United Kingdom

Microfinance Sector in the UK

I. Macroeconomic data

• Inhabitants: 61.4 million (2009)
• Urban population: 90 % (2009)
• GDP / Inhabitant: 27,400 PPS (2009)
• Unemployment rates: 7.8 % (2009)
• Population below the poverty line: 19 % 2009)
• Population in situation of financial exclusion: 6 %
• % of microenterprises: 97 % (2009)

Sources: Eurostat, INSEE, EMN

II. Development of microfinance

The financial activity in the United Kingdom is governed by "Financial Services Authority” (FSA). Microfinance is not listed as a specific sector (the British speak rather of "community finance"). There is no usury rate defined in the United Kingdom; this engenders in general a lack of control of the price of the credit.

Persons who need a loan can address the traditional banks, but this sector is very concentrated and the obtaining of credits without guarantees is difficult. Banks are subject to the FSA regulations.

As regards credits for enterprises, self-employed persons and persons outside the banking system, the activity of the CDFIs (Community Development Finance Institutions) that have developed since the 1990s, has become essential. This term CDFI is used in the United Kingdom to indicate any forms of initiatives related to social finance; this includes mutual credit companies, communities of loan capital, social banks and mutual guarantee companies. They are non-for-profit, independent bodies.

According to their status and the form defined at the registration of the company, the CDFIs are subject to FSA regulations, or have a particular form of regulation and governance.

The creation by the Government of the 2001 Phoenix Fund strengthened the activities in the microfinance sector. In particular the Phoenix Fund was in charge of providing capital to the CDFIs. It is necessary to note that this programme resulted in the setting up of 70 new CDFIs, as well as in the creation of the CDFA (Community Development Finance Association), whih has the objective of promoting and to supporting the financial sector targeting excluded persons and communities.

The interest of public authorities for microfinance as a tool for the fight against social exclusion also appears through a certain number of programmes set up in the recent years. One can quote the "Small Firms Loan Guarantee Scheme" which provides advantages to banks granting loans to persons who are normally excluded from the system, or the "Community Investment Tax Relief” (CITR) which encourages investments in CDFIs by means of fiscal advantages.

III. The activity today

There are no banks whose activity is dedicated to microfinance exclusively, even if they may grant credits of less than €25,000.

The global volume of microcredits supplied by the CDFIs to microenterprises tends to decrease slightly since some years (10.4 million pounds for 1252 credits in 2008, against 10.5 million in 2007 and 1231 credits), and one can note a certain impact of the recent crisis in Europe. Nevertheless it is important to note that credits to microenterprises represent only a tiny part of the total amount of the credits granted by the CDFIs (28 % in 2006/07) amongst which the credits to small and medium-sized enterprises (< 250 employees) and to social companies, personal microcredits and credits for housing improvement. The credits granted by the CDFIs are most oftenlower than €10,000 (2008 survey on 38 CFDIs).

Last update: December 2009

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