Nearly two-thirds of one-parent households in Drumchapel, Glasgow have taken out loans with interest payments of between 150 and 400 APR. These people are often on low incomes and are unable to borrow from high street banks.
So, needing to pay bills or buy Christmas presents, they turn to unscrupulous doorstep lenders. Soon it becomes impossible to pay back the extortionate interest on top of their loan and the situation spirals out of control.
In October 2006, a new Community Interest Company called Scotcash was formed to offer an escape route to people with financial difficulties.
The CIC was formed as a result of a partnership between Glasgow Housing Association and Glasgow City Council, who, along with the Royal Bank of Scotland, the Scottish Government and Communities Scotland (a now-abolished government agency) provided a mixture of funding and support. Within 18 months, 1,500 people had taken a loan from Scotcash with an average interest rate of 20 to 25 per cent.
The company also helped more than 300 people open a bank account and 140 open a savings account. To date, Susan McClelland, senior loans officer at the CIC, says Scotcash has saved the community £1.3m in payments to high-cost lenders.
Some of the company’s success can be attributed to borrowers paying Scotcash back on time and in full. “We were very conscious at the start that we didn’t want to set up as a charity, because we didn’t want our customers to see the money as a gift,” says Ms McClelland.
“If people repay their loans well, this will help enable us to become self-sustaining and continue to keep lending and helping people. Along with the fact that a Community Interest Company was much quicker to set up than a charity, this was one of the many reasons we chose the CIC model for Scotcash,” she adds.
The plan is for Scotcash to save Glasgow’s council taxpayers nearly £30m in its first 20 years through loans of between £50 and £2,000. Being sustainable, therefore, is paramount. “Whilst we have had some funding to help us through the early years, we do need to be supporting ourselves as soon as possible,” says Ms McClelland.
“We factored a generous margin for bad debts into our original business plan, but because our customers were paying us back well, we were able to channel our resources into offering more loans.”
The model is evidently working. In late 2008, the company was awarded one of the most coveted public service accolades when it became overall winner of The Guardian Public Services Awards.
||CIC limited by guarantee
|Community interest statement
||To carry out activities for the benefit of the community. In particular, for the benefit of such individuals as are unable to afford or access mainstream sources of credit.
Find out more about Scotcash