An increase in credit union lending?

It’s too early to establish a trend when you’re looking at just a couple of months’ worth of data. Nevertheless, since March there’s been a definite increase in credit union lending.

And it’s a much needed increase.

At the beginning of the pandemic Carnegie UK and Community Finance Solutions found that the volume of credit union loans under £1,000 had fallen by 17%. For loans over £2,000 the fall was 67%.

More recently Fair4All Finance looked at a small sample of lenders they’d supported through their Covid-19 Resilience Fund (including three CDFIs). They found that the amount lent in January 2021 was 31% lower than January 2020. The average loan size was also down 16% from £756 (Jan 2020) to £642 (Jan 2021).

Pent up demand

Barclays Bank boss, Jes Staley, has predicted the biggest economic boom since 1948. This time last year, the Bank put £2.4bn extra into bad debt provisions. Now it’s just £55m. Andy Haldane, the Bank of England’s chief economist, has argued that the economy may benefit from “enormous amounts of pent-up financial energy waiting to be released, like a coiled spring.”

Whilst others, notably former deputy governer of the Bank of England, Charlie Bean, have argued that it would take several years for households to spend the £180bn in extra savings that have been accumulated.

Despite this, the thought of going on holiday is certainly tempting for many.

Increased lending

Credit unions using NestEgg’s decision engine saw a 40% increase in lending during April 2021 compared to the same period, last year.

The decline rate is down 10% too.

Additionally, average loan value is also up 10%.

Whilst credit scores have remained steady, applicant income is up 6% in April 2021 compared to the previous year.

In April 2020 our credit unions saw a handful of loan applications for holidays. In April 2.5% of applications were for holidays. This has doubled in May. Over the same period car loan applications have tripled.

But it’s not all good news

According to the Financial Conduct Authority, 53% of the UK adult population are showing signs of financial vulnerability. Consequently, it’s important to be cautious, despite the huge opportunities.

Responsible lenders with robust approaches to assessing affordability can better support their borrowers. Standing up to external and regulatory scrutiny, credit unions and CDFIs can lead the way with an ethical response to financial recovery from Covid-19.

NestEgg is running a FREE training session to help loans officers strike the right balance between affordability and vulnerability.

During this one-hour course, we’ll look at how credit and open banking data can be used to identify people who meet the FCA definition of vulnerability. And, more importantly, distress. It doesn’t matter which systems you are using for loan affordability assessment.

The course focusses on the underlying data, regardless of how it is provided. Please note that we are fast running out of places and 20th May is now fully booked.


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Adrian Davies

Adrian is a co-founder at NestEgg. He is an alternative finance and credit union expert. Adrian has 25 years’ experience in the money advice and responsible lending sectors, supporting credit unions with innovative ideas so they can grow and meet member needs.

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