A no-interest loan scheme (NILS) pilot will target the millions of people that have become financially vulnerable during the pandemic.
Fair4All Finance, a non-profit organisation focussed on promoting financial wellbeing, has teamed up with Toynbee Hall and Fair By Design to deliver the pilot. Toynbee Hall and Fair By Design both aim to tackle poverty in the UK.
The NILS pilot will be the first of its scale across the UK, having received £3.8m in funding from HM Treasury and up to £1m of lending capital from each devolved administration, matched in England by Fair4All Finance.
The pilot will test whether this scheme can be scaled to make resources go further to improve financial wellbeing for customers in vulnerable circumstances.
Fair4All Finance, Toynbee Hall and Fair By Design will design and deliver the pilot in collaboration with HM Treasury and the governments in Northern Ireland, Scotland and Wales. They will work with credit unions, Community Development Finance Institutions (CDFIs) and other regulated lenders who will be able to apply to administer the loans through a formal procurement process starting in November.
The scheme will start with proof of concept loans in Autumn 2021, followed by a wider two-year pilot in up to six areas of higher deprivation starting in Autumn 2022.
John Glen, economic secretary to the treasury said: “Backed by a £3.8m boost at Budget 2021, our no-interest loans scheme pilot is making good progress and it’s excellent to have Fair4All Finance on board. I now want to see lenders and organisations committed to financial inclusion supporting this innovative new scheme, which could make a vital difference for people right across the UK who can’t access or afford existing forms of credit.”
However, Jason Wassell, chief executive of the Consumer Credit Trade Association (CCTA), warns that all lending comes with a cost and risk.
He said: “The launch of a no-interest loans scheme is something that commercial lenders will be interested in following. The proposed use of existing lenders is noteworthy and will undoubtedly help tackle the administration costs. Back that up with cheap funding from the government and that keeps the costs down.
“You can lend with no interest, but we need to be clear that all lending comes with a cost. The funding of the loan, the acquisition and administration of applications, making payment and serving the customer, and following up if things go wrong. That is before you consider that often, through no fault of the borrower, there will be those who cannot repay their loan. More than average because these customers have already been assessed as being too risky for mainstream lenders.”