Women and High Cost Credit: home credit

1. Context
2. The study
3. Key findings
4. Recommendations
5. Points to consider

• Context
• The study
• Key findings
• Recommendations
• Points to consider
• Full report

Context

Home credit, or commercial ‘doorstep’ lending, is a widespread industry where the main focus is on offering small, short-term loans that are unsecured against assets. A network of agents are employed, who collect weekly payments from customers by visiting their homes. The industry has traditionally used a female-to-female lending model (i.e. the lenders and the consumers). Women account for two-thirds of the industry’s customers, and are much more likely than men to work in the industry as loan agents. Although a now shrinking industry, home credit is still one of the main sources of credit for low-income households and high-risk borrowers. The industry promotes the face-to-face nature of the transactions as a major asset of the agency. However, others see it as an exploitative method of borrowing that can keep consumers in a cycle of debt. While the role of women in this industry has featured in previous research, less has been reported on whether the policy and regulatory environment recognises the high percentage of females playing roles on both sides of the industry.

The study

This study has two major research questions that it looks to address:

1. To what extent is gender being integrated into the regulations and policies governing the UK home credit industry?
2. Does the UK financial services industry, especially the home credit industry, adhere to international principles to promote women’s financial empowerment?

To assess the extent that gender is included in the regulatory and policy environment surrounding home credit, this study presents a thorough review of existing research, including policy documents, industry reports and other relevant research. The report employs the G20-led women’s financial inclusion agenda to assess the extent to which the industry observes international standards.

The study includes a section providing further background on the home credit industry, before offering an in-depth analysis of how the industry is increasingly feminised. A section on the regulatory framework that the industry is immersed in then precedes conclusions and recommendations.

Key findings

• Home credit: Setting the scene
  • Home credit is a long established industry offering small short-term loans, with repayments collected weekly by a network of agents.
  • The average length of the loans ranges from six months to a year, with the amounts typically between £250 and £760.
  • In 2015 2.3 million individual consumers, with £1.2 billion outstanding in loans, used home credit.
  • Most loan agents are female, work part-time on a self-employed basis (often juggling the commitment with childcare), and most of their income is commission-based, dependent on payment collection.
  • Those most likely to use doorstep lending include women, single parents, people living in social housing, families with children and people on low income or state benefits.
  • In 2014, the regulatory responsibility for the consumer credit industry passed from the Office of Fair Trading to the Financial Conduct Authority.
• Home Credit: Key findings
  • The report suggests that while certain measures have been taken to address gender in the regulatory environment surrounding home credit, much more needs to be done to achieve gender equality.
  • The synthesis of material examined in this report suggests that policy interventions have been designed in a ‘gender neutral’ fashion, which may explain the ‘mismatch’ between policy and the needs of women customers.
  • A key example is a regulatory package imposed on the industry in 2007. It focussed heavily on helping customers to shop around more before choosing a product. However, previous research has categorically shown that women are less likely to shop around than men.
  • The report also suggests that the UK Financial Capability Strategy should include women as a distinct target group, as evidence shows that women are particularly vulnerable to struggling financially and to low levels of financial literacy.
  • While not solely concerning the home credit industry, initial steps have been taken by the regulator to demonstrate compliance with the Public Sector Equality Duty (PSED), including publishing an annual diversity report.

Recommendations

The review makes several recommendations:

• Under the PSED, the regulator is urged to collect gender disaggregated data. The review calls for the regulator to collect and publish this data, to show compliance with the PSED and to facilitate the development of ‘gender-sensitive’ strategies.
• More generally, the regulator has the opportunity to help improve knowledge of gender issues through further analysis of its Financial Lives Survey.
• Further compliance with PSED should lead to future interventions in the home credit market that will take gender into account.
• The third sector should ‘gender-proof’ their activities in the areas of financial inclusion and financial capability.
• The UK Financial Capability Strategy should include women as a separate target group.

Points to consider

• Methodological strengths or limitations: This is a systematic review of the home credit industry that gives a robust assessment of the industry and its regulatory environment. The recommendations are sound, though of course remain the view of the author.
• Relevance: This review contributes to knowledge of the home credit industry, and is relevant to all regulators, practitioners and lenders involved in this sector.

Full report

Women and High Cost Credit: home credit- full report