Nesta Challenges offers £2m incentive for community lenders and fintechs to work together

Posted byJosie Melvin | Category Blog | Date 02 August 2019

Nesta Challenges, an organisation whose purpose it is to incentivise the solving of pressing problems throughout society, is now offering a total sum of £2 million as incentive for the development of affordable credit solutions throughout the UK. Nesta Challenges has designed the prize to encourage community lenders to work with fintech companies in order to fix this resounding problem throughout society.

What is the Affordable Credit Challenge?

Nesta Challenges have claimed that there are too many people taking out high-cost short-term (HCST) credit loans when they shouldn’t. Whilst such means of borrowing (such as includes payday loans) can be effective for certain borrowing situations, many have personal circumstances which are not fit for this type of borrowing. This has led to a significant level of problems with such means of borrowing. Guarantor loans can be a more affordable alternative to payday loans, however it is worth mentioning that this form is not a means of community lending.

Nesta Challenges have created the Affordable Credit Challenge. This challenge will award cash prizes to both community lenders and fintech companies who work together to develop effective solutions to this problem, particularly helping to advance the extent to which community lenders can help those in need of financial support.

John Glen, City Minister, has commented on this current topic, stating that “Most of us will rely on borrowing of one form or another during our lives, whether through loans, credit cards or a mortgage” but that “millions of people struggle to access fair affordable credit”

Mr Glen continued his point, claiming that he wants “to see more people benefit from the transformative power of digital technology, which is why we have launched the Affordable Credit Challenge. This is a vital opportunity for fintechs to work with community lenders to give more people control over their money.”

What is a community lender?

Community lenders can be a much better option for those struggling to manage their finances in comparison to high-cost loan types. This will be entirely situational, however the cost of borrowing money with a community lender can be considerably lower than borrowing through high-cost loan types, as their applied interest rates are much lower; community lender’s rates being capped at a mere 42.6% compared to the standard high-cost applied interest of 1,250%.

Despite community lenders being a much better options for many of those who are financially struggling throughout the UK, many wanting to borrow are not aware of where to find such lenders. A recent survey showed that one in every five of its participants were unaware of how to find community lenders, with one in every ten being put off by lenders that do not have online platforms such as apps for smartphone devices or websites.

By boosting the online presence of these more affordable means of borrowing, the partnership of fintech companies and community lenders could greatly benefit those struggling with their finances who are not in the right situation for other, more common means of borrowing (HCST credit loans).

Nesta Challenges’s Chris Gorst has also made comments on this incentive prize, claiming that “Technology is already transforming how we manage our money every day, but our trusted community institutions – like the local credit union – have fallen behind in the use of technology”

Mr Gorst follows that “We’re not only excited that the Affordable Credit Challenge will accelerate much-needed innovation in community lending, but that it will ultimately make it easier for people up and down the country to access safe, affordable and responsible credit when they need it.”

The Affordable Credit Challenge will award prizes to the six most effective solutions created from the community lender-fintech partnerships. Applications for the Nesta Challenge Affordable Credit Challenge are already open, and will be closed on the 29th of September.