It’s great seeing the progress Responsible Finance and its members are making in their support for Londoners facing financial insecurity. As they say: 🔵 Access to fair credit decreases the social costs of financial exclusion, such as health issues, dependency on illegal lenders, and associated mental and physical harm 🔵 And by enabling work, education, and local economic participation, affordable credit can drive growth Read more in their latest update below ⬇️
🔥Our latest blog is out now 👏 The Role of First Loss Funding in Financial Inclusion and Economic Growth In October last year we launched a pilot to explore how first-loss funding can attract private investment to personal lending Community Development Finance Institutions (CDFIs) to support financial inclusion. Funded by London’s City Bridge Foundation, three CDFIs (Fair Finance, Fair for You CIC and Salad Money) each received £200,000 in grants to absorb initial losses and increase lending. 🙌 Key Benefits of First-Loss Funding: 1. Catalytic Investment: First-loss funds protect investors against initial losses, improving risk-return and converting potential into actual investments. 2. Evergreen Fund: Repaid loans are re-lent, creating a multiplier effect by leveraging more private capital. 3. Impact Multiplication: The pilot estimates each £1 in grants could leverage £4 in private investment, totalling £8 million in loans to underserved Londoners, saving them around £3 million in interest versus high-cost lenders. ⭐ Addressing Financial Exclusion: CDFIs help those excluded from mainstream credit by offering affordable loans. In 2023, CDFIs lent £66 million to 85,000 households, saving them £29 million in interest. However, demand outpaces supply, with unmet credit needs estimated at £2 billion annually, limiting economic participation and perpetuating fiscal drag on the economy. 😍 Economic and Social Impacts: 1. Improved Economic Growth: By enabling work, education, and local economic participation, affordable credit drives growth. 2. Reduced Government Costs: Access to fair credit decreases the social costs of financial exclusion, such as health issues, dependency on illegal lenders, and associated mental and physical harm. ✅ Pilot Results So Far: 👉 Early signs are promising, with the £600,000 grant supporting £1.7 million in loans to 2,700 Londoners and securing £830,000 in external capital. 👉 Loans are reaching diverse, underserved demographics: 59% ethnic minorities, 72% female, 88% non-homeowners, and 19% individuals with disabilities. 🪜 Next Steps and Government Policy Advocacy: Responsible Finance aims to expand the programme to other underserved areas and make the case for a government-backed first-loss fund for personal lending CDFIs to further financial inclusion and economic growth. This pilot highlights the potential of first-loss funding as a powerful tool for catalysing public-private investment partnerships. #FirstLossPilot #CDFIs #ResponsibleFinance #PersonalLending
Thank you for supporting this pilot.