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Last Updated: Saturday, 5 November 2005, 12:41 GMT
Credit hope for low-income families
By Bob Howard
BBC Radio 4's Money Box

People who have problems getting affordable credit are being helped by a new initiative.

Wooden toy
Robert's dream was to run a business making wooden toys

Robert Ploughman has just started a small business making traditional wooden toys from his flat in Southsea.

Robert needed to buy tools to start his business but because he was on benefit, receiving Jobseekers' Allowance, no bank would lend to him.

So Robert went to South Coast Money Line.

Funded by a variety of public and private money including some from Lloyds TSB and Barclays, it specialises in offering personal and small business loans to people who can prove they have been turned down by the banks.

Robert told BBC Radio 4's Money Box: "This was a dream of mine. I tried the banks, no joy there.

"I borrowed 2,000 to buy all the tools. It's made a big difference. Over the next two years we hope to have a shop."

Higher risk

In five years South Coast has lent 1.25m to around 1,700 clients like Robert.

There are currently 15 similar Community Development Finance Institutions (CDFIs) around the country.

South Coast can lend the small amounts of cash which people with a good credit rating would probably just put on a credit card.

The maximum personal loan is 5000. The average personal loan is 500. But we lend for as little as 50
Simon Frost, South Coast Money Line
That can be anything from 50 up to 7,500. It charges an annual interest rate of up 24%, about double what you would pay for a loan with a credit union.

South Coast says this reflects the higher level of risk involved with this kind of lending and also helps pay for the advice it offers.

But it is certainly much lower than the doorstep lenders.

Simon Frost, Managing Director of South Coast Money Line said: "The maximum personal loan is 5000. The average personal loan is 500. But we lend for as little as 50."

High interest

The Thornhill Estate on the outskirts of Southampton houses many people on low incomes.

It is the sort of place where - if you want to borrow money for a new washing machine or Christmas presents for your children - you would normally go to a doorstep lender where a typical APR can be 177%.

I just want to have a different company where I can pay back less over a shorter period of time
Janice
Janice lives on the Estate and already has a loan from a doorstep lender.

At South Coast she has just arranged to borrow money to pay off the high interest doorstep loan and have 1,000 to help buy the motorbike her husband needs to travel to his place of work

"I just want to have a different company where I can pay back less over a shorter period of time," said Janice.

Glenn Carr is the loans officer for South Coast in Southampton who will decide whether Janice gets her loan.

Honest account

To apply, Janice has had to make a budget with all her outgoings and earnings and bring in proof of her income.

South Coast does not credit score customers but they must give an honest account of their financial history.

The character of someone and their willingness to make the payments is very important
Glenn Carr, South Coast
A lot of weight is put on personal assessment as to the customer's commitment to repaying the loan.

Mr Carr used to work in a major bank. He finds helping people in low income communities very rewarding.

Speaking to the programme he said: "We see a very wide range of clients come through the door.

"In any case of financial objectivity the character of someone and their willingness to make the payments is very important."

South Coast's records show that the vast majority of people like Janice do repay their loans.

Some people now find they have a choice between borrowing from a credit union or a CDFI.

The government has set up a 36m fund to help provide more affordable loans.

The money will start being allocated to credit unions and CDFIs in March 2006. Bids are invited from February.

BBC Radio 4's Money Box was broadcast on Saturday, 5 November, 2005, at 1204 GMT.

The programme was repeated on Sunday, 6 November, 2005, at 2102 GMT.



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