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Examining the impact of social lending
Ethex investors can now support Fair for You, a charity-owned social lender that provides affordable and ethical credit to financially excluded families across the UK as they have launched a new IFISA Bond offer on the platform.
Fair for You Enterprise CIC Bond Offer: Examining the impact of social lendingWe are excited to announce that Ethex platform investors can now support Fair for You, a charity-owned social lender that provides affordable and ethical credit to financially excluded families across the UK, which means they can purchase household goods and essential services. While the full details of this offer are available on their Ethex profile, this blog discusses the broader context of Community Development Financial Institutions (CDFIs) and the environment in which they operate.
“If you haven’t heard of CDFIs, these lenders with a social purpose are doing a brilliant and important job, providing affordable loans to credit-impaired people and small businesses at far lower rates than they could otherwise access. There’s just one problem. They’re tiny!”
Clear Barrett, Financial Times, September 2023
CDFIs are mission-driven, community-focused lenders that operate as non-profit social enterprises. They provide loan financing to households and businesses that are unable to obtain credit from traditional banks. CDFIs are critical in bringing capital to chronically underserved communities. CDFIs finance over 50,000 existing small businesses with viable business proposals that are either turned down for bank financing or are sufficiently discouraged to not apply (Community Enterprise Growth Plan.)
Lending with impact
CDFI lending has a high level of measurable social and economic impact when it is informed and evidence-driven. On average, 35% of CDFI lending is to the most deprived areas—nearly double that of traditional lenders—and 36% of CDFI business loans were made to women-led start-ups and businesses in 2022, which is roughly double the proportion of UK businesses led by women overall.
According to research conducted by Responsible Finance, the membership organisation for responsible finance providers, the number of people and businesses borrowing from CDFIs increased by 22% last year to nearly 95,000. There is evidence that CDFIs contribute to 10 of the 17 Sustainable Development Goals of the United Nations, and their impact has received praise from all political parties.
Although mainstream banks provide significant amounts of wholesale capital to CDFIs in areas like the United States, this practice has yet to catch on in the UK. Responsible Finance claims that the ability of CDFIs to raise capital to lend is a major constraint on their lending capacity. The use of Dormant Assets, through organisations such as Fair4All Finance, has created a new source of patient capital, which has unlocked significant additional lending capacity for the sector, in part by blending with and stimulating higher levels of private investment.
People taking the lead where banks are failing.
Positive investors on the Ethex platform have recently shown a significant appetite for driving change in financial services by backing organisations like Great Western Credit Union, whose recent bond offer on Ethex raised just under £2 million. The popularity of the GWCU bond offer is a sign of the concern people have about the continued effects of the cost of living crisis on low-income and vulnerable families.
The new Fair For You Innovative Finance ISA-eligible bond offer represents a new opportunity for socially-minded investors to create impact and scale in this crucial sector of the economy at a time when fair, ethical, and affordable finance options are needed more than ever.
Creating a positive chain reaction
The Financial Inclusion Centre (FIC) conducted an independent evaluation in early 2023, which found "clear and robust evidence of the positive impact that Fair for You is having on the health and wellbeing of their customers." The FIC discovered that "providing access to fair and affordable finance to help people purchase essential household items is helping to reduce levels of stress, depression, and anxiety.” It also gives people a greater sense of control over their daily lives. According to research, addressing these issues can provide a variety of benefits for those in low-income households or struggling with poverty, such as reducing stress, increasing confidence, and freeing up mental space for other purposes, as well as supporting more effective decision-making.
Their evaluation found that “two-thirds (67%) of customers borrowing from Fair for You to purchase household items reported a positive impact on their health and wellbeing. There was a 33% reduction in the proportion of customers experiencing stress, depression, or anxiety as a result of their living situation before and after purchasing their household items and an 18% increase in the proportion of customers feeling more in control of their daily lives.”
Bina (not her real name) is one such example; she is in her early 50s, registered disabled, and unable to work. She shares her home with one of her adult children who has special needs, as well as two grandchildren. She has been a Fair for You customer for five years and has borrowed to purchase several essential household items, including two cookers, a dishwasher, and a washing machine.
Bina was unable to obtain mainstream credit due to a lack of savings and a poor credit file, and her only options were high-cost, high-interest loans or illegal lenders. Bina will have saved £1,500 on her appliances over her five years with Fair for You when compared to her alternative options. Fair for You will also have logged her monthly payments to credit reference agencies to raise her credit score and repair her credit file, so that Bina can now use a wider range of low-cost credit providers.
Bina says: “Because I can’t work and therefore my income is low, I did use to worry all the time about needing to replace appliances. I would stress about things I needed and couldn’t afford, which had a massive impact on my health and wellbeing. Now I don’t have to worry so much. Fair for You have made buying appliances so easy and affordable. I know I can turn to Fair for You if I need to, so I don’t worry anymore. I am less stressed these days and a lot happier in myself.”
You can be a part of it.
People can invest as little as £350 in their bond offer on the Ethex platform to help Fair for You continue to grow, innovate, and provide more people like Bina with an ethical and affordable option for financing the essential items their families require. The bond offer targets a return of 8% and is eligible to be held within an Innovative Finance ISA for potential tax-free returns. To learn more and invest, visit their Ethex profile page.
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