic context. The challenge is to work together across different sectors to provide access to affordable financial services for all.

In conclusion the representative from the Treasury stated that all the options were possible but that nothing had been agreed on for scaling-up. There are two possible ways in which the dialogue with government can be continued, firstly, through the consultation process on the Consumer Credit White Paper and secondly, through the Treasury’s review on child poverty. There was a reminder that the 2004 spending reviews are being produced in July and so proposals for any new schemes relating to the provision of affordable credit should be submitted before this date. There is a need to construct arguments that promote the low-cost alternative models to illegal and sub-prime lenders. Government departments need to see the benefits gained from implementing alternative models. They need to feel that there is not just one department that will carry the can. Scaling up access to affordable credit needs to relate to government objectives, reviews and evaluations.

The trust funds present stated that they had supported MABS style projects, financial literacy and CDFIs but would like to be more strategic in their funding of financial exclusion projects.

The seminar was closed with a few words from Niall Cooper the National Coordinator of Church Action on Poverty, a founder member of Debt on our Doorstep. “There has been a convergence of views – hearing the same things from people from different places is fantastic. People are more ambitious now about scaling up. We have the tools, now we need the confidence to move forward, which involves working in partnership. We need a vision to move towards the mainstream and meet the needs of all financially excluded households”.

14 Scaling up affordable credit: Seminar report, January 2004 Attendance list

Mandy Aitken Impact, Sheffield Maureen Aitken Impact, Sheffield Steve Brooker National Consumer Council Mick Brown National Association of Credit Union Workers Doug Carr Barnsley Credit Union Andrew Chaplin CHANGE, London Stephen Clark Department of Trade and Industry Steve Clode Department for Work and Pensions Pat Conaty New Economics Foundation Niall Cooper Church Action on Poverty Alison Davies NetCuda, Essex Anna De Pascali Department of Trade & Industry Dawn Eckersley-Wright Saffcash, Leicester Liam Edwards Money Advice and Budgeting Service, Dublin Christine Friar Department for Work and Pensions Alice Galvin HM Treasury Jane Henderson Cooperative Bank Gina Hocking Oxfam UK Poverty Programme Nicholas Holgate HM Treasury Bill Hudson Wales Cooperative Centre Paul Jones Liverpool John Moores University Catherine May Oxfam UK Poverty Programme George McNamara NCH Catherine Middleton People for Action Stephen Moir RBS NatWest Bob Paterson Community Finance Solutions Judith Robertson Oxfam UK Poverty Programme Gill Rose Broomleigh Housing Association Jenny Rossiter Church Action on Poverty Laurence Scott Esme Fairbairn Foundation Neera Sharma Barnardos Sharon Shea Esme Fairbairn Foundation Shaun Spiers ABCUL Karen Wood Hull New Deal for Communities A N Other Tudor Trust

Debt on our Doorstep 15 Published by:

Church Action on Poverty for

Debt on our Doorstep

May 2004

Debt on our Doorstep c/o Church Action on Poverty, Central Buildings, Oldham Street, Manchester M1 1JT www.debt-on-our-doorstep.com

16 Scaling up affordable credit: Seminar report, January 2004