The case for affordable credit

Councils and community lenders can help build financial resilience.

We all know how expensive Christmas is: the Bank of England estimates that a typical UK household spends more than £700 more in December compared with other months. 

A poll by debt charity StepChange projects that four million people expect to borrow on credit to pay for the 2021/22 festive season – more than one million more than the year before. Rising living costs, reduced household income, the loss of the £20 Universal Credit uplift, and the end of COVID-19 support measures such as furlough, are all cited as reasons for this surge in borrowing.

For those needing to cover times of increased expenditure, or pay for unexpected events, credit is an essential tool. Unfortunately, a growing number of people are unable to access lower-cost credit, such as bank credit cards and loans, as they are financially vulnerable, on low or unstable incomes, or have a bad credit history. 

Each year, an estimated 5.6 million people in this position turn to high-cost credit, such as payday lending, rent to own, or home-collected credit. As a result, credit is most expensive for those who can least afford it. 

Improving access to lower-cost credit, via community lenders such as credit unions and community development finance institutions (CDFIs), can help build financial resilience and capability, and reduce the need for borrowing in the future.

At the Financial Inclusion Centre, we have been working with the London Borough of Barking and Dagenham to understand and address this issue. Our analysis across the borough found that there are at least 6,000 annual users of subprime credit, taking out around 20,000 loans with a total value of more than £9.6 million. This means that, each year, £7.1 million in interest is lost from the pockets of the borough’s residents and extracted from the local economy.

“It is vital that affordable finance is locally available and part of a joined-up strategy”

By facilitating access to fair and affordable financial products and services – ones that will help people meet their day-to-day financial needs, absorb shocks, smooth income fluctuations, deal with short-term financial problems and build resilience – we provide people with pathways to better financial health and wellbeing.

Of course, credit isn’t the appropriate solution for everyone. It is vital, however, that affordable finance is locally available and part of a joined-up strategy, sitting alongside debt advice and direct financial and in-kind support that helps build financial stability and resilience.

Councils have a vital role to play in supporting, developing, coordinating and promoting the delivery of affordable and responsible finance via credit unions and CDFIs. There are excellent examples of innovative partnerships between councils and community finance providers that have scaled the provision of affordable credit locally. Yet, there is a long way to go to close the gap between the £3 billion of annual subprime lending compared with just £250 million by community lenders. 

Our recent affordable finance publication for the LGA (see below) provides a range of relevant evidence, good practice and learning, with case studies, alongside practical resources, reports and websites. These can be used by councils at all stages of the journey to build sustainable, effective collaborations with credit unions and CDFIs for the benefit of their residents – as well as their local communities and economies

‘The role of councils in improving access to affordable credit and financial services for low-income households’, see The Financial Inclusion Centre is an independent, not-for-profit think-tank, see


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