Affordable credit CIC Fair for You secures £7.5m in first-time quasi equity deal
Seven UK social investors have teamed up to provide innovative financing to affordable credit provider Fair for You.
The investment is in the form of a perpetual bond – the first time such an instrument has been used to fund affordable credit – and provides quasi equity capital of £7.5m.
The deal includes £5m in dormant assets funding from the government-backed Fair4All Finance, plus further investment from Fair for You’s existing social investors: Joseph Rowntree Foundation, Esmee Fairbairn Foundation, Tudor Trust, Barrow Cadbury Trust, Robertson Trust and Ignite.
The investment provides £4.35m upfront (with £1.85m from Fair4All Finance, and the remainder from the other investors), rising to £7.5m when fully drawn down from Fair4All Finance.
As a CIC limited by guarantee (owned by a charity), Fair for You cannot class investments as true equity, but this one will function as such: the perpetual bond means it has the £7.5m for as long as it needs it, with no repayment date. The cost of the funding is also stable, at base rate plus 3% (so 3.1%). This gives Fair for You stability as a business and enables it to leverage commercial funding.
Fair for You's key challenge was restructuring their balance sheet to allow them to secure further lending capital alongside support to continue innovation in product design and impact reporting
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A perpetual bond is a fixed income security with no maturity date; it is often considered a type of equity, rather than debt. A drawback to these types of bonds is that they are not redeemable; however, the main benefit is that they pay a steady stream of interest payments forever. Quasi equity is a form of investment that reflects some of the characteristics of shares but without the organisation offering equity. Rather than paying back a set amount each month, repayments are typically based on performance (eg profits or income). (Sources: Investopedia, Good Finance) |
Ten-fold growth
Fair for You aims to relieve poverty by helping low-income families avoid going without what they need or resorting to high-cost credit. It was established by social investors in 2015 to challenge commercial, high-cost credit providers, and has to date provided over 80,000 loans at an average of £350. Available across the UK, Fair for You has garnered 8,000 customer ratings on Trustpilot, with an average score of 4.9 out of 5.
Around 15 million people in the UK struggle to access affordable credit. Lockdown has made it harder for families to go without basic items such as cookers and washing machines, and the CIC says it has issued twice as many loans during lockdown as in the same period last year.
This investment round alone will allow the social enterprise to increase its lending ten-fold, rising from 25,000 loans last year to a projected 250,000 loans per year in five years’ time. This is expected to deliver at least £58m in cost savings to customers each year by helping them avoid high-cost, short term credit.
Separately, Fair for You has been piloting a revolving loan facility to provide credit specifically for a frozen food shop during school holidays, in partnership with fintech firm EML & Lending Metrics, as part of Nesta’s Affordable Credit Challenge.
Pushing out unscrupulous competitors
Fair for You has appointed Sarah Gardiner, formerly head of investor relations at Nationwide, to lead on commercial fundraising. Gardiner said Fair for You had “demonstrated the huge opportunity” to fill a “much-needed gap in the market”.
Howard Bell, chair of Fair for You – and a co-founder of PayPal Europe – said: “The need for Fair for You to scale rapidly has never been clearer. We are delighted to be the first genuine not-for-profit to use the dormant assets funding and ongoing support from social investors to leverage commercial funding and push out firms that take advantage of financially vulnerable customers.”
The need for Fair for You to scale rapidly has never been clearer
Sacha Romanovitch, CEO at Fair4All Finance – which received £65m in dormant asset money earlier this year to increase access to fair, affordable financial products and services – said the team at Fair for You demonstrated a clear “commitment and passion to make a difference”.
She added: “The investment they have already made in tracking their social impact has made this a natural area for them to build on as we develop tools and resources that can be shared with the wider sector. Their key challenge was restructuring their balance sheet to allow them to secure further lending capital alongside support to continue innovation in product design and impact reporting. We are confident that the learning from them will create significant value for the sector as a whole.”
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