Examination of Witnesses (Questions 290-299)
MS BERNIE
MORGAN, MS
SARAH MCGEEHAN,
MR ANDREW
BAKER AND
MR SIMON
FROST
28 FEBRUARY 2006
Q290 Chairman: Good morning. Welcome
to this second part of our inquiry. Could I ask you to introduce
yourselves for the shorthand writers, please.
Mr Frost: My name is Simon Frost.
I am Managing Director of South Coast Money Line.
Ms Morgan: I am Bernie Morgan,
Chief Executive of the Community Development Finance Association.
Ms McGeehan: I am Sarah McGeehan,
and I am Bernie's deputy at CDFA.
Mr Baker: My name is Andrew Baker
and I am Chief Executive of Derbyloans.
Q291 Chairman: What role can CDFIs play
in promoting financial inclusion by increasing the availability
of affordable credit?
Ms Morgan: Their mission is to
work with people currently excluded from mainstream banking services,
it is to find those people, work with them, and then move them
back on to the mainstream banking services. They exist to promote
financial inclusion and they have a real role in that. Some of
them specialise in personal finance and some in enterprise finance,
and the two members we have with us today both represent those.
Q292 Chairman: Tell us about yourself
as a CDFI.
Ms Morgan: We are the trade association
for the CDFIs.
Q293 Chairman: Where does the money
come from?
Ms Morgan: Currently, we are funded
predominantly through DTI, the Small Business Service. We were
launched in 2002 by the Treasury and our remit is to grow the
sector, to build its capacity and to lobby and advocate on its
behalf.
Q294 Chairman: What is your budget?
Ms Morgan: It is £0.5 million
per year. We have 10 members of staff. We also are supported by
NatWest and Barclays. Core funding comes from those two banks.
They each give us £20,000 a year for core funding and also
help with other projects we do.
Q295 Chairman: You are a pretty small
organisation.
Ms Morgan: Yes.
Q296 Angela Eagle: Mr Baker, in your
written evidence you talk about doorstep collection companies,
and you refer to loans of £250 given by doorstep collection
companies which often are only paid off with 400% plus interest
rates. Do you want to say a bit about how you think your sector
can make this better, assist in this?
Mr Baker: Certainly. In the example
quoted we talked about the 190%, the 400%, which is the standard
rate for doorstep collection companies. Basically, a personal
lending CDFI exists to provide an affordable alternative to that.
The interest rates that we in Derbyloans charge for a first personal
loan is 25% APR, which some people raise their eyebrows at, but
that is the rate we charge, purely on the basis that that is compatible
with credit card type rates; it is more expensive than the banks
because clearly we are trying to provide an alternative to the
bank, but we believe fundamentally it is a right for people to
have an affordable alternative to the 400% they often get charged.
Clearly, as a regeneration organisation, the money that people
save by not having to pay that excess to the doorstep collection
company is retained in the local economy, and they can use it
for other things. So I think we can make a real contribution into
local regeneration.
Q297 Angela Eagle: How come you can
afford to offer 25% when doorstep collection companies are charging
400%?
Mr Baker: The quick answer is
we cannot. A doorstep collection company, as a straightforward
commercial organisation, has to price to risk and has to price
to cover its very expensive overheads. It must cost a huge amount
of money to have people going round knocking on doors every Thursday
night. Personally, I do not believe a CDFI that is just doing
personal lending can ever be totally self-sustaining. If we were
to become self-sustaining, we would have become a doorstep collection
company and become part of the problem rather than the solution.
I believe a CDFI has to have other activities, other income streams,
or has to be partially dependent on some sort of grant funding.
My view, having run a CDFI for three years, is that you can probably
get to cover about 60% of overhead costs by having a lean, mean,
efficient organisation, but you are never going to get much past
60%.
Q298 Angela Eagle: Obviously the
subsidy that goes into helping you do what you do currently in
competition to doorstep lenders has regeneration effects because
monies are retained that would otherwise have been repaid in interest
to lenders, and presumably you also see some benefits with people
beginning to be able to manage loans and repay them. Is that where
you think the value added is here in what you do?
Mr Baker: Yes, absolutely. We
enable people to make the best of the situation they are in by
stopping them paying ridiculously high interest charges. Without
wishing to quote too many anecdotes, we see numerous examples
where we have made a significant impact on people's lives. For
the amount of grant or unearned, if you like, funding that a CDFI
needs, or a personal lending CDFIs needs, I think we provide a
spectacularly good return in both a financial sense and a social
sense, in as much as we move people off the bottom rung of the
ladder, they gain self confidence, get back into employment, and
it is a cycle of virtue, almost.
Q299 Angela Eagle: More generally,
do you think that is the role of the CDFIs, and that it would
be a good idea to have them in all deprived communities rather
than wait for them to spring up because of the social entrepreneurial
behaviour of particular individuals?
Ms Morgan: Definitely. One of
the issues we have is that we do not have scale of coverage, so
if you are in a poor community and there is not a CDFI, you cannot
get that level of service that Andrew was talking about, but they
do exist for that social mission purpose as well as the financial
services purpose.
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