Fair Finance 2010

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Fair Finance in 2010

by Toby Johnson

See also: Fair Finance, Fair Finance 2012

Fair Finance, a social business based in North London, is revolutionising personal finance by lending small amounts to poor people on fair terms – and making a business of it. In its first five years it has lent £2.5m (€3m) to 6,000 people – and saved them an estimated £800,000 in interest.

Fair Finance, based in the north London district of Dalston, is quite upfront about the interest rates it charges – they can go as high as 45% APR. You might think this is ruinously high – until you hear what the competition charges – routinely 300% or 400%, and in cases as high as 1,500%. Doorstep or payday lending is big business. Provident Financial plc, with 1.8 million borrowers – 5% of Britain’s households – is a member of the FTSE 250 – one of Britain’s highest-valued companies. Fair Finance reckons it has saved its clients £800,000 (€1 million) in interest charges since it was founded.

Location: At any rate, its customers don’t seem to mind. Currently with 18 staff working out of four offices across North London, it has plans to expand into four more offices soon, and eventually to cover the whole of the metropolis.

Customers: Fair Finance offers loans to people who are refused by banks, because they can’t provide the right sort of documents – passports, driving licences, utility bills, voting cards etc. Seventy per cent of their clients are women. Fair Finance proves that lending small amounts to these financially excluded people can be a viable business. But it can’t afford to be a soft touch: it suffers a loss rate of 8%, and it takes all defaulters to court.

Price: Fair Finance offers two main financial products:

  • small business microcredit of between £2,000 and £10,000 (€2,300-12,000), at interest of 15%-19%
  • personal loans of between £100 and £2,000, at interest of 32%-39% (which with a small administration charge can take the total to 45%)

Service: Existing clients get a discount. But what makes these products so attractive is not the interest rate, it’s the sheer fact of being able to get credit at all – in other words access, flexibility, and respect for the customer. Fair Finance is close to its customers, and puts no glass screens between staff and customer. Coupled with this, it offers a very fast service – decisions on personal loans are taken by the loan officer at the end of an interview of maybe an hour. But there is a safeguard – at the end of each day an office meeting is convened to approve them. Business loan decisions are normally made within a week. If a ‘bankable’ client does turn up on Fair Finance’s doorstep, it sends them to a bank, where they will get a cheaper rate.

All loans come complete with access to a free bank account – Fair Finance cannot operate accounts itself, but has arrangements with local banks that allow them to set up accounts for their clients. In fact it does not deal with cash at all, finding direct debits a far cheaper way to operate.

Productivity: Fair Finance’s loan officers each interview 600 clients per year, and grant loans to 300 of them (so as not to give the wrong incentives, each loan officer has a maximum number of loans they should give, not a minimum!). But no customer goes away with a blank “no”. What they do sometimes go away with is a list of things to do before they can get a loan.

Personal loans are granted after a simple interview, but for the larger microcredit loans, an initial phone call is usually followed up by sending an information pack. The client then prepares a cash-flow projection and a credit reference and if possible a business plan or at least an application form, before coming for interview. What Fair Finance assesses is essentially the customer’s character and knowledge, not physical security. Each case takes about 12 hours of staff time to administer, and Fair Finance currently covers about 80% of its transaction costs from its operations. The gap is made up by its social investors, but as it expands it will be able to break even. Fair Finance also receives sponsorship from Citibank for research work into financial needs.

Mission: Fair Finance doesn’t just lend money. Its mission is much more ambitious: “We aim to revolutionize personal finance, starting with the people whom the mainstream providers have left behind”. One of its departments is debt counselling. Its activity is subsidised by local registered social landlords (housing associations), who like their tenants to have enough money to pay the rent. They calculate that their support brings them a fourfold return.

Financing: In March 2011 Fair Finance announced that it had raised £1m 50/50 from Société Générale and BNP Paribas in a package which is being dubbed the first of its kind in Western Europe.Faisel Rahman said: "This financing is the first commercial microfinance deal in Western Europe and it will help bring long term sustainable finance to tackling this deep-rooted social problem."<ref name="fundraising">http://www.socialenterpriselive.com/section/news/money/20110406/east-london-social-enterprise-secures-%C2%A31m-investment-two-big-banks</ref>

Main source: Presentation by Faisel Rahman, founder and managing director of Fair Finance, to a group of microfinance practitioners attending the annual conference of the European Microfinance Network (EMN) which took place in London on 24-25 June 2010.

Faisel Rahman
Fair Finance
18 Ashwin Street
London E8 3DL
+44 20 7254 1976