If your Big Local area is interested in offering personal lending using social investment, you will need to work with an institution that is legally able to provide different types of loans. There are two types of community-finance institutions that provide personal loans through social investment: credit unions, and community development finance institutions.
Credit unions are run by their members for their members and offer savings accounts, loans and other financial services. They serve everyone, but they often have a special mission to serve low-income communities. They are regulated by the Financial Conduct Authority and are members of the Financial Services Compensation Scheme. Credit unions are member-owned co-operatives and any profits are shared by their members or re-invested in the credit union.
Winterton Big Local is working with North Lincolnshire Credit Union to reach agreement on an investment and grant. Small Change carried out a due-diligence check to ensure North Lincolnshire Credit Union is a good organisation for Winterton to invest in. This check is carried out on all credit unions and community development finance institutions before an investment is made.
Community development finance institutions (CDFIs) lend money to individuals and businesses that struggle to access finance from high street banks and loan companies. They help deprived communities by offering loans and support at an affordable rate to people who cannot access fair credit elsewhere. Community development finance institutions do not aim to make a profit but to support communities by providing affordable finance that would not otherwise be available.
Credit unions and community development finance institutions provide a range of loans for:
- buying larger items such as furniture, fridges, washing machines or cars
- home improvement, for example to insulate the homes of older home-owners who can repay the loans from savings on their energy bills
- debt management, helping people escape from the trap of very high interest rates charged by payday and doorstep lenders
- minor household upgrades, repairs and maintenance.
North West Ipswich Big Local decided to work with East of England Savings and Loans. They agreed to give a grant of £5,000 and to make a social investment of £20,000. In return, the credit union has agreed to set up junior savers' schemes in local schools, and to help residents join the credit union (saving £30,000 a year in interest), and open ‘jam-jar’ budgeting accounts.