Socially minded investors are funding organisations that offer fair and affordable credit to those most in need. We explore how everyday people are investing to support at-risk families when mainstream banks let them down
Would you invest in a financial company? That question probably feels aimed at a narrow demographic, such as venture capitalists, and comes with an end goal of soaring profits. What if we told you the finance company offers loans? You might assume some predatory marketing tactics to be at play, aimed at taking advantage of those in need. But there is, in fact, another way of doing business that actually aims to help – not exploit – the financially vulnerable.
Ethex is a platform dedicated to giving everyday people a chance to invest in companies and projects that are committed to social change. Through crowdfunding, Ethex investors can choose a socially conscious organisation in which to invest, safe in the knowledge that their money is going to help people in need. Many companies raising money on Ethex are ethical finance companies, which assist people with low or no credit scores access financial products – with strict terms in place to protect their customers.
Take Great Western Credit Union, a co-operative, not-for-profit provider of ethical savings and loans in south west England. Here, customers are members, meaning they have a say in the way their credit union is run. Members’ savings are protected by the Financial Services Compensation Scheme (FSCS) and pooled together to offer affordable loans to people all across the region. Last year, the organisation successfully raised more than £1.9m on Ethex, an impressive 237% of its £800,000 target, with all funds contributing to growth in lending and improving offerings to meet the changing needs of members.
Fair for You, which provides flexible, affordable loans for household items to vulnerable families who would struggle to access credit on the high street, closed its funding round on Ethex after raising 131% of its £500,000 target. Customers can use a ‘soft-search’ to see what they might be able to borrow – which won’t show up on their credit file – before choosing the item they need from a partner retailer, and setting their own repayment terms.
With 18% of the UK’s population classed as being in relative poverty in 2022-23, there is a clear need for such companies. [Relative poverty is defined as earning under 60% of that year’s median income]. One funding campaign currently live on Ethex is Salad Money: the UK’s largest community development finance institution (CDFI). Its modus operandi is to lend money to people who really need it, but who are unable to access conventional credit products due to a poor or non-existent credit score. Salad Money never lends more than £1,000, to try to avoid plunging its customers into debt.
“We’ve been invested in by a company called Fair4All, which is the government distributor of the dormant asset monies,” explains Salad Money CEO Tim Rooney. Dormant assets are bank accounts, pensions or investments that haven’t been accessed for a long time, and if the money can’t be reunited with an owner, it’s redistributed to social and financial inclusion causes.
Tim Rooney, CEO at Salad Money
“We lend to people who have an impaired credit score,” Rooney continues. “They’re typically people who are in the lower four or five deciles of income in the UK. The reason we’re good at this is because we don’t use your credit score to make a lending decision – we use open banking. So we look at two years’ worth of transactions, with the customer allowing us access to their current account. We see what they spend, if they’ve missed any payments and what’s on their credit file. About 10% of our borrowers don’t even have a credit score, but they perform financially as well as people who have one.”
As well as assessing someone’s suitability for a loan, open banking has another plus point. Salad Money can identify from someone’s income and circumstances whether they might be entitled to benefits they didn’t know about.
“No one had ever told me about disability living allowance before,” says Jenni, a senior healthcare support worker from Manchester, whose credit score was badly affected by debt that came from buying items from catalogues on credit and loans she had more than 20 years ago.
About 10% of our borrowers don’t even have a credit score, but they perform financially as well as people who have one
Her youngest son is autistic, but she didn’t realise that this made her eligible for additional benefits. “I only found out thanks to Salad’s calculator saying I might be entitled to disability living allowance. So I put the claim in, and I am actually entitled to it.” The extra £350-per-month she now receives is a helpful boost.
“If you applied for a normal loan, they’re not going to [tell you which benefits you could claim],” she says. “They’re just going to give you the loan and with interest rates as high as a kite, but with Salad [Money] it’s affordable and you’re not paying loads back.”
In April 2024 alone, more than 28,000 Salad Money applicants were assessed as being eligible for benefits of £247 per month, on average.
Salad Money never lends more than £1,000, to try to avoid plunging its customers into debt. Image: Sarah Chai
Rooney is keen to explain why Salad Money’s APR is 79.5% (an average credit card interest rate is currently around 22%). “The reality is, you can only access products with a lower APR, like a credit card with 20%, if you have a good credit score,” he says. “I’m not capitalising on charging people more to make more money. I have to provision each loan to include lifetime loss, which is the percentage of loans given that are never paid back … We’re regulated and compliant, but we don’t make a profit – we break even.”
Even with the high APR, calculations demonstrate that borrowing from Salad Money is cheaper than a typical payday loan. At 79.5%, the amount repayable monthly on a £1,000, 12-month loan would be £113.18. A typical payday loan would be around £166.67 per month, but could be much higher – APR can run up to over 1,000% at some providers. In April 2024, Salad accepted 5,778 customers for loans, lending a total of £5.4m, and saving these customers a total of £3.2m in interest over the term of the loans.
It’s about real people, tackling financial inequality, and a fairer way of borrowing that doesn’t break the bank
“We get 3,000 applications a day, and turn down 95% of those,” Rooney says. “We’re a Financial Conduct Agency-regulated entity, so we can only lend to people when it’s affordable and appropriate.”
That isn’t always the end of the road for people in financial need, though. In 2023, six CDFIs including Salad Money distributed £416,600 in ‘no-strings attached’ NatWest Group and Responsible Finance hardship grants of between £50 and £100 to people who had applied for a small loan and been turned down.
Investing in Salad Money, or any of the other ethical finance companies raising money through Ethex, isn’t about soaring profits. It’s about real people, tackling financial inequality, and a fairer way of borrowing that doesn’t break the bank.
Main image: Pixdeluxe/iStock
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