Some commercial lenders have teamed up with the British government to give interest-free loans to high-risk borrowers during the country’s current cost of living crisis.
The government transfers 45 million pounds ($57 million) from its Dormant Assets Scheme to the London-based nonprofit Fair4All Finance, which will disburse the funds to various lenders participating in the two-year pilot. The Dormant Assets Scheme was previously established to redirect money from forgotten accounts to charitable causes.
According to the article, these lenders include Social Credit, a partnership between commercial startup lender Plend, and two unidentified nonprofit organisations, Fair For You and the South Manchester Credit Union.
As part of the plan, each organisation offers Some commercial lenders have teamed up with the British government to give interest-free loans to high-risk borrowers during the country’s current cost of living crisis..
The programme intends to address the huge credit market gap that has resulted from the demise or exit of numerous payday lenders.
According to a survey by PwC and credit broker TotallyMoney, one in three Britons cannot obtain credit from high street lenders because they have no credit score or a bad credit history.
Tom Lake, head of policy and strategy at Fair4All, said, “We’d like to see all the financial services come together to look at how to solve that gap.”
According to John Cronin, an analyst at Goodbody, the lending’s inclusion of a zero interest rate has generated debate because it deviates from the credit screening guidelines used by banks.
According to Cronin, it will certainly be crucial that the government backs any such loan and that the banks are fairly reimbursed for the initiative’s operational and other costs.
The cost of living issue caused a 7.1% increase in overdraft usage in the U.K. between August 2021 and December 2022, as rising food prices and other payments squeezed customers’ budgets.
A 6% increase in essential spending as a percentage of income caused many people to use overdrafts to cover the additional expenses.
Financial institutions have also faced a difficult operating environment due to pressure on their loan portfolios from rising interest rates, inflation, geopolitical unpredictability, and supply chain disruptions. Source