Preserving and transforming affordable credit provision during the pandemic

In our ‘Meet the Impact Manager’ guest blog series, we hear how some fund managers in our portfolio have been responding to COVID-19. This week, Holly Piper, Investment Director at Fair4All Finance, shares her experience of changing jobs during the pandemic and the impact of lockdown on the affordable credit sector.


Written by

Holly Piper, Investment Director, Fair4All Finance

I joined Fair4All Finance as its first Investment Director in early summer, moving from social investment fund CAF Venturesome. While I don’t think that moving jobs in the middle of a global pandemic is necessarily sensible (!), I’ve hugely valued the kindness, dedication and good humour of both new and former colleagues. People have been surprisingly relaxed when my three-year old zoom-bombed video calls – including an investment committee meeting during which he attempted to give me an (admittedly much-needed) haircut. Cheesy though it may sound, the purpose of the social investment sector – supporting phenomenal social organisations to help people and communities – has been a lodestar through the bleaker days of Covid-19 and beyond.

Covid-19 has thrown a spotlight on financial vulnerability in this country. And the coming recession will further strain the finances of the 12 million people with less than £50 in savings. For millions of adults, access to affordable credit and money advice will become even more important.

A good place to start

Fair4All Finance was set up in 2019 to support the financial wellbeing of people in vulnerable circumstances by increasing access to fair, affordable and appropriate financial products and services. We are a sister organisation of Big Society Capital, funded by dormant assets money. At our heart, we believe financial products and services can and should serve people in vulnerable circumstances. And we’re committed to working with the whole financial sector to drive systemic change.

Our first priority is to scale up the provision of affordable credit – ensuring that the millions of families in financially vulnerable circumstances have an affordable alternative to the high-cost credit providers when they need to repair a broken fridge, buy Christmas presents for children or uniform for the start of the school year.

Pre-Covid, provision in the affordable credit sector was £250 million a year – and we want to grow this ten-fold. By early 2020, we had made our first investments into affordable credit providers (typically credit unions or Community Development Financial Institutions (CDFIs)), were building our team and had just moved into our own office.

Then Covid-19 hit…

Like many social investment organisations, our immediate priority was supporting our portfolio, and in our case, the wider affordable credit sector. Lockdown has been hugely challenging for this sector. Many lenders have branches throughout the communities they serve. They had the operational challenge of transferring their staff teams to work remotely, coupled with the financial challenge of reduced income from lending over the lockdown period.

This reduced lending is worth digging into as it demonstrates the business model challenges of affordable credit providers who are striving to serve financially vulnerable customers. The welcome Government support packages (eviction stays, furlough scheme, £500 overdrafts from banks) reduced short-term financial stress for many families. Coupled with people spending less on previous essentials such as travel and a wariness of spending on non-essentials, demand for credit reduced significantly.

As a result, many affordable credit providers saw demand for responsible lending fall off a cliff – overall demand was down by 70% April to June compared to the previous quarter. At the same time, they were dealing with an increase in requests for forbearance from existing borrowers. This not only reduced income immediately, but the lower-than-expected loan book means less income over the months ahead.

Time for action

Our response at Fair4All Finance was to launch a Covid-19 Resilience Fund of £5 million to ensure that affordable credit provision for the most vulnerable was preserved. As this was before I joined the team, I’m allowed to say how very impressed I am with the speed at which this grant fund was launched and deployed from scratch! The first grants were deployed by late April, preserving 40% capacity of affordable credit provision.

To help shape our ongoing policy response to Covid-19, we completed research to map the groups most financially impacted by the economic fallout of the pandemic. The research suggests more than 6.5 million jobs could be temporarily lost in the UK, with low earners, women and young people among the most severely impacted.

After the initial frenetic activity of the Covid Fund, it’s still an extremely busy time at Fair4All Finance. We are deep in due diligence for our next round of grants and investments, working closely with other social investors to scale up credit unions and CDFIs. Alongside this, we are exploring other innovative opportunities to transform the provision of affordable credit, as well as looking towards longer-term programmes in the insurance and savings markets.

Frankly, there’s a lot to do and we’re very grateful to have received further dormant asset funding to support this much-needed work. Staggeringly, nearly one-third of households are in financial difficulty. Their need for fair financial products and services that can improve their lives has never been more urgent.

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