There has been a 22% rise in the number of people and businesses seeking loans from ‘social purpose’ lenders, as households and small businesses grapple with growing cost-of-living pressures, according to data from Responsible Finance.
Responsible Finance, which represents community development finance institutions (CDFIs), reports that nearly 95,000 people, businesses and social enterprises borrowed from the UK’s non-profit, ‘community development’ lenders in 2022.
This marks a leap of 22% compared to previous years. The total lending by CDFIs also surged by 20% to £248m in 2022, reaching customers who might otherwise have been excluded from affordable finance. Personal lending by these institutions saw a 33% increase, with £46m lent to 90,630 people.
These organisations play a pivotal role in helping people avoid loan sharks and high-interest lenders. They also provide essential access to finance for viable businesses and social enterprises that cannot access the finance they need from traditional banks and other sources.
CDFIs have been pivotal in saving households £28m in interest that would otherwise have been paid to high-cost lenders, by lending £46m to 90,630 people.
In 2022, they lent £81m to 3,230 start-ups and established small businesses, creating 2,570 new businesses and preserving and creating 8,120 jobs. They also lent £117m to 416 social enterprises, preserving and creating an additional 103 jobs.
Theodora Hadjimichael, CEO of Responsible Finance, praised the role of CDFIs, saying: “They go above and beyond to provide bespoke support for applicants and customers, building up their resilience and increasing their chance of success.”
The report also highlights the broader impact of CDFIs, which includes helping more than 68,000 people, many of whom are the ‘working poor’, identify over £336m in benefits they were due but not claiming. They also provided over 31,500 hours of pre-and post-investment support to start-ups, SMEs, and social enterprises.
“CDFIs are driven by impact, so they work very hard to get to know every customer,” Hadjimichael added. “We are proud that our sector was a stepping stone for more people, social enterprises and businesses than ever before.”
In light of the ongoing economic pressures, these ‘social purpose’ lenders continue to play a crucial role in the UK’s financial landscape, offering an alternative solution to those facing financial hurdles.
