New Leaf Blog
It was reported in Social Enterprise Live recently that Fair Finance, the microlender, faces closure because it is to be evicted from its premises in Ben Jonson Road in Stepney. The article shows Faisal Rahman, the Managing Director of Fair Finance, condemning the move, saying ‘we have been asking for help and support to find new premises, but we haven’t heard anything at all. This is our home and the issues that were here five years ago are still just as bad.’
Admittedly, the council did not respond to the article or speak with the journalists, but the picture that is created is of a noble social enterprise facing eviction by a thoughtless council who wants to make money by selling off the commercial properties in the street.
But is the picture so simple?
I was working as a small business coach on the Ocean Estate when Fair Finance opened in April 2005. Its opening was not without controversy. The Ocean Estate had received £56million over ten years under the New Deal for Communities (NDC) programme. Both Fair Finance and NDC as a whole received criticisms about how the money was being spent on creating agencies rather than making a difference to local people. Were these criticisms fair?
Ben Jonson Road is the high street of the Ocean Estate. Along the central part of the road are retail outlets facing one another. A perfect opportunity for local entrepreneurs to re-vitalise the economy, one might think. Except that so few of these outlets actually contained businesses. One housed Stepney Works – the small business support agency who employed me. Another was Working Links, a private company subcontracted to the NDC to provide employment advice and help people get jobs. Then there was Kollun, a small charity supporting local Bangladeshi women, which was closed most of the time. And finally, there was an empty shop front about which I received a large number of queries, even though I was not responsible for it.
When the outlet was filled, it was with Fair Finance, then a new start up micro-finance lender who aimed to provide an alternative to doorstep lenders who offered loans at rates of hundreds of percent. They offered both personal and business loans of low amounts and low repayments.
Those of us who know of the revolution in the lives of poor women by the Grameen Bank, whose founder Mohammed Yunnus pioneered this type of micro-lending might think this approach was uncontroversial. There certainly was a need, with 65% of people responding to a local survey saying that they used ‘informal lenders’. But there were also problems with the solution that was created at the time.
One of my contacts, who was also a trustee of the local credit union, was livid that the credit union had not won the contract. Her argument was simple – the credit was an established and trusted organisation. And importantly, it legally could only lend at a rate of 12% APR. This is far lower than the rates that Fair Finance offered. These currently stand at 39% for personal loans for a new client or 32% for an existing client.
The business loans were not much better. These were co-ordinated by a well meaning but fairly clueless manager who, after a few months, asked me why I thought people were not taking advantage of these loans. The answer was simple. In a bid to make getting a loan simpler for people without much education or report writing ability, Fair Finance had told its customers that they didn’t need to write a business plan. But recognising that they didn’t want to plunge these same people into debt that they couldn’t repay, they developed one of the most complicated forms I have ever seen, asking all the same questions that would be covered in a business plan, but squeezed onto two pages and looking about as clear as a dog’s dinner.
The second reason was the interest rate. For a loan of up to £5000, the rate was 19%, compared to a typical 8-10% that could be obtained from Barclays down the road. Of course, Barclays did require a business plan, but given that there was someone on Ben Jonson Road (me!) who would help you write one for free, and think about all the other practical and emotional issues involved in running a business, this was ultimately not a barrier. In fact, I helped three of my clients get bank loans for real businesses that they were starting. Another two got loans and help from the Princes Trust, admittedly limited to young people, but again at a low, low interest rate. It was no surprise to me at all that business people didn’t avail themselves of this expensive option when there were so many better opportunities elsewhere.
I suspect both the processing at Fair Finance and the availability of bank loans may have changed now. The banks have pulled in their horns, rather than throwing money at anyone who looked vaguely sensible as they were then. Fair Finance reported that their loan book for business loans had doubled since the credit crunch. And Fair Finance has won accolades and respect within the finance and social sectors for its approach. Perhaps my objections are out of date.
Nonetheless, it seems to me that many of Fair Finance’s aims could have been achieved by adding services or outreach to existing institutions such as the credit union, thus reducing the high cost of starting up afresh. Training staff to helping people to access regular finance by allowing them to think through their budgets, prepare their businesses and appreciate the options that are already out there would have been, and still is, better than providing a new and more expensive new agency.
I hope that the vacated premises left by Fair Finance will allow a small business to open up on Ben Jonson Road and offer something to the community that it doesn’t already have. And I hope the rents from the new owner, no longer Tower Hamlets Council will not be prohibitive to allow local entrepreneurs to take advantage of this opportunity.