What do you do when your oven breaks down and you don’t have the savings or the available credit options to buy a replacement? Or when the car you need for work breaks down, but you have no way to afford the repair?
The No Interest Loan Scheme Pilot exists to provide a possible solution for people with a need for responsible credit but who can’t access existing options.
One of Fair4All Finance’s strategic priorities is to develop the market to consistently provide products that meet the needs of all customers. Following a successful proof of concept in 2022 our No Interest Loan Scheme continues to provide small, short term, interest free loans to people for whom borrowing is an appropriate solution but who can’t access existing forms of credit. We’re delighted to be delivering this with support from Treasury (HMT), JP Morgan, Scottish and Welsh Devolved Administrations, Fair by Design and Toynbee Hall.
Early indications suggest these loans are helping people manage life events and get back on their feet, and ware providing a vital stepping stone to longer term financial resilience.
The story so far
Learnings from Australian no interest loan scheme, run by Good Shepherd Microfinance, shared with UK government, financial services and civil society
Toynbee Hall and StepChange develop initial pilot proposal for Treasury
Autumn Budget statement includes Treasury commitment to carry out feasibility study into a NILS, and Treasury appoint London Economics to deliver this
Feasibility study report delivered highlighting key questions to answer and/or test in a pilot
Toynbee Hall, Fair By Design and Fair4All Finance form partnership to work with Treasury to design a pilot ready to launch when circumstances allow
Treasury include provision for a NILS pilot in the March 2021 budget
Fair4All Finance is appointed by Treasury to run the pilot and announce partnerships with Toynbee Hall and Fair By Design. Fair4All Finance run market engagement and launch lender procurement
Fair4All Finance secures funding from JPMorgan for additional pilot site and financial coaching (financial coaching delivered until June 2024)
Proof of concept lending begins with South Manchester Credit Union
TransUnion analysis of NILS proof of concept borrowers. Fair4All Finance commissions credit risk partner to support with onboarding NILS lenders and compliance and responsible lending checks
Fair4All Finance commissions Duplicate Loan Checker System tool, learning from Covid fraud support
Financial Conduct Authority advice on Financial Ombudsman Service fee exemption for credit unions. Fair4All Finance commissions Lightning Reach to build grant checker to be integrated with benefits calculators, for use by lenders
NE First Credit Union and South Manchester Credit Union start delivering in full pilot. Fair4All Finance commissions Behavioural Insights Team to support NILS lenders to optimise journeys and maximise benefits calculators use
Fair4All Finance and Treasury secure lending contributions from Welsh and Scottish Governments
Social Credit Cymru starts delivering in full pilot. Fair4All Finance commissions Debt Free Advice to deliver Financial Coaching to NILS recipients, funded by JPMorgan
Capital Credit Union, Fair for You and Salad Money start delivering as part of the full pilot.
Fair4All Finance workshop with lenders on what to change, improve and learn from
PwC process evaluation (first interim report) delivered
Experian and Equifax deliver provision analysis on NILS borrowers’ credit files
PwC impact evaluation (second interim report) delivered
Social Credit and Leeds Credit Union start delivering in full pilot
Second Fair4All Finance workshop with lenders on what to iterate and focus on during the remainder of the pilot
Delivery of PwC’s final evaluation of the NILS pilot, including both process and impact evaluation, using a full counterfactual analysis
Where are we now?
The NILS pilot has been running since November 2022. Up until the end of May 2024, we’ve seen 10,770 NILS loans (over £7.9m of lending) disbursed across Great Britain by seven lenders. We expect to see more than 14,000 loans issued by the end of August 2024.
After a slow start, in part due to technology and capacity challenges as well as the impact of the rising cost of living on customers’ ability to afford even small loans without interest, the pilot picked up pace over the course of 2023.
Early indicators are encouraging and suggest that the pilot is having a positive impact, increasing customers’ ability to access affordable credit. NILS is also benefitting lenders, enabling them to serve customers in vulnerable circumstances who they would otherwise have declined from an interest bearing loan.
PwC, the independent evaluation partner of the pilot, delivered an interim process evaluation report in October 2023 and an interim impact evaluation report in March 2024, which we will publish in the coming months.
We’ve been able to use the findings from these reports to inform changes and areas of focus for the remainder of the pilot. PwC’s full evaluation of the pilot will take place in 2025 and 2026, and will test the benefits of NILS to customers, society and the economy, and show whether a permanent nationwide NILS can be delivered in a sustainable way.
Snapshot: Who are the NILS customers?
£742 is the average NILS loan value, with an average loan term of 12 months
33% of NILS customers live in social housing
22% of NILS loans were issued for essential household items or furniture
- 85% of NILS customers are in full time employment
- 41% of NILS customers are private renters
- 21% of NILS customers were issued for utilities or bills
Frequently Asked Questions
Why a No Interest Loan Scheme?
We know small amounts of credit for people in vulnerable circumstances can be transformational. However, many people are declined for credit, either due to affordability (which includes repaying interest as well as the capital) or lending criteria (credit risk).
No interest loans will provide a vital financial cushion for people unable to access or afford existing forms of credit, but who can afford to repay small sums, by offering a way to spread essential or emergency costs. All customers who receive a no interest loan are assessed against affordability, and will only be lent to if it’s responsible to do so.
What is the pilot aiming to test?
The pilot aims to test the benefits to customers, society and the economy of a no interest loan scheme (NILS), and show whether a permanent nationwide scheme can be delivered in a sustainable way. We’ll be testing several variables, including loan amounts, repayment periods and terms, eligibility and determining payment rates.
The ultimate objectives of the pilot are to:
- Demonstrate whether there is demand for NILS and the propensity of borrowers to repay
- Identify and evidence impacts on borrowers who access NILS to evaluate whether there are positive customer outcomes and wider fiscal and societal benefits attributable to the scheme
- Assess the long term sustainability of delivering a permanent UK NILS, by determining the cost of the scheme and therefore the support required to make the scheme sustainable
How many loans are you planning to provide across the pilot?
What will people be able to use the loans for?
The general principle is that the loans must have a social benefit, subject to lender discretion. This could include borrowing for:
- Essential items (eg white goods, children’s clothing)
- Rental deposit to prevent homelessness
- Unexpected expense (eg car repairs, dental bill)
- Education/training
- Carer respite/mental health break
- Wellbeing reasons
How much are the loans for and how long is the loan term?
Loan amounts range from £100 to £2,000. The average value of a NILS loan to date is around £740. Repayment terms are on average one year but can be up to two years.
How can I get a loan under the NILS pilot?
To receive a NILS loan, potential customers go through one of the following routes:
- They apply for a standard product with one of the lenders and are declined. Their application is then tested for NILS eligibility and for affordability.
- They are referred through referral partners who work with lenders, for example charities, housing associations, local authorities, religious or community groups.
There is currently no specific NILS marketing activity and no direct route to receive a NILS loan without going through the decline or referral pathway.
Which parts of the country is the pilot running in?
The pilot is currently running across all of England, Scotland and Wales.
What happens if someone misses a repayment or can’t pay the loan back?
We anticipate that NILS borrowers will need flexibility to make repayments and may need to adjust their payment plan to reflect the volatile circumstances that they may be confronted with. Our assessment criteria and product design process involve making sure that lenders have an effective approach to lending flexibility to this customer cohort and an appropriate collections approach which encourages borrowers to agree new payment plans.
If borrowers are persistently unable to pay the loan back there is a guarantee mechanism for the lenders along with outcome based payments to encourage effective collections activity.
How will you evaluate the pilot?
We have commissioned PwC as an independent evaluation partner of the NILS pilot. In October 2023, they delivered a process evaluation (first interim report) and in March 2024 they delivered the impact evaluation (second interim report).
Following the final new NILS loans in August 2024 , PwC will conduct the final evaluation report, for delivery in 2026 This will encompass the full impact and process evaluations, including full counterfactual analysis through quasi-experimental approaches, using ONS Wealth and Assets survey comparisons, as well as a value for money assessment of the pilot.