Social Finance

That the Social Finance Foundation in Ireland has endured through and beyond the Global Financial Crisis, is a testament to its relevance and sustainability. Set up when Ireland was flush with government funding, it would have been easy to see the Social Finance Foundation – SFF – fall prey to the subsequent sword of austerity and government cutbacks. That it didn’t shows that its offering is needed in good times and in bad – and that the government of the day doesn’t always take the easy route.

Established in 2007 the Social Finance Foundation represents a unique collaboration between the Government and the Irish Banking Industry. No other country has addressed social finance on a national scale and put it on a sound financial footing, capable of meeting the needs of the social sector in a very cost effective way. Funded by the Irish Banking Industry to the tune of €100m, SFF fills several critical gaps in the funding landscape.

As the wholesale funder for the Social Sector, the Foundation works through Clann Credo and Community Finance Ireland. These organisations interface with community based projects, charities, sports groups and social enterprises offering lending options in situations where mainstream loans are not an option. With nearly €60m in loans written to date, these projects generate a deep social benefit.

In 2012, the Foundation was also given responsibility for the administration of a Government funded Microfinance Loan Fund to promote job creation by supporting new and existing micro-enterprises. Microfinance Ireland was established as a subsidiary of SFF to discharge this responsibility. With over €10m approved in loans, Microfinance Ireland has provided a lending alternative to organisations that struggle to access mainstream credit. This backing has resulted in the creation of 1,800 jobs, many of these in areas of social disadvantage.

SFF has worked closely with Government Departments and agencies, in particular The Citizens Information Board and MABS to formulate a proposal for counteracting the ballooning moneylender industry in Ireland. In 2015, this became a reality. Currently being operated as a “personal micro credit (PMC)” pilot initiative, small loans are being offered in 30 credit unions nationwide. The project is being run in partnership with the Credit Union Sector, Representative bodies of the Credit Union Sector, the Department of Social Protection, Department of Finance, Central Bank of Ireland, the Citizens Information Board, An Post, MABS and Not for Profit Groups  - and is open to social welfare recipients. Early indications are that there is a significant demand for low cost, simple to access credit. In addition, the use of credit as a door to financial inclusion is being explored.

Finally, as Chair of the National Social Enterprise Task Force, SFF provides strategic leadership to the area of social enterprise. Activities are at an embryonic stage but the potential job creation and social cohesion that can stem from this sector is enormous.

SFF achieves its success through a classic collaboration of non-profit, for-profit and Government. Through persistence, innovative thinking and hard work, the steps are being put in place to secure a national social finance infrastructure that provides a safety net for those who fall outside mainstream financial services. Long may this combination of political will and organisational and individual determination continue to be active in the community.

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Introducing Microfinance Ireland

Microfinance Ireland (MFI) is a Government initiative set up in 2012 to provide funding to both start-up and existing micro-enterprises that are having difficulty accessing credit through traditional lending channels.

Businesses that have less than 10 employees and turnover of less than €2million annually are eligible to apply for loan funding between €2,000 and €25,000. A wide variety of purposes, such as working capital, purchase of stock and/or capital expenditure within the business can be applied for with loan terms ranging between 3 and 5 years.

A broad range of businesses have been supported by MFI which include tourist related facilities, retail stores, wholesale distribution, restaurants and many other business sectors.

At the end of June 2016 MFI had approved over €14.6 million in funding supporting 2,049 jobs in 975 micro-enterprises. MFI plans to significantly increase its lending in the current year and is actively encouraging loan applications from individuals with viable business propositions.

Applications for finance can be submitted either directly to MFI or through their partners the Local Enterprise Offices (LEOs). Applicants can avail of a 1% discounted interest rate of 6.8% if they are approved for MFI funding through their Local Enterprise Office.

More information and relevant documents can be accessed through Microfinance Ireland’s website.

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Personal Microcredit

Background

Late last year a Personal Micro Credit (PMC) pilot initiative was launched in 30 credit unions across the country.  Branded the ‘It Makes Sense Loan’, its aim was to prove that credit unions could offer a loan product that matched the convenience and ease of moneylenders’ offers, addressed the exorbitant rates charged by them and yet was within prudential lending guidelines.

The significance of the initiative is reflected in it being included in the Programme for Government “Specifically we support…the rollout and extension of the Personal Microcredit Scheme, which is providing simple microloans to members and helping to combat the use of moneylenders.”

Pilot Observations

The essence of the ‘It Makes Sense’ offering is:

  • Fast track membership (for non-members)
  • No savings needed
  • Default history does not necessarily rule individuals out
  • Separate credit policy drafted with and acknowledged by the Registry of Credit Unions in the Central Bank
  • Repayment via An Post’s Household Budget Scheme
  • Final credit decision rests with the credit union

In supporting the above loan parameters, participating credit unions were asked to change their credit policies and procedures.  In addition, the Central Bank’s RCU needed to acknowledge that this loan type was consistent with prudential lending guidelines. That both did so is a testament to the commitment of both parties to making it work.  Their judgement was vindicated with an arrears experience of only 3.9% to date.

The majority of loans were written in the period before Christmas and most borrowers learnt about the initiative via word of mouth and social media.  In keeping with it being a pilot, marketing and promotional activities were limited to participating credit unions and their local networks. So successful was the word of mouth marketing that, in a number of cases, credit unions reached their (fifty) loan threshold within a matter of weeks. While 45% of loans were written to current credit union members, these were probably dormant.

 

No. of Credit unions in pilotNo. of Loans issuedTotal Loans writtenTrue Arrears (without admin errors)
301,202~€720,0003.9%
Average APR% of Loans between 7-12 months% of Female Borrowers% of Borrowers who are single% of Borrowers who are lone parentsNo. of loans with poor credit history
11.69%72%55%49%30%84

 

Loan-Amount

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External Evaluation

In April 2016 Amárach Research conducted an evaluation of the pilot.   The evaluation comprised three groups: project stakeholders, credit unions and borrowers.

  • Project stakeholders.  The consistent message from the group was that the PMC loan offers the opportunity to avail of normal credit and financial services to a cohort of people who are otherwise excluded from mainstream credit. In doing so, PMC helps credit unions deliver on their core purpose. Stakeholders are committed to rolling PMC out nationally, as well as introducing similar credit offers to a wider audience.
  • Seventeen of the thirty pilot credit unions sites completed a questionnaire. The vast majority of those who engaged in this pilot did so from a social good viewpoint. Each demonstrated commitment to the principles and purpose behind the initiative. Moreover, they viewed the initiative as having a very positive impact. It affirmed that this is part of the credit union movement’s social charter in helping people on social welfare so that they do not have to depend on moneylenders charging exorbitant rates.
  • One hundred and thirty eight telephone interviews and three focus groups were completed with borrowers. Of those, 52% had previously used moneylenders, while 22% had considered going to a moneylender before taking out this loan. More than 90% of borrowers rated the overall credit union service as good or very good and would like to borrow from a credit union again. The scheme received an “off the scale” Net Promoter Score of 82% (this represents the propensity to recommend to family and friends). 47% stated that the loan scheme has had an impact on how they manage money. Most importantly and most impressively, all focus group participants scored their experience as a 9 out of 10 (or greater) in terms of the positive impact on their lives.

Next Steps

The project is now planning to extend the geographic reach of the current offering on a national basis as per the Program for Government. In line with this, new policies have been drafted in conjunction with RCU which reflect the pilot experience.  For example, the loan volume limits will be based on the % of total credit union assets and there will be no requirement for an up front provision.  Operational procedures have been streamlined to ensure faster turnaround speeds, improved clarity on eligibility and Household Budget factors. We will be in touch with participating credit unions shortly with refreshed policies and procedures.    In parallel, we welcome new credit unions that wish to join the initiative.

Social Finance Foundation will continue to provide project management capability on behalf of all stakeholders.

It is intended that the scope of the PMC scheme will be widened to those on low incomes and non-cash social welfare recipients, neither of which have access to the Household Budget Scheme. The project team, in conjunction with stakeholders, are currently developing proposals which of course, will also have to be within prudential lending guidelines.

The availability of the It Makes Sense Loan increases credit unions capability to deliver on their core ethos. It doing so it makes a bold statement about addressing a social problem in Ireland today i.e. the need for an alternative to the moneylending industry which charges exorbitant rates to those who can least afford them.

In supporting the above loan parameters, participating credit unions were asked to change their credit policies and procedures.  In addition, the Central Bank’s RCU needed to acknowledge that this loan type was consistent with prudential lending guidelines. That both did so is a testament to the commitment of both parties to making it work.  Their judgement was vindicated with an arrears experience of only 3.9% to date.

The majority of loans were written in the period before Christmas and most borrowers learnt about the initiative via word of mouth and social media.  In keeping with it being a pilot, marketing and promotional activities were limited to participating credit unions and their local networks. So successful was the word of mouth marketing that, in a number of cases, credit unions reached their (fifty) loan threshold within a matter of weeks.    While 45% of loans were written to current credit union members, these were probably dormant.