Proposed Financial Inclusion Forum for Sheffield

The following is the text used by members of IMPACT at a meeting with HM Treasury, Dept for Work & Pensions, Dept for Trade & Industry and the Social Exclusion Unit held on Friday 12^th December 2003.

Background

(Roger Walters, IMPACT)

I would like to start by giving a brief overview of the background to the work in Sheffield.

In the last 30 years there has been a move away from ordinary people managing cash budgets towards the use of financial services and electronic money management, making dealing in cash increasingly difficult.

About four years ago the banks pulled out of local estates, closing their smaller branches – because they weren’t profitable. Also over the years the banks have changed the way they operate personal finance.  To obtain a loan now you need more than just a bank account, you also need to have a good credit rating.  And this means for many, especially those on lower incomes, mainstream financial services are no longer an option.

In fact research has shown that around 1.5 million households in Britain lack any financial products at all. Thousands have such a low income that the lender of last resort, the Social Fund, won’t lend to them because they haven’t got enough to repay the loan

So, what are the alternatives, well licensed organisations like the provi, shopacheque, and the unlicensed predatory lenders, loan sharks, who prey on the vulnerable. Both groups extracting huge amounts in interest payments from those who have little enough as it is.

I would like to read a paragraph from one of the handouts we will leave you.  The paper is titled – Craven Credit Union Feasibility Study

A recent case study, by Church Action on Poverty, into extortionate credit and the massive profits made at the expense of the poor, was conducted in the Meadow Well estate, Tyneside.  This research found that just 40 family households were repaying a massive £240,000 yearly to high interest moneylenders. That is an average £6,000 per family interviewed, which is 50% of household incomes said to be £12,000 per annum. Interest repayments alone are accounting for 25% of family income. 

A lot of modern government thinking is geared around giving people a reasonable choice. Unfortunately in the case of people on lower income, when it comes to loans, there is no reasonable choice at all.

That is why organisation like the East Lancs Money Line, the Salford Money line and Portsmouth Area Regeneration Trust have been born, to help people on low incomes with affordable, ethical loans.

What are we proposing?

(Peter Armstrong, Chair Sheffield Credit Union Development Agency)

We propose to tackle financial exclusion in Sheffield by resourcing, bringing together - and in one case creating - four closely linked services, coordinated by a citywide Financial Inclusion Forum.  The services are:

●        Credit Unions

●        A CFI loans company

●        Financial literacy training

●        Money and budgeting advice

I will mention each one briefly:

Of the four elements, Credit Unions provide not just a lifeline but an ongoing service - a simple means of saving and affordable loans.  Volunteers play a major role and give a friendly approach.  There are 11 Community based Credit Unions, serving local areas in Sheffield, but not all of the city.  Some have grants for paid workers and have a little time and energy to think about a positive strategy.  We want to build a stronger and more effective service for all of Sheffield and provide a real alternative to the trap of extortionate lending. 

We are already discussing some major steps – merging three of the larger credit unions, setting up a city-wide catchment area (Common Bond – to enable city partnerships, not to sweep away the smaller CUs) and starting a payroll saving scheme for Sheffield City Council employees.  Work in schools shows that they provide exactly the kind of community where mutual support can enable parents to get the most out of Credit Union membership.

A CFI loan company will be new in Sheffield.  The company will offer people an opportunity to access reasonably price finance; something that they are denied at present and is a reason why so many of our least well off people – those who live in rented accommodation and receive minimum wages - have turned to the predatory lending industry for help.  

The point of a loan company point is that it will not be bound by the Credit Union rules  (partly because it will not be taking savings)  It will therefore have more flexibility in making loans, charging interest, obtaining capital and forming partnerships.  Its primary purpose is as a lifeline - to lend money to rescue those trapped - or risk being trapped - with extortionate loans.  It will only lend when it believes the client intends to repay and to use the loan as a route out of the trap, not simply as more easy credit.  The company will be run on similar lines to Salford and East Lancs Moneylines.

Many applicants for loans will in fact need different forms of help, budgeting or debt advice or Credit Union membership.  It is certainly not our intention that clients will become reliant on CFI loans, as they were on doorstep lending, (they should eventually move on into Credit Union membership).  The company will also be able to make other types of loans including to small businesses.

Financial literacy is a general, rather than an individual approach, usually conducted in a public setting.  It helps people to understand modern finance and tackle their problems.  The need is very clear:  Who even notices the cryptic note on a loan form “APR 445”?  (no percent sign, and yes, 445)

Many see banks as unhelpful, simply a slippery slope into further debt, or don’t understand the strict identification rules, which make it difficult for them to open an account.  The public are bombarded with advertisements for sub-prime lending but there is little effort to help them recognise a good deal from a bad one.

Money Advice and debt support helps people who want to free themselves from debt, using one-to-one consultation with a qualified advisor. These services certainly exist but are so overstretched they have little time to grow the organisation or partner with others.  In Sheffield, advisers can only help those with the very worst problems, for the rest they may simply have to give out pro-forma letters and advice on how to use them.  A significant need is for a stronger central organisation to support debt workers, but more workers are also needed.

Our proposal then is to create a Financial Inclusion Forum to manage the funding and oversee these four services.  Apart from resourcing, its main challenge is to ensure that they work closely and well together.  The Forum would be drawn from the four services, the council, other city organisations, for example housing associations, and hopefully, one or more banks.

Why do we need funding?

The credit unions need to be resourced to build a strong city-wide service, with a central office, high street shop-fronts, good IT system etc.  This fits with the Government’s agenda to encourage people to save.

The CFI, which is the missing component, needs to be established.  It will require a very able manager and other staff, with an office, IT system etc.  It needs capital resources from which to make its loans.   This will provide people who have a poor credit rating, particularly those on benefits and low incomes, with an alternative way to borrow money for essential purchases.

The financial literacy and money advice elements also need resources to fund an increased number of workers, provide them with a sensible level of training, support and organisation, and to develop new materials and publicity.   This will help people with no personal finance education to understand the credit offered to them and make wise choices.

So far I have avoided phrases like ‘joined-up’ and ‘synergy’ but now I have to use them.

The Credit Union and CFI Central Offices could be in the same place, sharing a computer network and many overheads.  Some of their staff could be shared.  They are not competitors.  They will provide different services but work closely together, constantly referring clients between them.   The whole is greater than the parts alone – this is synergy.  As far as we know, this would be a unique service because nowhere else in the UK has this been achieved.

There does need to be some distance between personal advice and the loan services, because advice must be impartial.  However, this must not be allowed to prevent joined-up working.

The four organisations will co-operate in many ways.  Let me give some examples:

Financial literacy:  When people understand and have discussed money issues in general, the barriers that prevent them seeking help begin to come down.  They are more able to tackle their problems, using the other services.

The money advice service will draw on all of the others as appropriate: in particular CFI or Credit Union loans as part of a rescue package.

In a one-to-one consultation, the client will become known personally to an advisor, who may then be able to support a loan application to the CFI or Credit Union.   The crucial issue is whether the client appears to understand what is being offered, takes responsibility for repaying loans, and intends to break away from high-interest loans.  This needs real self-discipline and possibly longer-term personal contact.

The CFI will refer many applicants to the other services.  A small level of saving with a Credit Union is likely be an integrated part of the CFI package, so that the client has a real resource when the initial loan is paid off.

Real success would be shown by clients using the services to gain control of their money and then maintaining control through long-term Credit Union membership, or use of mainstream services. 

We will begin by creating Financial Inclusion Forum, then the CDFI and recruiting its staff, at the same time we need to do a lot of groundwork with the other three groups, including merging some of our Credit Unions, creating a city-wide catchment area and starting the council payroll scheme.  Then we can pilot the joint services in part of the city and later extend to the whole city.  

We believe this will make a real difference in Sheffield and be a valuable pilot for other cities and areas.

 

Staying Out of Debt

(A Mother’s Story)

I was a single parent 2 children on income support then family working tax credit on and of benefit for all through children growing up.

It was hard keeping out of debt, short term you manage, the long term was harder especially when the kids need school union forms, money for school trips, washing machine breaks down, for Xmas.

My experience is most people in this position either beg, steal or borrow.

I borrowed from my parents and friends till it was too embarrassed to ask anymore

I borrowed off other people in the same position who got giros on an alternate week from me

What worried me was what I saw happening to others with door to lenders, catalogues, selling stuff between each other; to meet repayments.  Just finished paying last Xmas as this Xmas approached.   Keeping kids off school because you can’t afford the trip money.

I even know people who do most of their shopping outside the supermarket not inside; that feed them self out of skips, unless they can buy it really cheap because it has run out of date. 

I did well the moneylenders did not get their claws into me.   You get in for a penny and spend years paying the pounds.

My sacrifice was warmth.    I have kept my family warm by burning anything we could I even burnt kids cloths that didn’t fit them anymore, bits of wood etc.  We would take the TV upstairs and all watch under the covers and snuggle up.  I never had heating on during the day until kids came home.   Sometime it was so cold the kitchen sink and the toilet would freeze overnight.

We never had anything new.   Clothing all came from jumble sales or car boat sales.

The hardest thing for me was feeling that things would never change.   Some days you felt what’s the point.   The more it got to you the harder it became to resist the loans people and the constant stream of temptation coming through the door, it was hard it made you feel angry why me, why can’t my kids have that, why can’t they go swimming, why can’t they have spending money, why can’t they have new clothes.

My biggest whys were why had I never heard of Credit Unions.   Why was there no alternative way to borrow money, why was I discriminated against just because of my circumstances. Why was they not an alternative that would not cost me the earth.  Why are they not in our communities.  Why did it not mention them in my benefit book, why is it not part of the social fund policy to refer on when people who for what ever reason don’t qualify

When the social fund says no and with out ethical loan companies and credit unions people are literal been feed to the sharks.

Efforts to Raise Non-Public Money

(Ian McCollough, Diocese of Sheffield, Faith in the City Worker)

Over the few years we have met a large number of individuals and organisations about the proposed non-profit making Loan Company and the Financial Inclusion Forum.   Without exception we have met support for the proposals and an understanding about why it is needed if people who live on the lowest incomes are to benefit from our country’s economic growth.

I have worked for over 20 years in the community and faith sectors having been made redundant in the early ‘80s.   Nearing retirement now I have been reflecting back on my work across the Diocese of Sheffield – the Diocese includes many of the areas that were blighted by the closure of coalfields and the decimation of the steel industry.    But the one abiding memory that I have is that the weakest communities when I started remain the weakest communities today.   Yet, many millions of pounds have been poured into these communities.

The unfortunate truth is that few, if any industries have grown in this period more than the predatory lending industry – moneychangers, pawnbrokers, licensed and unlicensed businesses all purporting to offer “cheap”, “easy” finance, providing an easy ‘hook’ to solve today’s problem, but a downward spiral into dependency and despair. 

We have heard a story about how one person managed to avoid debt; this is an example of many hundreds of people in Sheffield for whom there is no choice but the money lender in times of difficulty. They are good people who are trying to find a way of bringing up their families properly and with positive values. They face an uphill struggle each week to eek out their family’s income.   They are pressured by doorstep lenders, TV advertising and a consumerist society.  We cannot imagine the constant pressure they are under.  To do nothing would be to ignore their reality.To meet the demands of loan sharks, or to stay out of their clutches often means that families go without food or heating or both.It is understandable if Mum borrows something from the kindly sales person who just happens to knock on the door as the kids are going to bed hungry.   Debt is a subject of great shame for many in our poorest communities and destroys the chances of creating stable family lives.

I don’t often get emotional, but there is no escaping this situation for a significant yet very important group of people in our society today.    It is our responsibility as people who care, people who will go home to a warm house and decide whether to “go out for a takeaway”, people who will be buying presents this weekend but who know that our good incomes will pay off the credit card bill; we have a responsibility to such people – the Government has a responsibility.

I make no apologies for my introduction, but I’ve been asked to let you know which non-public sector organisations and individuals may be willing to support this project.   The ones we know about are:

●        Church Urban Fund has already supported the project through part funding of a Development Manager post.

●        Private donations, one has already been made.

●        Barclays – long-term relationship, they have contributed towards Salford and East Lancs Moneyline (staffing, funding and access to bank accounts).   Considering using ex banking premises for the central functions and a high street credit union collection point.  We also heard, only yesterday, that they are going to try and identify an experienced manager to join our team on their placement scheme.  Barclays are also encouraged by the integrated approach we are proposing in Sheffield.

●       Yorkshire Bank – would be prepared to contribute once public money is identified

●       RBS/Natwest – have contributed towards other CFIs

●       Housing Associations – 5 (Hallam Housing, Yorkshire Met, South Yorkshire Housing, North British Housing and Northern Counties) have committed to the project.   Restricted by Housing Corporation regulations but would be prepared to fund education, debt advice and support the loan company through advertising in their newsletters and access to office space.

●       National and Local grant-giving bodies – including Esmee Fairbairn and the Sheffield Town Trust.

We also plan to link to the Sheffield Bond, which is likely to be re-launched in 2004 and who work with people who have difficulty accessing finance from other sources.

But the majority of funding needs to come from the public purse because:

• The amounts of money involved are beyond the level of donations and/or grants that are available from the above and

• More importantly, the Government would be the major beneficiary because fewer people will present themselves with financial problems (for example to the Social Fund, Housing Department) and this will have a long-term impact on the ability of our weakest communities to grow economically.

What we are trying to achieve is, principally, for people who live in rented accommodation, bringing up their family on minimal incomes – whether that’s wages, benefits or some of each – families who don’t have access to money from parents.    For these people, the new Consumer Credit Regulations will make little difference.

This is because they often have a stark choice; that choice is between Mary (a young mum who provides the doorstep service who knocks at the door each week (and whose own livelihood depends on getting sales because she only receives commission) and Shopacheck (who clearly show their interest rates on their literature and these rates run to several hundreds of percentage).   Not a real choice.  

 

How will our proposal help people who are excluded from mainstream providers?

(Brian Parfett, IMPACT CFI Development Manager)

Without reiterating what earlier speakers have said, there are several important benefits that would be gained, I believe, from our proposal.  

Some of these benefits are tangible and measurable and others would, I believe, be more difficult to assess; but nevertheless they are important.

The tangible benefits would include:

●        More money would remain in the hands of people because the cost of borrowing would be lower and there would be no hidden costs.   This would enable families to more easily:

●        Pay their rents and utility commitments – this would have the effect of reducing the number of evictions or actions taken for late payments;

●        Start to save with their local credit union, or other savings organisation.    This would help families cope with peaks (such as the run up to Christmas).   Encouraging people to save is, of course, one of the Government’s aims.

●        Buy essential items for their children and their home, such as shoes to go to school and a computer for homework.

●        Gain a better understanding about how to manage their finances.

Our proposal would enable people to gain easier access to debt advice through accessing a network of organisations who can offer help and support.

The less measurable benefits would be:

●         More able to feed their families with good quality food;

●         Less debt related stress in the family;

●         More able to participate in their community, including purchasing from local shops;

●         Less vulnerable to crime and extortion;

●         To give people back their dignity and some hope for their future. 

Many people we have spoken to have got themselves into debt in the first instance because of some kind of glitch in their life, whether it was a late or missing benefit payment or a sudden demand because a pair of their kids shoes had to be replaced.   It has not been because of the purchase of a luxury.  

Often to pay off one loan they have taken a second, then a third …  there debt has got out of hand.   People we have spoken to are often embarrassed, but they can often see no way out of their situation. 

There are, of course, people who manage to avoid debt by various innovative means.    We have heard from Carol about how she managed to do this.

Returning then to the Government’s own agenda, in particular the eradication of child poverty.    I have no doubt that our proposal would make a major contribution to families who are vulnerable to getting into debt.

Finally, in the same way that the Government has been concerned about one supermarket chain having a monopoly of food sales in the UK – and has taken steps to prevent Safeway being purchased by Asda or Sainsburys - steps need to be taken by Government to give families a choice when they need to access loans.

That is a choice between credit at a fair and affordable cost or at a cost that means they are never likely to be free from debt.

 

What are the barriers we have faced?

(Mandy Aitken, Lead Organiser, IMPACT) 

The main barrier that we have faced to set up the non-profit making loan company has been that there is a lack of understanding about how personal debt amongst people and in particular families who live on low incomes is having such a devastating impact on communities today.

The new consumer credit regulations go some way to tidying up the predatory lending business, but that is for the years to come once the regulations have been passed through Parliament and have been implemented.    But when you are a single mum or a couple with a disability, you live on a low income, you rent your home and you don’t have family with any money to spare, then the new regulations won’t help you when you need to borrow a few pounds to buy a pair of shoes for the kids to go to school or to pay for your washer to be repaired.

So what are the barriers to setting up an ethical not-for-profit loan company?

Quite simply, that the people who make decisions about what should and should not be grant funded don’t understand the benefits that such a company would bring.

We have already heard from two people who have been brave enough to share their personal stories about debt.   But debt for all of us is an embarrassment, something we don’t share easily, something that we are ashamed about. 

For the funders what is it that they get, not a nice new building or another 1000 childcare places.

But they would get people who are less likely to be evicted from their homes (saving local authorities and housing associations hundreds of thousands of pounds each year), they would get people able to eat better food, instead of chips, nutritious food (that is what most families want to do but often can’t afford) and I could go on … both East Lancs Moneyline and the Portsmouth Area Regeneration Trust do provide a successful alternative; information about their successes is enclosed with the information we are leaving you.

Neither personal debt nor financial exclusion appear to be on the Agendas at either Yorkshire Forward or our Government Office.   Yet research organisations, such as the New Economics Foundation and the ESRC to name two.    In June last year the ESRC reported:

‘People use expensive forms of credit not because they are irrational or ignorant, but because these are often the only help available and because they offer a certain degree of flexibility.   Both the public and the private sectors need to do much more for people on low incomes. They should take very careful account of these research findings to develop provisions that can really help people to meet their needs.'

In June 2001 Professor Elaine Kempson, following extensive research in a deprived community in Bristol co-wrote ”Tackling Financial Exclusion – An Area Based Approach” she concluded that there:

●       Needs to be a city-wide provision.

●       Needs to be a local presence in deprived areas

●       Needs to be a partnership approach between commercial companies and providers with a local presence.

●       It is important to build on existing provision and expertise and to involve local residents at all stages in the design and development of services.

●       Solutions need to be found that are sustainable.

The key barrier is then that the Government hasn’t taken on board these important conclusions, and that no one has – yet - had the vision to try a strategy like we are proposing. 

What we are proposing for Sheffield would make a real difference to people who struggle daily to make ends meet, not because they are bad people but because their family income is low and they are excluded from accessing financial services from organisations and individuals who will treat them in a way that we all want to be treated – fairly, honestly and with dignity.

 Conclusion

We are seeking Government support for a “Phoenix Fund” approach to personal finance.    A fund that would enable projects, such as the one we are proposing, to be established.    This would provide people who are currently forced into the hands of high cost lenders with a choice about where to borrow money and an opportunity to access debt and financial advice, and education.