Income and Financial inclusion

Income and Financial inclusion

Supporting people who are financially excluded

£14.3m
committed to charities and social enterprises

18
investments

24,000
affordable loans provided to people on low incomes

89%
of investments ahead or on track to deliver social impact

Summary

Four million low-income households have poor access to mainstream financial services. People living in poverty pay an additional ‘poverty premium’ of around £490 a year for goods and services.  

Social investment is supporting social business models that provide ethical finance, help people buy affordable household items with affordable credit and support small businesses. Revenue is mainly generated by interest and repayments to loans from customers. The Fair by Design initiative which we are currently developing with the Joseph Rowntree Foundation aims to end the ‘poverty premium’ in the UK in the next 10 years. 

Social impact evidence in this area has traditionally been light but this is now changing as organisations adopt better measurement approaches. We would like to see better evidence about the wider impact of both financial capability and inclusion. This will help build a clearer understanding of how social investment can best be used alongside other forms of support. 

Further information is available on our social issue pages for financial inclusion

Furnistore

Social impact

Providing ethical personal finance

Big Issue Invest have invested in Street UK and Moneyline who both provide small loans to customers on low incomes. Revenue is generated by interest on the repayments from customers. Interest rates are priced lower than other sources of credit but they also have to cover the costs of expected default rates and operating costs. For 79% of Street UK customers, getting a loan had more than just a financial impact, contributing towards reductions in stress, improved health and better relationships.

Buying affordable household items

Fair for You makes affordable loans to low income households, helping them to purchase household items from its online high street and offers an alternative to hire purchase businesses such as BrightHouse. They received investment from multiple organisations including Social Investment Scotland, the Robertson Trust, Esmée Fairbairn and the Tudor Trust. Revenue is generated from loan repayments from customers. Half of all Fair for You customers reported that the loan had made it much easier to cope with the day to day costs of running the household and 38% reported that using Fair for You had significantly helped them to manage their money and build up regular savings. 

Supporting small businesses

Social Investment Scotland invested £250,000 in Grameen UK who offer financial support by providing micro-credit business loans to people who cannot access mainstream finance. Grameen’s goal is to improve the economic situation of the most financially disadvantaged in the UK with an initial focus in the West of Scotland. The Grameen model of micro credit was developed 35 years ago by Nobel Peace Prize winner Professor Muhammad Yunus.   

Learning

By dedicating time and effort to understanding the preferences and behaviours of people on low incomes, social businesses models such as Fair For You can design products and distribution channels that better meet their needs. However, businesses that tackle financial exclusion have been slower to take off despite a high public profile and regulatory intervention. To compete with less ethical alternatives, businesses need to balance affordable pricing and customer knowledge with operational efficiency, distribution reach and effective use of data.

For example, the Fair by Design initiative, led by the Joseph Rowntree Foundation, is drawing together grants, investment and influencing work to provide a holistic approach to tackling the ‘poverty premium’ which affects people on lower incomes.

There is a growing fintech market but it is not clear if it is reaching financially excluded people from disadvantaged backgrounds or on low incomes. However, social businesses such as Ffrees – which has taken on social investment from Nesta Impact Investments – have designed their digital current account for families in lower incomes.

Credit unions do not always have a requirement for external investment beyond that provided by their members – indeed many have surplus depositor money available to lend. However, some analysis suggests there may be a requirement for more capital for growth if a suitable investment instrument can be designed.

The 2015 Financial Conduct Authority high-cost short-term credit price cap means that customers taking out a loan will now never need to pay back more than twice the amount borrowed. This has affected the wider payday lending market but its ultimate impact on more vulnerable consumers is not yet known.