Expanding affordable credit from responsible lenders and leveraging funding, through guarantees and impact investments

One of Fair4All Finance’s objectives is to ensure that fair and responsible lending options are readily available to people in financially vulnerable circumstances who are currently often excluded from mainstream finance.

To this end, Fair4All Finance is making funding available in support of a new Guarantees Pilot for Affordable Credit subsidy scheme.

This subsidy scheme aims to address the lack of affordable credit by scaling up the supply of sustainable, short-term, small-sum loans. We intend to allocate £25m+ initially to responsible lenders in the form of funding guarantees, lending guarantees, junior debt capital, and ancillary grants (and similar instruments), with the potential to significantly extend (up to £50m) as further funds are available.

We expect the responsible lenders to be community finance providers (Community Development Finance Institutions (CDFIs) and Credit Unions) and non-bank commercial lenders that are lending responsibly. All lenders must meet the relevant provisions in Fair4All Finance’s Affordable Credit Code of Good Practice (updated in 2026, the “Code”), where appropriate, and at a minimum ensure the lending supported by the subsidy scheme complies with the Code. Non-bank commercial lenders must also satisfy Fair4All Finance’s Guardrails for non-bank commercial lenders.

We’ll be launching the Guarantees Pilot in the coming weeks, in the meantime please direct any questions to David Coombs at david.coombs@fair4allfinance.org.uk

Details of the subsidy scheme are below:

Subsidy scheme name

Guarantees Pilot for Affordable Credit

Expanding affordable credit from responsible lenders and leveraging funding, through guarantees and impact investments

Specific Policy Objective

The policy objective for this subsidy scheme is to remedy the market failure of an undersupply of commercially viable affordable small sum, short-term, unsecured credit (referred to in this upload using the shorthand “affordable credit” and described further below) lent responsibly to people in vulnerable financial circumstances. Addressing this market failure will help to address inequity of access in consumer lending for non-prime borrowers who are often currently unable to access affordable responsible credit from mainstream providers and find themselves either excluded or paying significantly more.

The policy objective will be achieved by using subsidy to scale the provision of commercially viable affordable credit from responsible lenders to people in vulnerable financial circumstances. The subsidy will be delivered primarily by using funding guarantees, lending guarantees, junior debt capital, and ancillary grants related to the implementation of these instruments (although other financial instruments such as equity or other forms of debt may be used as required to support the policy objective of this subsidy).

• We expect the affordable credit being scaled to be small sum, short term unsecured lending. This will typically be loans that are below £1,500 and that can be repaid within a 24-month period. We have a preference for loans that are towards the lower end of this range (below £1,000 and/or repaid within a 12-month period), but loans may also be above the thresholds (above £1,500 and/or repaid over a period greater than 24-months) if appropriate in the circumstances.
• Affordable credit must be appropriate to the needs of people in vulnerable financial circumstances, flexible and affordable. This includes ensuring the lending which is supported by the scheme complies with Fair4All Finance’s Affordable Credit Code of Good Practice (as updated from time to time, most recently in April 2026, the “Code”)).
• The affordable credit supported by this subsidy scheme must be provided with the intention and potential to develop commercially viable provision in the long-term without the provision of subsidy from this scheme.
• We expect the responsible lenders to be community finance providers (Community Development Finance Institutions (CDFIs) and credit unions) and non-bank commercial lenders that are lending responsibly. All responsible lenders must meet the relevant provisions in the Code, where appropriate, and at a minimum ensure the lending they provide which is supported by the scheme complies with the Code. Non-bank commercial lenders must also satisfy Fair4All Finance’s Guardrails for non-bank commercial lenders – demonstrating the ability to meet these standards is accordingly a key part of the eligibility criteria for this subsidy scheme.
• The responsible lenders covered by this scheme excludes banks, building societies, and large-scale credit card providers as we have made other support available to them through another Fair4All Finance subsidy scheme, the Small Sum Lending Access subsidy scheme (SC11401) launched by Fair4All Finance in September 2025 (“Small Sum Lending scheme”).

Summary of further detail (evidence and sources on our webpages):

• The UK credit market is not working well for millions of people. There is evidence of a £2bn gap in access to affordable credit that can be met through commercially viable, responsible lending. This gap between demand and supply for commercially viable, responsible lending is expected to grow by 2030.
• Access to affordable credit is an essential part of financial resilience. Everyone should be able to rely on access to responsible, affordable credit when they need it. Delivered appropriately, it helps people meet unexpected costs, smooth their incomes or make upfront purchases they couldn’t otherwise afford.
• The current credit landscape has evidence of market failure. Lack of access to credit, and the consequent use of unregulated or illegal money lenders, give rise to a negative externality relating to people in financially vulnerable circumstances who can experience financial pressure and stress, negative mental and physical health and wellbeing impacts, fear and shame, and lower life satisfaction. Information failure regarding credit performance of new customer groups and the risk appetite of responsible lenders causes lenders to be reluctant to serve these new customer groups. Information failure and the risk tolerance of investors constrain external investment into responsible lenders.
• The market failure has implications for inequity of access in consumer lending, as over the last decade low and lower income households have sought credit from a contracting marketplace, with those most likely to reduce or dip into their savings, cancel insurance policy premiums or forego pension contributions being those with the lowest incomes, living in rented accommodation or from black, Asian or minority ethnic backgrounds.
• The gap in affordable credit also has economic growth implications. Modelling by WPI Economics finds that improved financial wellbeing could add £5.9bn to the UK economy each year from increased productivity and employment.

Subsidy scheme description

The terms and conditions for eligibility

An application for subsidy is made in response to a published brief from Fair4All Finance which sets out the desired outcome. It will be available to a wide range of recipients and market participants through a competitive process.

A recipient must be a responsible lender that:

• Has the ambition and potential to provide a significant scale of affordable credit – by this we mean small sum, short term, unsecured loans that are typically below £1,500 and that can be repaid within a 24-month period (as above). We have a preference for loans that are towards the lower end of this range (below £1,000 and/or repaid within a 12-month period), but loans may also be above the thresholds (above £1,500 and/or repaid over a period greater than 24-months) if appropriate in the circumstances.
• Is a UK-registered organisation.
• Will be using the subsidy to support the provision of affordable credit predominantly to borrowers in England (to align with conditions relating to the deployment of Fair4All Finance’s Dormant Asset funds), although we can consider delivery from the Devolved Administrations of Scotland, Wales and Northern Ireland.
• Has a relevant lending licence/permissions, such as being regulated by the Financial Conduct Authority with permission to provide affordable consumer credit lending.
• Is a community finance provider (CDFI or credit union) or non-bank commercial lender, but not a bank, building society, or large-scale credit card provider (as other support is available to them through another Fair4All Finance subsidy scheme, the Small Sum Lending scheme).
• Has been lending for at least 12 months.
• Is a viable organisation operating at scale with the potential to expand further. By this we mean the organisation is already lending at scale and generating income from this lending, has a loan book of (usually) £5m minimum, has strong leadership and robust governance.
• Is purposeful about supporting customers in financially vulnerable circumstances. This will include the organisation meeting the relevant provisions in our Code where appropriate, and at a minimum ensuring that the lending the organisation provides that is supported by this scheme complies with the Code. Compliance with the Code includes an organisational commitment to customer and social outcomes, customer support and wraparound services, responsible lending practices, and responsible arrears and debt recovery.
• Complies with our Guardrails, if they are a non-bank commercial lender, which includes criteria on responsible lending, meeting certain investment principles and funding considerations.
• Shows that receipt of Fair4All Finance subsidy under this scheme is necessary to support the scaling of their offer of affordable credit or to incentivise investment into them as a responsible lender.
• Shows that receipt of Fair4All Finance subsidy under this scheme can scale affordable credit with the intention and potential for the lender to develop commercially viable provision in the long-term without the provision of subsidy from this scheme.
• Has not already received a subsidy for a similar proposition under the Small Sum Lending scheme.

It is preferable if a recipient also:

• Has or has the potential to develop funding lines from other external funders who would be willing to co-invest with Fair4All Finance.

Fair4All Finance will evaluate the submissions received against the brief and determine the ability to deliver a quality solution, and that, after iterations of the commercial deal, it represents value for money.

• Fair4All Finance will conduct due diligence to evaluate the submissions and will evaluate whether the solutions proposed meet the policy objective, eligibility criteria, and will provide a quality value for money and efficient solution, to determine any awards of subsidy to applicants. The Fair4All Finance board (or delegated subcommittee) shall have the final decision.
• Note that requests for subsidy received where the submission is not considered to be providing a quality value for money solution that meets the objective and/or eligibility criteria above will be declined. For example, where the solution does not target the appropriate customer groups would result in the application for subsidy being declined.

Time limits or other conditions

The scheme runs from 30 June 2026 to 30 June 2036.

The categories of eligible beneficiaries

The purpose of the Scheme is to address a market failure of an undersupply of affordable credit to borrowers in financially vulnerable circumstances (as above). This will be achieved through various forms of subsidy (as outlined above), and the primary beneficiary of these forms of subsidy for subsidy control purposes is expected to be responsible lenders, although investors in lenders may also be considered to benefit indirectly in certain circumstances and they are also therefore covered by this Scheme if and to the extent this is the case.

Responsible lenders are expected to be community finance providers (Community Development Finance Institutions (CDFIs) and credit unions) and non-bank commercial lenders that are lending responsibly, and that meet the terms and conditions for eligibility (see above).

This subsidy will exclude banks, building societies, and large-scale credit card providers as we have made other support available to these groups through another subsidy scheme, the Small Sum Lending scheme.

The basis for calculating the subsidy

The maximum subsidy available under this scheme is £24,999,999. 

The subsidy will be calculated in line with the Subsidy Control Guidance, which, in summary, guides as:

• For guarantees, the difference in the guarantee fee as compared to market rate, or if no such premium is available the cost of the guaranteed loan compared to the market rate loan.
• For loans, the difference in finance costs as compared to market rate.
• For equity, the difference between the market value of the equity and our investment.
• For grants, the amount of the grant.
• For other financial instruments, the difference in finance costs as compared to the market rate.

Type and means by which the subsidies under the Scheme may be given: 

• With reference to section 2(2) of the Subsidy Control Act, the scheme shall provide subsidies via direct and contingent transfers of funds.
• Under this subsidy scheme, the aggregate commitment of guarantees, loans and grants (or other financial instruments if used) is likely to be in the region of £1,000,000 to £5,000,000 per organisation initially. Where the primary instrument is a lending guarantee, the initial aggregate commitment can be in the region of £400,000 to £5,000,000, so long as lending volumes are expected to be over £5,000,000. More impactful proposals may lead to higher award levels and additional funding may be provided subsequently if it meets the aims of the scheme.
• The amount of the subsidy given is expected to be lower than the amounts of the financial commitments under the financial instruments, and the amount of the subsidy is expected to be such that the total subsidy for any organisation would be no more than £24,999, 999 over any three-year period.

The form of the subsidy

The subsidy will be offered as guarantees, junior loans or grants (or other financial instruments such as equity or other forms of debt as required to support the policy objectives of this subsidy).

These subsidy scheme instruments will be used to scale the provision of commercially viable affordable credit from responsible lenders to people in vulnerable financial circumstances, and thereby address the market failure of an undersupply of affordable credit to these people. The expected use cases for each instrument and channels to address the market failure are as follows:

• The financial instruments will be used to bear excess financial risk (perceived or actual), and all instruments are expected to address the existence of externalities, inequity of access in consumer lending, and/or have economic growth implications.
  • Where the subsidy is delivered using funding guarantees (to guarantee the investment(s) of external funder(s) into responsible lenders), we expect them mainly to be used to incentivise investment into a responsible lender and address the information failure and risk tolerance of investors.
  • Where the subsidy is delivered using lending guarantees (to guarantee a portion of losses on a portfolio of affordable credit loans from a responsible lender), we expect them mainly to be used to incentivise responsible lenders to expand their lending to new customers or in new circumstances, with markers of financial vulnerability or previously underserved credit needs, and address the information failure and risk appetite of responsible lenders.
  • Where the subsidy is delivered using junior debt capital that acts as a first-loss tranche (absorbing first capital losses for a portfolio of loans from a responsible lender), we expect it to be mainly used in a similar way to lending guarantees, although junior debt capital may also be used to crowd-in senior debt to a responsible lender and function in a similar way to funding guarantees.
• Grants will only be available for targeted purposes directly related to this Scheme and will only be available alongside a financial instrument in the Scheme, in modest amounts, to be used to unlock affordable credit provision. For example, for additional technology investment or one-off operational, setup or transaction costs related to serving a new customer group that is to be served due to this Scheme.
• In addition, where required to support the policy objectives of the scheme, the subsidy may be delivered using these instruments in other ways, and/or by using other financial instruments such as equity or other forms of debt.

Each of the financial instruments addresses the market failure in different ways, and there is no expectation that one instrument is preferred over another. The choice of which financial instrument(s) works best will be determined based on a responsible lender’s own circumstances and how effectively each financial instrument meets the policy objective.

Whether the subsidy relates to goods or services, or both

The subsidy relates to the provision of services.

Locations where the subsidised economic activity takes place

Primarily the scheme’s focus will be borrowers based in England, though we can consider delivery in the Devolved Administrations of Scotland, Wales and Northern Ireland if funding from those locations is made available by bidders and other funders.

Whether there have been any CMA referrals

The scheme is not subject to any CMA referrals.

Whether sections of the Act apply

No

Legal basis

Fair4All Finance Limited is a company limited by guarantee founded in 2019 through the Department of Digital, Culture, Media and Sport (DCMS) to tackle the issue of financial inclusion. Fair4All Finance’s parent company is The Oversight Trust – Assets for The Common Good. Sections 16(1) and 16(3) and Schedule 3 of the Dormant Bank and Building Society Accounts Act 2008 (as amended by the Dormant Assets Act 2022) makes provision for the distribution by the Big Lottery Fund (also known as the National Lottery Community Fund) of Dormant Asset funds to meet expenditure that has a social or environmental purpose. Section 18(1)(b) provides that one of the purposes for which such distributions may be made in England is the purpose of the development of individuals’ ability to manage their finances or the improvement of access to personal financial services. Fair4All Finance’s purpose and objects, as enshrined in its Articles of Association, are (i) to support and promote the financial wellbeing of vulnerable people in society by increasing access to fair, affordable and appropriate financial products and services, and by analysing, promoting and developing inclusive financial services, and (ii) to ensure funding received under the Dormant Bank and Building Society Accounts Act 2008 are used to meet the criteria set out above. The National Lottery Community Fund has distributed certain funds to Fair4All Finance. Fair4All Finance’s Articles of Association give the company a general power to do anything which will, or is conducive or incidental to, furthering its objects.

Budget or amount

£50,000,000

Maximum amount given under this scheme

£24,999,999 (as subsidy)

Confirmation date

23 June 2026

Duration

10 years

Start date

30 June 2026

Date published

30 June 2026

Running until

30 June 2036

Spending Sectors

Financial and insurance activities

Purpose

Other – Financial inclusion