How we can deliver a scaled affordable credit market for those who need it most

Scaling the provision of affordable credit has been a priority for Fair4All Finance since we were formed in 2019. There is a large and growing gap in provision to people in financially vulnerable circumstances – estimated to rise to at least £3bn by 2025.

While credit isn’t always the right answer for everyone in financially vulnerable circumstances, we know access to a small, short term loan can help people smooth incomes, meet unexpected costs and start to build their financial resilience.

We’ve invested £30.2m in community finance providers so far through our Affordable Credit Scale Up Programme, backing business plans projected to triple the availability of affordable credit to over £900m by 2025.

The size of the gap is too big for just one part of the sector to solve though. Others are needed to support and serve this market.

Collective action is required

In 2021, the Woolard Review from the FCA set out an ambitious pathway to building a healthier consumer credit market. It set out recommendations on increasing access to and availability of affordable credit, including convening mainstream lenders to discuss their role in better serving customers in vulnerable circumstances.

In response, we recently convened a roundtable of community finance providers, for profit purpose led lenders, high cost short term credit lenders, mainstream finance providers and other potential investors, hosted by EY.

The purpose was to bring together a diverse range of perspectives on how a scaled affordable credit market can be delivered to those that need it.

The roundtable explored why the expansion of affordable credit is important and what the barriers, constraints and opportunities are (including financial and policy mechanisms).

Across the organisations and industry sectors represented there was a clear consensus on the issues and need for collective action by the sector, government and the regulator.

Creating a sustainable ecosystem will require significant change

The £3b gap in provision of affordable credit presents a real market opportunity for growth. It will need significant participation of commercial players alongside community finance providers.

For this to happen there are some important issues to address which we will continue to explore:

• How can we signal that providing affordable credit is a good thing to do?
• How can we create a regulatory environment that provides more certainty and sustains consumer protections?
• How do we create structures and incentives to sustainably fund and service affordable credit provision to customers in financially vulnerable circumstances?
• How could we enable innovation and investment in tailored product design for this customer group?

During Talk Money Week we took part in a parliamentary event co-hosted with MaPS where MPs and leading industry stakeholders discussed and continued to develop our understanding of the barriers to scaling affordable credit provision with a focus on potential legislative or regulatory solutions.

This series of roundtables and discussions culminates with a sprint workshop we are co-convening with the FCA on 14 December which will have a solution focus and identify and prioritise areas for cross sector collaboration in 2023.

Stakeholders and experts from across mainstream finance, the affordable and high cost credit sector social and other investors will join representatives from the FCA and government in identifying actions which stakeholders can take to enable a sustainable affordable credit market for consumers who struggle to access mainstream credit.  

We know that by doing so, together we can make a difference to the lives of millions of people.