🔥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
Great news 🤩📈 staggering that there is c£2BN unmet credit needs. I do feel that this us the way forward, catalytic, risk taking capital at scale 💪🏻 It would be good to know how much impact and social value First Loss Funding creates. The social value as well as the economic value.
Brilliant!! Well done Responsible Finance team, City Bridge and participating CDFIs on getting this off the ground and promising early direction 👏🏻
Tackling poverty and unemployment through microfinance and establishing self-reliant groups | CEO at Purple Shoots
4moWe very much need this to expand to include Purple Shoots, to enable us to meet the need that we are faced with