Blog: How the No Interest Loan Scheme is helping to reduce the poverty premium

The No Interest Loan Scheme (NILS) has now provided £10 million in affordable credit to people in financially vulnerable circumstances. Maria Booker, Head of Policy at Fair By Design writes about how NILS is helping to reduce the poverty premium.

At Fair By Design, we want to get rid of the poverty premium – that is the extra money that people pay for essential services because they are poor. 

Nowhere is this more evident than in the credit sector. Many people with low incomes find themselves with few, if any, options to borrow money when they need to. 

While credit is not the solution for insufficient income, it is essential to smooth out the ups and downs in income that we all experience throughout life. Whether it’s fixing a car or replacing a broken washing machine, access to credit can make all the difference when someone’s savings fall short. 

And while those who are healthy and wealthy are likely to have lenders falling over themselves to offer credit at competitive rates, anyone who has a black mark on their file, or who does not have a history of using credit, is likely to get offered a very different deal. Ironically this often means that those who can least afford a high interest rate are the most likely to get charged one. A classic example of the poverty premium.

There is a lot more to be done to make sure that affordable credit is available to everyone who needs it. However, for some people, paying any interest will still be unaffordable.

That’s why back in 2021, Fair By Design was excited to partner with Toynbee Hall and Fair4All Finance to test the hypothesis. Offering a way to spread essential or emergency costs to people who can afford to repay small sums can provide a vital financial cushion in a sustainable way.

The idea was initially tested through proof of concept loans. The full pilot, the first of its scale in the UK, began in October 2022, with support from the Treasury and the devolved administrations matched by Fair4All Finance funding in England.

And we are delighted that the pilot has just reached a significant milestone: over £10 million in credit has been made available. This has offered a lifeline to thousands who would otherwise have been turned down for loans, pushing them towards the dangerous territory of illegal moneylenders or exorbitant interest rates and huge poverty premiums. 

This scheme demonstrates that, when provided responsibly, small amounts of credit can be transformative – helping people smooth out their incomes, weather financial storms, build stronger financial resilience, and avoid paying the poverty premium. 

The early success of this pilot strengthens our belief that schemes like NILS should be rolled out across the UK. We are looking forward to seeing the final evaluation in 2026.

By offering a fair alternative, NILS is helping people get back on their feet and preventing the financially vulnerable from falling into the traps set by illegal lenders – long may this continue.