Tackling The High-Cost Credit Problem In Sheffield Key points from the report John Jeffries
Main aims of report to shine light on the size and nature of the non-standard consumer credit market in Sheffield (loans for people that cannot get loans from mainstream lenders such as banks) to look at attempts across country to develop responsible lending alternatives and to draw out the most interesting lessons. to capture the state of current thinking in Sheffield amongst the people and organisations engaged in this field. to consider the practical options for an effective new responsible finance initiative in Sheffield to recommend next steps
Scale of problem Hard to get official figures But actually plenty of evidence from range of sources Problem is big and getting bigger And diverse (not just about Wonga): Doorstep lenders Pay-day lenders Longer-term shop-based lenders Pay weekly stores Logbook loans Pawnbrokers Loan Sharks
Overall A rough figure of 50,000 borrowers borrowing an average of around 800 in the non-standard market.. some with more than one loan around 12% of the adult population concentrated in the more deprived parts of the city. Only responsible lender alternative is Sheffield Credit Union with around 4% of market
The impact For some people at the sharp end of the problem a one-way street of spiralling debt leads to financial and personal crisis For many other people a significant part of the modest money in their pocket is leaching out in unnecessary costs
See the system, not just the headline lending rate (The washing machine example) Good quality, basic washing machine Tesco Direct 200 Cheapest Brighthouse washing machine 350 (Equivalent Currys 270) Brighthouse 3-year loan at an APR of 29.9% 505. Plus Damage Liability Cover 3 years 117 Plus Service Cover?
Options for tackling problem Nationally, long history of reports and initiatives often with disappointing results. Basic options for tackling problem are: Greater regulation Expanded role for Credit Unions and Community Development Finance Institutions (CDFIs) competing with (offering alternatives to) commercial lenders. Some scope for greater regulation. But making a big dent in the problem requires offering a better alternative and involves understanding what attracts people to them
Experience from elsewhere Lots of good intentions Unrealistic hopes placed repeatedly on Credit Unions A lot of valuable experience to learn from No ready-made model to copy Best examples: ScotCash Glasgow My Home Finance (National Housing Federation) East Lancs Moneyline Handful of largest Credit Unions
The right formula Size matters for impact and for viability Willingness to compete, to take on the commercial sector Broad customer base, not just the financially excluded Direct routes to customers through social landlords and through employers. Good range of products and services. Include lending at relatively high rates of interest But encourage people to manage money well, saving not borrowing, make it go further. Upfront investment required to get venture going Strong leadership/strong partnership
The right vehicle Report considered options, including bringing in existing providers from outside Conclusion was new Sheffield business was best way forward Built up from foundations of existing Credit Union With close working with: Social landlords (including the Council as social landlord) The Sheffield Advice network The Voluntary Sector Sheffield Executive Board (as strategic lead) Sheffield City Council Private and commercial sector
Look and feel A distinctive, eye-catching brand (Bank of Sheffield; SheffieldSave?) A prominent, attractive shop and modern website Direct access to services through social landlords, voluntary sector organisations and employers An extensive and sustained marketing effort; high city-wide profile, and direct marketing through social landlords, voluntary sector organisations and employers
One-stop shop Probably: Instant access and limited access savings accounts including children's accounts and ISAs and JISAs. Basic bank accounts. Money and debt advice. Personal unsecured loans of around 6-12 months. Good quality no frills household goods available for purchase with a personal loan. Shorter term unsecured loans of 1-2 months. Some of these provided through direct links and referrals Potential for small business loans as later phase
Process Six months of serious business planning Then launch Then 3-4 year expansion programme Aim for 15,000 customers, 10,000 savers, 10,000 borrowers? Large enough to have impact on market in Sheffield Large and ambitious venture by standards of the sector National, ground-breaking profile But a lot of experience to draw on to build realistic business plan
Final word Lot of hard business planning issues to tackle in next stage Big venture trying to tackle a big, hard problem Requires real commitment from all partners But good evidence it can be done if the will is there And a successful venture could really turn the financial exclusion tide in Sheffield
Tackling The High-Cost Credit Problem In Sheffield Key points from the report John Jeffries