1 Proposal

1.1 To establish an independent not-for-profit finance company, working in partnership with Sheffield City Council, Housing Associations, banks and other recognised organisations. The Company will provide financial services, particularly low cost loans, to people who are currently excluded from mainstream financial services and whose credit history denies them access to affordable credit. It will operate as a preventative organisation, enabling people to avoid falling into uncontrollable debt.

1.2 Mainstream financial services have, generally, left our poorest communities. Without banks and, more recently, post offices, people who live on the lowest incomes have found the only people and companies prepared to help them out are those whose charges can exceed 1000% APR (Annual Percentage Rate) – source Sheffield Debt Support Unit.

1.3 "Sub-prime lending", … is targeted at the millions of people who fail to notch up the necessary credit scores to secure entry into the world of modern consumerism … this is systematically stripping the wealth and assets of some of the country’s poorest neighbourhoods. … what the taxpayer is providing, through welfare and regeneration budgets, the lender is taking away ….” Source: “Profiting from Poverty”, New Economics Foundation (May 2003).

Mary, who is on benefits, wanted to buy her children a computer because it would benefit their education. She didn’t have an acceptable credit rating and therefore couldn’t obtain credit from a mainstream provider. She turned to BrightHouse; a company who specialise in sales to people in this position. They sold her a PC and printer, she paid £21.99 for 104 weeks (total £2,287); an equivalent system retails in other shops for around £850.

2 The Company

2.1 The Company will be a Community Reinvestment Trust. It will offer its services in communities that are in the lower end of the Government’s Indices of Depravation. The Company will provide:

ö Small loans for personal needs;

ö Opportunities for personal financial education;

ö Access to debt advice; and,

ö Encouragement to its customers to start a savings habit, with a link to credit unions.

2.2 The service will be one of “last resort”. This means that where potential customers approach the company for assistance, we would take a responsible attitude towards their needs. For example, encourage customers to undertake personal financial education as a way of improving their understanding of budget management.

2.3 Initially the company will operate a pilot. This will enable the Company to set up systems and begin to raise its reputation. After the pilot, the plan is to build the business by expanding operations into other neighbourhoods where predatory lenders operate.

3 Structure of the Company

3.1 The Company will be an independent:

ö Registered Charity;

ö Operate as a not for profit company limited by guarantee; and,

ö An Industrial & Provident Society.

3.2 Similar organisations in the UK have found these three elements necessary to run their organisations in particular allowing them to attract funding from grants, loans and maximise tax benefits.

3.3 The Company will need a Board of Directors with relevant experiences both of working within the financial services sector and of living within excluded communities, a Chief Executive (probably with experience of working in a senior position within a financial institution), Loan Officers and a Central Office.

4 Operating Principles

4.1 The Company will locate Loan Officers in each of the communities in which it operates. Locations will be selected, with partner organisations, to help potential customers recognise the services that are being offered. The Loan Officers’ role will be to:

ö Advise potential customers about the Company’s products and services;

ö Direct customers to the most appropriate source for help;

ö Work with customers on loans applications, including agreeing a repayment schedule;

ö Educate customers about the importance of repaying loans on time; and,

ö Help customers to gain better control over their budgets.

4.2 Because of the personal contact with customers the risk element associated with providing loans to people on low incomes is minimised. Using this methodology, similar organisations have been able to achieve a 95% return rate on their loans book.

4.3 This level of personal support, both at the application stage and throughout a loan period, is higher than a commercial bank or financial institution could sustain. Consequently there is a need to support the Company’s core costs through grant funding

5 The Benefits

5.1 By providing a range of financial services, including loans, at reasonable rates of less than 20% APR, with no “hidden” charges, the Company will:

ö Enable individuals to retain a higher proportion of their income (either low wages or benefits) within their family budget;

ö Provide a choice – between paying an excessively high price for their loans or paying reasonable charges;

ö Retain a higher proportion of people’s income within their own community, therefore being more able to support local shops and other enterprises; and,

ö This would

§ Help them pay their rent and utility bills;

§ Help reduce child poverty by enabling parents to more easily provide resources for their children;

§ Help put better quality food on the table; and,

§ Reduce the levels of stress that are caused by inescapable debt.

ö Contribute towards a reduction of crime, or the fear of crime, caused by unscrupulous predatory lenders taking forceful action to reclaim their money;

ö Encourage, through an education programme, people to understand about family budgeting and the benefits of saving;

ö Complement the work of the Credit Union movement and other bodies who are working in the area of poverty alleviation; therefore

5.2 MAKING SIGNIFICANT CONTRIBUTIONS TO THE PREVENTION OF POVERTY, PARTICULARLY AMONGST THE MOST VULNERABLE FAMILIES.