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UK lenders trial government-backed loans for risky borrowers

by Staff GBAF Publications Ltd
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UK lenders trial government-backed loans for risky borrowers

By Martin Coulter and Muvija M

LONDON (Reuters) – A handful of small UK commercial lenders are offering interest-free loans to high-risk borrowers, as part of a government-backed scheme to support people through the cost of living crisis.

Over the course of a two-year pilot, the British government will funnel 45 million pounds ($57.18 million) from its Dormant Assets Scheme to London-based nonprofit Fair4All Finance, which is distributing some of the funds to lenders.

In March, the government said 76 million pounds recovered from the scheme, which is designed to redirect money from forgotten accounts to good causes, would be used to support those struggling with surging prices.

Reuters has confirmed that Social Credit, a collaboration between commercial startup lender Plend and two nonprofit organisations, has been delivering interest-free loans as part of the scheme.

Other organisations involved in the pilot include nonprofit Fair For You, and the South Manchester Credit Union. Fair4All declined to comment when asked to confirm the names of participating lenders.

A hole in the credit market, caused by the collapse or exit of many payday lenders such as Provident and Quickquid, has left millions unable to access loans.

Some 20 million Britons – roughly one in three – find difficulty in accessing credit from high street lenders either due to having a thin credit score or minor adverse credit history, a 2022 survey by PwC and credit broker TotallyMoney showed.


Fair4All told Reuters a portion of the 45 million pounds would be used to fund no-interest loans, and the rest allocated to other financial support measures.

“We’d like to see all the financial services come together to look at how to solve that gap,” Fair4All’s director of policy and strategy, Tom Lake, told Reuters.

Customers who are turned down for a loan from a participating lender may be eligible for a no-interest loan if removing the interest subsequently makes the financing affordable, or if they have been turned down due to certain lending criteria such as a low credit score.

John Cronin, an analyst at Goodbody, told Reuters the design of the scheme would be crucial to its future success.

“The attachment of a zero interest rate to the lending is quite contentious … This is not entirely congruent with banks’ existing credit underwriting standards, so it will require additional resource and tailored risk assessment,” Cronin said.

“It will obviously be key that any such lending is underwritten by the government and that the banks are compensated adequately for the operational and other costs associated with the initiative,” he added.

Pressure is mounting on Prime Minister Rishi Sunak’s government to step in with further help, ahead of a national election expected next year in which his Conservative party is forecast to lose.

($1 = 0.7870 pounds)


(Reporting by Martin Coulter and Muvija M; Editing by Sharon Singleton)