Scotland Finance

Affordable Credit: a historic development


When the Carnegie UK Trust published the Gateway to Affordable Credit report last year, setting out 18 recommendations for how affordable credit services such as credit unions and CDFIs could be extended to reach more people in Scotland people, we hoped to work with ambitious local authorities and affordable credit providers to help achieve this ambition. A key objective has been to help people move up the ‘credit curve’ so they can increasing access a wider range of credit options.

One year on from the formation of the Affordable Credit Action Group which aims to extend the provision of affordable credit for a more financially inclusive Scotland, Carnegie UK Trust Chief Executive Martyn Evans examines the issues at stake and progress to date.  

This weekend marked the launch of Conduit Scotland and the opening of the first new personal lending Community Development Finance Initiatives (CDFIs) in Scotland for more than 10 years. We calculate loans from these social enterprises will save very low income borrowers an astonishing £5 million in interest repayments over just five years.[1]

This historic development will see four new not-for-profit outlets offering affordable credit and money advice services in Dunfermline, Kirkcaldy, Bathgate and Falkirk, backed by a unique consortium comprising Fife, Falkirk and West Lothian Councils. Later in the year, we will also see new Scotcash branches opening in Edinburgh and Inverclyde. Scotcash has been providing affordable credit in Glasgow since 2007 – until very recently the only CDFI outlet in Scotland. Now, with support from Virgin Money Foundation, the Oak Foundation, and Inverclyde Council, they will extend their multi award-winning services to reach many more people.

Why are these developments so significant? The recent House of Lords Financial Exclusion Committee report urged the UK Government to appoint a minister for financial inclusion who has to report annually to Parliament on progress made towards addressing financial exclusion.

Committee chair Baroness Tyler of Enfield said: “Too many people still have no bank account or cannot get access to basic or fairly priced financial services. The ‘poverty premium’ – where the poor pay more for a range of services from heating their home to accessing credit – contributes to a vicious circle driving people ever deeper into debt and distress.”

Access to credit has long been a complex and contested public policy issue. While most of us take for granted our ability to rely on relatively low cost credit for a whole range of different transactions and circumstances at different stages in our lives, it is a commonly expressed view that those who are the least well off in society should not have the opportunity to borrow money.

The credit market is not a level playing field. For decades, many low income households have been unable to access to mainstream credit products including credit cards, bank loans and overdrafts. Thin or poor credit histories, low incomes and a lack of take-up of basic financial products have proved to be almost insurmountable barriers to access.

Where mainstream credit products are unattainable the only alternatives for many people have been high cost commercial options such as payday lenders, home credit, pawn shops or rent-to-own. This is a multi-million pound market and these providers charge a significant premium for their services, compounding financial inequality in our society.

Recent and welcome FCA regulations have significantly restricted access to even this high cost market, with an estimated 42% fall in the number of loans offered between 2013-2016, and an estimated six in ten high street lenders leaving the market altogether over the same period[2]. This is in part good news, providing better protection for citizens and tackling harmful practices. But it also means that for those who are financially excluded, the credit options available have narrowed even further, with potentially unintended and undesirable consequences.

All of this means that the expansion of more affordable, not-for-profit alternative lenders has never been more vital. The new CDFI services now opening across five Scottish Council areas will deliver considerable financial savings for many more people in Scotland – with most of these savings being made by those who are the least well off. On a £500 loan over 26 weeks a CDFI customer at Conduit Scotland  or Scotcash will repay £88 in interest, a saving of nearly £200 in interest payments compared to the UK’s leading commercial home credit loan.[3]

The new services will also provide new opportunities to help improve people’s overall financial wellbeing, by supporting access to other important services such as debt advice, income maximisation and savings accounts. In times of high inflation, stagnating wages and reducing public spending this is hugely important. All those involved in these initiatives deserve great credit for their endeavours to make these transformative developments a reality.

The overall impact could be significant. Fife, Falkirk and West Lothian Councils, whose decision to work and invest together had made the deployment of new CDFIs in their areas possible, anticipate that more than 25,000 loans will be issued, worth almost £11 million over the next five years.

The work of the Carnegie UK Trust has been led by the Chair of the national Affordable Credit Action Group, the Very Rev. John Chalmers, former Moderator of the Church of Scotland, his fellow Action Group members, and our expert Associate Niall Alexander.

What next? There is still much to be done. The multi-sectoral spirit of the Action Group, which includes representation from Scottish Government, The Wheatley Group, North Ayrshire Council, Poverty Alliance, Young Scot, Royal Bank of Scotland and Virgin Money, reflects the need for partnership-working to break down the complex barriers to affordable credit.

To avoid those who have the least paying the most, and incurring the ‘poverty premium’, we need to drive significant change in public policy debate. One stepping stone to this is improving our evidence base about the importance of responsible credit alternatives. To this end, we intend to carry out and publish a number of new research studies over the coming months.

We intend to work with the credit union sector to explore opportunities for how they might work with employers to reach new members and grow their savings and loan books.

Another piece of the puzzle is what role the wider financial services sector might play. Small changes here could deliver significant results. Improving the flow of information between credit referencing agencies and affordable credit providers, for instance, would help customers build up a better credit score. This is key to moving up the ‘credit curve’ so people can access a wider range of credit options if they find themselves in financial need.

We also know that to grow into sustainable organisations that can serve people at scale, affordable credit organisations are likely to require significant financial investment, and we intend to pursue opportunities to bring some of this investment to the sector in the months ahead.

All of the members of the Action Group are committed to working together with the Carnegie UK Trust for the next year to lead the change on these issues. There is still considerable work to be done but we are delighted to see new CDFIs opening in Scotland, knowing the material difference they can make in the lives of some of our poorest citizens.


[1] This figure assumes that all of the projected 25,500 Conduit Scotland loans are taken out over a 52 week term against their commercial home credit alternative over the same term.

[2] A Modern Credit Revolution: Analysis of the Short-Term Credit Market CFA / CMF; online 2017

[3] input data of £500 repaid over 26 weeks cost interest of £88 at Five Lamps and Scotcash and £280 at Provident.