Impact study of community finance on low-income households

Access to affordable financial services can help combat social exclusion.

Community Development Finance Institutions (CDFIs) are not-for-profit, community-based organisations lending to households and businesses in deprived areas and underserved markets unable to access mainstream finance.

Professor Karl Dayson from the Community Finance Solutions team led a project to examine the impact of CDFIs. The project is funded by The Esmée Fairbairn Foundation, Barclays Bank and the Department of Business, Innovation and Skills. Policy messages from the research include:

• National and local authorities can reach out to households that are vulnerable to social exclusion. The majority of CDFI clients are lone parent households in social housing receiving means-tested benefits.
• By facilitating the access to affordable credit, national and local authorities can help excluded households become more resilient and less dependent on government support. The research suggests that households borrowing from CDFIs have more stable incomes, save more and reduce reliance on sub-prime borrowing. Increasing the resilience of households through CDFIs depends on encouraging savings as part of loan repayments.
• As CDFIs are able to recycle part of the funding through interest rate repayments, they can be a cost-effective solution to social exclusion