Finance News: Fair Finance introduced to help poor with responsible lending

A new organisation providing low-interest finance to people in poor areas has become the first Community Development Finance Institution to work under a special set of rules developed with the Financial Services Authority.

Fair Finance, which was launched last week, is backed by the Royal Bank of Scotland and charities such as Quaker Social Action.

The lender says more than 4 million of the poorest people in Britain are paying exorbitant rates of more than 200 per cent for loan finance.

It will offer typical interest rates of 20 per cent.

Fair Finance will follow a set of guidelines agreed with the Financial Services Authority and register as an Industrial and Provident Society.

The guidelines will cover rules on money laundering, governance and financial promotions.

It is the first time a Community Development Finance Institution, a lender working in deprived areas that seeks social as well as economic returns, has agreed to voluntary regulation by the FSA.

The move was backed by Bernie Morgan, chief executive of umbrella body the Community Development Finance Association. "Fair Finance has developed a set of rules to protect the consumer, which has comforted the FSA," she said. "It's a good step for CDFIs. I foresee further discussion on self-regulation and proportionate regulation that satisfies the FSA but finds a way for the sector to grow."

Fair Finance has developed from a pilot on microfinance and indebtedness introduced by east London charity the Environment Trust, following a year-long consultation. It is funded by Ocean Estate New Deal for Communities in east London, NatWest Bank and charities such as the Esmee Fairbairn Foundation.

Last week, it opened its first office in Stepney, east London, in the third poorest ward in Britain, where 60 per cent of local residents have loans from informal sources.

Managing director Faisel Rahman said: "Unfair interest rates are keeping people in poverty, and irresponsible lending is keeping them in debt.

We want to change this. Fair Finance is committed to challenging the poverty business by being a responsible lender."

Fair Finance will also consider whether to offer loans to social enterprises in east London that require debt-based investment.

FACT FILE

Fair Finance is an organisation created to provide low-interest finance to people living in poor areas

It is the first Community Development Finance Institution to agree to voluntary regulation by the Financial Services Authority

It has developed from a pilot project introduced by the Environment Trust and is funded by the Ocean Estate New Deal for Communities, NatWest Bank and a number of charities

More than 4 million of the poorest people in Britain pay exorbitant rates of more than 200 per cent. Fair Finance will offer rates of 20 per cent.

Barclays is one of Fair Finance's main funder

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