- Description of the programme
- The study
- What are the outcomes?
- Key findings
- Points to consider
Description of the programme
The Growth Fund was a UK government programme to increase access to affordable credit by increasing lending by third sector organisations - credit unions and community development finance institutions. The Growth Fund particularly aimed to benefit low-income and financially-excluded families living in deprived areas who might otherwise turn to high cost forms of credit, such as pay day loans or home loans.
The Growth Fund offered three kinds of funding:
1. Capital for third sector organisations to lend out (mainly Community Development Financial Institutions and credit unions)
2. Funding to cover the costs of administering loans
3. Funding to build capacity among third sector lenders
329,888 Growth Fund loans were made between July 2006 and October 2010.
The study
This evaluation ran from December 2009 to August 2010. It explored the impact of the Growth Fund on borrowers and lenders, how the programme was administered and the overarching costs and benefits of the programme. It used a combination of qualitative and quantitative methods:
- Case studies with Growth Fund lenders, including interviews with staff, successful and unsuccessful loan applicants, and other organisations providing services to financially excluded people.
- Quantitative surveys of successful (504) and unsuccessful (328) loan applicants as well as a comparison group of people who were similar to those targeted by the Growth Fund but who lived in areas without access to it (520).
- Telephone surveys of 82 Growth Fund lenders and 25 non-Growth Fund lenders.
- Administrative data from the Department for Work and Pensions about the loans made and who they went to.
What are the outcomes?
- Propensity to use high-cost or illegal credit
- Access to, and use of, appropriate financial services
- Savings on interest payments
Key findings
Process-related findings
Who did the Growth Fund attract?
In many ways, the profile of Growth Fund applicants reflected the fund’s target. About two thirds ran out of money sometimes, while nearly three quarters found it a struggle to keep up with their commitments sometimes. Roughly 40% had been unable to make a bill payment in the last year due to lack of money.
Growth Fund applicants were typically women aged 25-44. Most applicants had dependent children and two thirds of those with children were lone parents. Only a small proportion owned their own home, with most renting from a housing association or local authority. Nearly 8 in 10 were not in work, and just over 7 in 10 lived in a household with no earners. As such, many had low levels of income and received benefit payments or tax credits.
Why were some loan applicants unsuccessful?
- Lenders assessed individuals for loans using methods including application forms, interviews, and credit checks. The main reasons provided for turning down some loan applicants were that the applicants lacked sufficient income to repay the loan, had poor credit history, outstanding debt, or couldn’t provide appropriate identification. Loans were also declined where lenders felt the purpose of the loan was inappropriate or if applicants had been dishonest in their loan application form – for instance, failing to declare outstanding debt.
How were unsuccessful applicants dealt with?
- Just over half of unsuccessful applicants reported that they were not told why their application had been denied.
- Nearly 8 in 10 reported that they had not been referred on to an advice agency, who may have been able to help them address their financial issues
- Just over half of unsuccessful applicants reported that they would reapply to the same lender, despite having been turned down
- Similarly, over half of unsuccessful applicants reported that they would recommend the lender to others, despite having been turned down
How did successful applicants feel about the scheme?
- The vast majority of successful applicants would apply to the same lender again and would recommend them to others
Impact-related findings
Effects of the Fund on borrowers:
- Roughly a third of borrowers reported that they felt they had borrowed less since taking out a loan through the Growth Fund. Of these, the vast majority attributed this change to contact with a Growth Fund lender. However, on average, levels of borrowing were similar between people who took out loans through the Growth Fund and a control group.
- Prior to coming into contact with the Growth Fund, many borrowers did not have a current account – 13% of all applicants went on to open a bank account through the Fund
- Three in ten Growth fund applicants who did not have a savings account went on to open one
- Roughly four in ten successful applicants reported that they felt better able to manage their money, more in control of their finances, more financially secure, and less worried about money
Effects of the Fund on third sector lenders:
- Processes: Eight in ten of those who took part in the telephone survey reported that they felt their organisation had improved its working practices as a result of the Growth Fund. This was commonly attributed to an increased focused on capacity-based lending, which had encouraged them to tighten up their processes – for instance, by introducing more checks as part of the loan application process, or tackling missed payments earlier and more systematically.
- Staff: On average, Growth Fund lenders increased the number of staff they employed between 2004 and 2009 (from an average of 1.5 FTE in 2004 to 4 FTE in 2009). By contrast, non-Growth Fund lenders who started with a similar number of staff did not make significant increases over the period
- Loans made: On average, Growth Fund lenders more than doubled the number and value of loans they made between 2004 and 2009. By contrast, non-Growth Fund lenders who started with a similar loan book did not make significant increases over the period
- Debt written off: On average, Growth Fund lenders wrote off nine times more bad debt between 2004 and 2009 – while this should be interpreted in light of the higher volume of loans being made, it still represents an increase in the proportion of bad debt within their portfolios
Points to consider
- Methodological limitations: This evaluation used several methods to assess the impact and operations of the Growth Fund. More information about some aspects of the approach – such as the content of the surveys and interviews and more detail about participants, including those in the comparison group – would have provided additional reassurance about the evaluation’s findings. However, on the whole this is a strong study.
- Relevance: This study offers a comprehensive assessment of the costs and benefits of providing low cost loans to people on low incomes. It highlights that the cost of the loans provided through the Growth Fund exceeded the interest rate charged – highlighting a need for third sector lenders to be subsidised or to charge higher interest rates in order to sustain their work.
- Generalisability/ transferability: The evaluation reports findings from a fund that targeted a particular sub-sector of the population: low-income and financially-excluded families living in deprived areas. Without more information on this group, it’s hard to say whether those who applied or were successful in getting loans were representative. We cannot be confident that a similar programme would achieve similar results, especially if it had different eligibility requirements.
- Applicability: The evaluation provides a useful reference point for third sector lenders in thinking about how to best deliver and ensure the sustainability of their lending activities. It could also be used to inform future government schemes to promote affordable credit.
Full report
Evaluation of the DWP Growth Fund - full report
