Are we having the right conversations?

Shiona Crichton - Moneyline CEO

3rd March 2023

In the first of a new weekly series, our CEO Shiona Crichton, asks if we are having the right conversations about affordable credit. 

There is a lot of discussion about affordable credit by policymakers and journalists, but are we talking about the right things that relate to 2023 and how do we get more diverse voices involved in the conversation?

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I have been in financial services for 25 years, 9 of them in not-for-profit, however sometimes it’s important to take a step back and look at things through a new lens. In this new series of blogs, I aim to open up the discussion by challenging myths and talking about what I see as some of the blockers and challenges in accessing affordable credit in 2023, specifically relating to small cash loans.

Each week I will be sharing more insights relating to the subject areas below.

The elephant in the room – APR

The first hurdle small cash loan lenders face when we discuss access to affordable credit is the differing perceptions of what affordable credit is. If we look back at 2016 anything above 100% APR started to become viewed as a moral hazard, after the introduction of the FCA regulation on high cost credit (defined as 100%). This perception was driven mainly by some in the media who could probably access mainstream credit, and had little knowledge or, at the time, interest in the experiences of people borrowing from other lenders. The moral benchmark set by UK society has now moved to 50% and may further lower as European countries follow the US conversation and create legal limits on APR below 50%.

Does high APR always
signify a poor product?

In my first blog in this series, I will attempt to lay out some of the logic of why social-purpose lenders’ APR for small, short-term cash loans is high. I hope this will increase understanding in this area and explode the myth of high APR always being bad.

The negative media focus on high APR has led to reduced supply of small cash loans and new products being brought to market which focus on offering reduced APR products that are not necessarily focussed on creating the best customer outcomes.

Supply of small cash loans

The second challenge is, does it matter if there is no supply of small cash loans? There is an assumption that people can save but for someone on a lower income the amount of savings is relative. This view on saving before borrowing is something that we only see discussed for lower income households and not asked in the same way on those with higher incomes.

There are many graphs which show that the supply of small cash loans has decreased dramatically over the last few years, however this does not necessarily reflect that demand has gone away. We know that the illegal money lending market has increased from an estimated 300,000 people in 2010 to over 1.02m in 2022 and Buy Now Pay Later (BNPL) is now used by up to 35% of low income households. The fact is that there has always been a need for credit and always will be, it doesn’t go away. Someone on low income who can afford credit should have access to credit, it’s just proportionally a much smaller amount of credit that’s needed.

Access to small cash loans

While the supply of small cash loans in the market has greatly decreased the way people can access it has also narrowed, with a move away from face to face and non-automated lending. More than five million people in the UK, mostly on lower incomes, still use cash as an effective way to manage their money and struggle to access credit through lenders who make automated decisions. The challenge is that when it becomes harder to access credit people then don’t choose it as an option to help spread the cost of a large expense, instead they try and make do and end up using it as a solution to sort out a financial problem. We know that earlier access to the correct credit product may lead to reduced financial distress in the long run.

It’s not just about marketing products better, it’s about increasing understanding of the cost of products, what the differences are between products and what actions people can take now to help them access loan products in the future. When we talk about financial education we generally talk about budgeting and saving. We need to be braver and start talking about credit as part of the solution, especially as it is getting harder to access credit for cash and non-digitally engaged customers.

Ensuring Financial inclusion does not lead to exclusion

This leads nicely into the role of financial inclusion. Financial inclusion is becoming a more widely used term and access to affordable credit is part of this. However, the term is very general and covers lots of different things from access to current accounts, savings and insurance. I don’t plan on talking about all these areas, just the part that the financial inclusion agenda may play in financial exclusion if we don’t start segmenting the conversation. 

If we look at financial inclusion agendas, a key focus after access to bank accounts is usage of the bank accounts. Sounds harmless, however in our section on data and financial inclusion we will see how this focus may solve the financial inclusion issue for part of society but create greater financial exclusion in low income households that use cash as an effective way to manage their budget. Some people will be at greater risk of exclusion in the future, as they prefer to use cash rather than bank accounts.

Can Community Development Financial Institution’s be part of the solution?

So, the big question is what part can CDFI’s play in all this and can they help fill the market gap for small cash loans? Do our business models help address some of the challenges we discussed above, or have we moved away from what we were set up to do due to pressures on sustainability and the moral hazard of high APR? 

We will look at if CDFI’s can survive while there is a moral barrier to charging the cost of delivery for the most excluded customers without leaving these customers behind. This last blog in the series will talk about this and ask some of these difficult questions about who can deliver the access needed to small cash loans, including Credit Unions, to ensure those that are financially excluded now can be included in the future. 

Would you like to know more?

If you would like to know more information about any of the articles, you can contact Shiona directly, Email:

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