Who’s holding the umbrella? Challenging Times; Positive solutions.
Niall Alexander email@example.com Who’s holding the umbrella? Challenging Times; Positive solutions.Saturday 10th March 2012 Voluntary Action North Lanarkshire
Niall Alexander firstname.lastname@example.org Yes or No? Is a year’s loanof £300 at an APR of 70%+ affordable credit?
Niall Alexander email@example.com A man walks into a bar…. • It must be a common scene across the country. Someone lends £30 to a friend in a pub and says “If you pay me back next week and buy me a pint we’re straight”. So the friend returns back to the pub the following week, pays back the £30 and buys a pint which costs £3.00. Most people would think this is reasonable enough. But the equivalent APR of this transaction would be over 14,100% . If the pint costs £3.75, the equivalent APR of the transaction would be over 45,600%Source: PFG CR report 2010
Niall Alexander firstname.lastname@example.org…you may find yourself living in a shotgun shack Source: FT, letters 6/6/2008
Niall Alexander email@example.comAlliance & Leicester, Bradford & Bingley, Dunfermline BS…“You only find out who has been swimming naked when the tide goesout…and what we see at our financial institutions is an ugly sight” Warren Buffet, February 2008
Niall Alexander firstname.lastname@example.orgBanking crisis becomes sovereign debt crisis Flat-lining economy; 8.4% unemployment – highest for 16 years; 1.04m unemployed amongst 16 to 24 year olds; 36,200 repossessions in 2011; 159,400 in arrears equivalent to 2.5% of mortgage; £1,000,000,000,000 UK debt; Plan A or Plan B?
Niall Alexander email@example.com From too big to fail; now too big to bail!“Today’s crisis has stretched some state’s sinews to the limit. Bothliterally and metaphorically, global finance cannot afford another.”Andrew Haldane, Bank of England, “The $100bn question” March 2010
Niall Alexander firstname.lastname@example.org Civil unrest, austerity, demonstrations, lurch to the right“I think this is different: a) because it’s big; b) because it’s widespread;and c) because it is about solvencies, not just about liquidity. Andsolvency requires a totally different policy approach than just aliquidity problem”. George Magnus, Chief Economist, UBS, Feb. 2008
Niall Alexander email@example.com The dirty end of the stick Disproportionately: Not on voters roll; Thin files & poor credit history;“Cuts being proposed are Lowest income;draconian... People who hadthe least to do with the recession Poorest neighbourhoods;will pay the most” Pay most for food & fuel;Prof. David “Danny” Blanchflower, Lacking insurance;Speaking at David Hume Institute, Edinburgh, Oct. 2010 Pay the most for their cash.
Niall Alexander firstname.lastname@example.org More pain for the poor50.00% Absolute child poverty rate by housing tenure 2010-201545.00% Source: IFS & FPI (Jan. 2012)40.00%35.00%30.00%25.00%20.00%15.00%10.00%5.00%0.00% Social Rented Private rented Mortgaged Own Outright 2010 36.30% 25.30% 11.20% 24.20% 2011 39.10% 29.00% 11.90% 25.10% 2012 39.90% 34.20% 12.40% 24.60% 2013 43.10% 35.30% 12.50% 24.60% 2014 41.80% 34.40% 12.70% 23.30% 2015 42.60% 33.60% 12.60% 24.20%
Niall Alexander email@example.com Insolvencies (individuals) 2001 - 201025000 Highest concentration of personal insolvencies (2010) by town: (UK):20000 1: Glenrothes 2: Kirkcaldy 3: Livingston15000 4: Washington 5: Dunfermline 6: Weston-Super-Mare 7: Hamilton10000 8: Torquay 9: Boston 10: Paisley5000 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 p 2010 Total 6,827 8,389 8,780 9,321 11,89 13,78 13,92 19,99 23,54 20,32
Niall Alexander firstname.lastname@example.orgStill an enormous demand for unsecured credit“Our customers are scared of banks”. Theyjust want cash,” says Ruth Walker, managerof Albermarle & Bond’s Barking branch.Shares in the £164m company have risen by27% in the past year, tallying with a 32%increase in its pledge book & increasingdemand for unsecured loans.Datamonitor estimates there are 12m “non-standard credit consumers” denied accessto conventional loans due to bad debthistory or reliance on benefits for income.” Source: Financial Times 2 May 2011 “Pawnbrokers see influx of clients who fear banks”
Niall Alexander email@example.com secured and unsecured monthly lending from Aug. 20073500030000250002000015000100005000 0 01-Oct-07 01-Oct-10 01-Oct-08 01-Oct-09 01-Oct-11 01-Dec-08 01-Dec-09 01-Dec-11 01-Dec-07 01-Jun-08 01-Apr-09 01-Jun-10 01-Dec-10 01-Jun-11 01-Apr-08 01-Jun-09 01-Apr-10 01-Apr-11 01-Feb-08 01-Feb-11 01-Feb-09 01-Feb-10 01-Aug-09 01-Aug-07 01-Aug-08 01-Aug-10 01-Aug-11 Monthly value of total sterling approvals for secured lending to individuals in £million (not seasonally adjusted) Monthly amount of total sterling unsecured gross lending to individuals in £million (not seasonally adjusted)
Niall Alexander firstname.lastname@example.org Payday lenders – the clue is in the name!1.587m applications to the social fund rejected in 2010/2011. (source DWP)4m payday loans borrowing £1.7bn. (FT)3m users of home credit borrow £1.5bn, (PFG reject 80% of “new”) (PFG)24m “renters” apply for bank consumer credit 12m “accepts” (Big Issue Invest)
Niall Alexander email@example.com The non standard borrower• 10m UK adults in the non-standard credit market.• 3m using home collected credit .• About £30m issued by home credit every week.• young, low-income, women, w/children, social renters.• Around £80+ interest & fees on every £100 borrowed.• Collected weekly, on the doorstep; flexible & personal.• Customer likely to have thin credit files or poor history.• Ignored and unwanted by banks and standard lenders.
Niall Alexander firstname.lastname@example.org Provident: a logical choice PFG 90% + £500 272% satisfaction. It 52 wks APR works for the £910 2010 customer 2009 1.86m 2011 2008 1.84m 1.82m 1.75m 2007 1.65m 2006 1.56m 2005 1.49m“The UK non standard market, we believe, will increasingly be thedomain of specialist lenders like ourselves, and in particular, webelieve the small sum unsecured part of the market is the sweet spot”
Niall Alexander email@example.comPFG share price tracked against FTSE 100 last 5 years RBS
Niall Alexander firstname.lastname@example.org Unfurnished home, no credit, head to BrightHouse• Female;• aged 25 to 45; with children;• a household income of less than £18,000; and there is a good chance she is• wholly or partly dependent on benefits; &• she may be a lone parent;• she probably lives within 3 miles of a store;• has no access to a car.• The average shopper pays £23 a week and has an average of three and a half items out on loan through BrightHouse.
Niall Alexander email@example.com Moneyline “Responsible Lender of the Year” 2011/12 Moneyline (Jan. 2008 - Dec. 2011) loan book, gross lending & number of loans issued£8,000,000 16000£7,000,000 14000£6,000,000 12000£5,000,000 10000£4,000,000 8000£3,000,000 6000£2,000,000 4000£1,000,000 2000 £- 0 2008 2009 2010 2011 Outstanding loan book (£) Gross Lending (£) No. of loans issued
Niall Alexander firstname.lastname@example.orgOrganisation & operations Supported by the Social Business Trust partner Credit Suisse, Moneyline has: • revolutionised its back office systems; to • improve efficiency productivity & capacity; • Already raised social bond in Wales, & • Now seeking investment to fund growth
Niall Alexander email@example.com Organisation & operations • face-to-face lending; • 45 minute loan interviews; • Under 50% approved; • Flexibility (wanted, needed & appreciated) in loan repayments; • weekly or fortnightly Direct Debit preferred by borrower; • If 2 x DD’s missed, DD cancelled to prevent additional charges;• rounded-up payments, balance swept to (Bank of Scotland) savings; • Basic (Nat. West) bank account opened, in house, if needed; • Debt recovered through Eligible Credit Deduction Scheme (ECDS).
Niall Alexander firstname.lastname@example.orgViability Sustainability
Niall Alexander email@example.com The only lender of its type in Scotland Scotcash: Meeting the needs ofGlasgow’s most excluded.
Niall Alexander firstname.lastname@example.org Scotcash : since 2007• 6000 loans written worth almost £3.2m;• 1500 basic bank accounts opened;• 350 savings accounts opened; £81,000 saved;• 3250 clients within in-house CAB service;• £7.6m client debt seen & £2.9m client financial gain;• 200 evictions prevented;• £1.7m saved in interest and fees.
Niall Alexander email@example.com the space between for the non standard borrower • £2 of every £3 that repays is from welfare benefits; • Significant by-products of debt & money advice, bank & savings accounts, improved mental health & social capital. • Each loan is at least £60 per £100 less when set against the most-likely higher cost home collected alternative; • 57% of customers below poverty line; • Award-winning, a trusted brand, a value proposition.
Niall Alexander firstname.lastname@example.org Know your customerWomen (73%)Lone parent (38%)Dependent children (62%)Under 34yrs (48%)Income under £200/wk (58%)Social renting (73%) & home owning (2%)Unemployed (63%)They are familiar with home credit,rent-to-own stores, & the social fund.They want small sums, repayable weekly;They like personal, flexible, service.
Niall Alexander email@example.comNot-for-profit but not above criticism • Be clear about the purpose; • Be right about the business; • Be open to scrutiny; • Be willing to change; • Be aware of the challenge.
Niall Alexander firstname.lastname@example.org Credit unions: need a balanced loan book “the Chief Executive of the UK’s biggest credit union trade association suggests that even aUK Wide: 60% APR would not be enough to16% Unemployed or unable to work; cover all the costs of lending to71% over 40 years old; Growth Fund customers, within a 10% default target”14% lone parent families; Mainstreaming Financial Inclusion36% renting from LA or HA; (3/2010) Financial Inclusion Taskforce48% owning home outright or with a mortgage;32% with a net household income under £199 per week;74% members for over three years.Source: Membership Counts: Who uses credit Unions, PFRC, 2006, ABCUL
Niall Alexander email@example.com The non standard borrower PFG, Scotcash & Credit Union customers compared100%90%80%70%60%50%40%30%20%10% 0% Renting LA/HA or Owns home Female Dependent Young (under 40) Unemployed private outright or with children mortgage PFG (Investor analysts Nov.2010) Scotcash (all loans to 2011) Credit Unions (ABCUL, 2006)
Niall Alexander firstname.lastname@example.orgAPRs : like looking at a thermometer to see if it’s raining Higher interest rates would be needed to put Growth Fund lending on a more stable commercial platform. Assuming operational costs, risks associated with lenders, and average loan sizes remain constant, it is estimated that an APR of 71.2 per cent would be required to cover operational costs and financial risks associated with lending. An APR of 108.2 per cent would be required to reach a commercial rate of profit of 12.7 percent on loan capital
Niall Alexander email@example.com Social & financial return on investment• Money : retained (in households & communities)• Families & tenancies : stabilised• Children : nurtured• Social capital : developed• Physical & mental health : lifted• Over indebtedness : decreased• Saving : encouraged• Anxiety : reduced• Standard of living : increased• Quality of life : enhanced
Niall Alexander firstname.lastname@example.org Yes or No? Is a year’s loanof £300 at an APR of 70%+ affordable credit?