Recently East Lancs Moneyline (Moneyline) received plaudits from politicians in the Welsh Assembly for its unprecedented success in tackling financial exclusion in South East Wales. The politicians encouraged other social lending businesses to be follow Moneyline’s model.
In late 2009, Moneyline established five new branches of its lending business in Wales. The five branches in Bridgend, Cardiff, Cwmbran, Newport and Pontypridd carried the brand Moneyline Cymru and aimed to provide affordable unsecured personal loans to individuals from disadvantaged communities. Since the establishment of the first offices in Wales over two years ago, Moneyline Cymru has approved 7,500 affordable micro loans to borrowers who would otherwise have taken out loans with (in the best of cases) Provident Financial or (in the worst of cases) illegal money lenders. The most affordable of these alternatives to Moneyline would require a borrower to pay back a staggering £82 for every £100 lent. Moneyline charges between £19 and £35 for every £100 lent, depending on whether the borrower is a new or repeat customer.
The benefits to the local Welsh community are obvious. Firstly, and most directly, the customers of Moneyline Cymru save a substantial amount on interest payments. Moneyline calculates that it has saved its customers in disadvantaged and vulnerable communities at least £2 million so far during its two years of existence in South East Wales. This is simply a calculation of the amount of interest its customers would have had to pay had they borrowed from their next best available lender.
Secondly, Moneyline Cymru boasts a superb track record in getting its customers to save. The criticism levelled at legal providers of affordable loans to low incomes customers is always that the existence of these products encourages reckless borrowing and discourages savings. However, in the Moneyline Cymru’s case, customers have to either have, or set up an account when taking out a loan and are encouraged to open a savings account at the same time. Almost 100% of Moneyline Cymru’s new customers in 2011 opened such a savings account. Any “rounding up errors” on customers’ weekly, fortnightly or monthly loan and interest repayments go into their savings account. So, for instance, a £7.79 weekly loan and interest repayment, would see £10 debited from the customer’s account, with the difference of £2.21 accumulating in the customer’s savings account. The savings account has no minimum opening or savings amounts and allows only two withdrawals per year to help customers resist the temptation to make frequent withdrawals. Moneyline’s customer focus groups indicate that customers value the withdrawal limitations placed on the savings account. Moneyline Cymru’s customers are encouraged to save up for birthdays, summer holidays and Christmas spending peaks. They are also building up headroom for unanticipated expenditure and making themselves, over time, less dependent on credit for smoothing out income and expenditure volatility.
Moneyline’s solid operating performance has impressed not just Community Housing Cymru and its member housing associations (Moneyline Cymru’s operational partners and backers during the roll-out of the five branches), but also local politicians. Across the political spectrum from Plaid Cymru to the Conservatives there is recognition that the Moneyline Cymru operating model is much better positioned to accurately price the risk of unsecured personal loans than the more savings-focussed credit union model. Moneyline Cymru is making a real difference to disadvantaged communities in South East Wales.
As placement agent for a loan capital bond that proveded part of the capital needed for the five Welsh branches, Social Finance is proud of having been part of making Moneyline Cymru reality. More businesses like Moneyline are needed across the UK – social enterprises that use solid business skills and level-headed business thinking to create sustainable operations while at the same time putting positive social impact on an equal footing with financial surplus. We wish Moneyline continued success in expanding and addressing the geographic hot spots of financial inclusion in Wales and other parts of the UK.
By Annika Tverin, Director at Social Finance