Community Finance Sector Reporting – Q3 2022

16 December 202216 December 2022

Each quarter we gather information from across the community finance sector, creating a snapshot and sharing insights and trends with those that take part. We also benchmark organisations with one another providing a useful look at how you may be performing in comparison to other community finance providers.

There’s more information about how you and your organisation can take part at the bottom of this article, but first let’s look at the headlines for Q3 2022.

Loan books continue to grow steadily

Average gross loan books across 18 organisations is at c£6.6m in Q3 2022. This compares to an average of £5.5m in Q3 2023 and £5.8m in Q3 2021
Accumulated gross loan books across all organisations has increased by c14% and when compared to this time last year, accumulated net loan books are up by c17%
We’ve seen a spike in customers applying for loans for school uniforms with one participating organisation noting 24% of all loan applications in August were for uniform. Other trends remain largely similar to the previous quarter (home improvement, debt consolidation and household). Similar to last quarter there are growing numbers of applications to over essential bills
The average new loan value was £953. For credit unions with a gross loan book equal to or below £5m the average was £1,233. For credit unions with gross loan book size above £5m it was £970, and for CDFIs the average was £641

“A rise in debt consolidation which is encouraging. However, also seeing requests for short term funds‘

41% of respondents report an increase/slight increase in arrears

The average monthly surplus in Q3 2022 amongst credit unions was £13,269
As expected, 78% of respondents saw their arrears and default rates increase or remain stable
The cost of living crisis has been referenced many times to explain this, as well as increases in the overall customer base and in debt management

‘There is a slight upward trend in the last quarter and this is being monitored closely, bad debt rates are still well below the FCA guideline figure‘

Lending increased but the cost of living crisis continues to affect lending trends

Lending volumes increased across all organisations by c54% when compared to Q3 2021 and the accumulated value of loans increased by c14%
On average, participating organisations were issuing around 1,100 loans a month

‘We are helping customers cover their basic expenses more than ever‘

Lending will increase in Q4 although it is expected to be modest when compared to previous years

In line with seasonal trend, the majority of respondents indicate an expected increase / slight increase in lending as we move into the next quarter because of Christmas and Q4 being their busiest period
An increasing number of organisations expect to see continued growth in loan applications but a reduction in overall lending and an increase in declines
44% of those that took part in our survey noted they’ve tightened their lending criteria in some capacity as a response to the current economic environment

‘Even though our application rate is higher, we expect loan approval to be lower than budget due to tighter lending criteria of affordability and credit risks’

Despite focus on stricter lending criteria, majority of respondents expect arrears to increase in the next quarter

56% of respondents expect their arrears to increase slightly in Q4 2022 because of shortfalls in household income, rising energy and food costs, consumer financial stress and inflation.
Respondents indicated their arrears are expected to remain the same or decrease slightly due to there being an additional focus on quality loan book, anticipation of additional help from the government and other agencies, and regular review of loans and provisioning policy

‘As the cost of living increase bites, we anticipate a number of our members will face financial hardship. A lot depends on what the government and other agencies are prepared to do to help the vulnerable population. We anticipate there will be additional help towards the increase in the cost of living and as a result arrears level will not significantly change’

Support continues for those customers in vulnerable financial circumstances

91% of new loans issued in Q3 2022 were equal or below £1k and 49% had a repayment period of 52 weeks or less
On average 57% of new loans were issued to social housing tenants and 54% were lone parents with dependent children (from a survey of 8 respondents)

‘I was really struggling with my wellbeing during the recent price rises and lump sum Bills I had … They understand the current mental health situation’

Benchmarking within the community finance sector

We provide all organisations that take part in our insights survey a detailed report of our quarterly sector analysis and findings, along with an individual report benchmarking their organisation against the performance and position of other respondents. This includes key performance metrics and can be a useful tool in your strategic planning allowing you to measure your performance and processes against others and identifying areas of best practice and improvement.

Our sector reporting also enables us to be as informed as we can be, supporting and informing our work and close relationships with trade bodies and other sector organisations – the more insights and information we share with each other, the more we can work towards successful outcomes for the sector.

If you would like to take part in future reporting, please contact the team at Programmes@fair4allfinance.org.uk