Faisel Rahman has a fairer way for low-income families to borrow money
The Canary Wharf offices of international law firm Clifford Chance are more used to playing host to the signing ceremonies of multi-billion pound mergers and capital raisings by Britain's biggest companies.
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Faisel Rahman launched Fair Finance six years ago
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Fair Finance secured #2m in funding from three banks that will enable the business to dramatically increase the scale of its operations
By Harry Wilson 6:00AM BST 09 May 2011
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For Faisel Rahman, the founder of Fair Finance, the two signing ceremonies held last month by the firm for his microfinance lending business were of an altogether smaller scale, but will have a big impact on the lives of thousands of low-income families in the East End of London where he grew up.
"I remember when I founded Fair Finance looking over at the towers of Canary Wharf from our office. I never thought I would be standing in one of those towers looking down," says Rahman.
But in April that is just what he was doing as Fair Finance secured £2m in funding from three banks that will enable the business to dramatically increase the scale of its operations, which help poorer borrowers escape the clutches of loan sharks and the extortionate rates of payday lenders.
To illustrate the need for a social enterprise like Fair Finance, Rahman does not have to walk more than a couple of hundred metres from his Dalston office as he points out the pawnbrokers, cheque cashers and payday lenders that flourish in one of London's poorest boroughs.
"You can't get a payday loan cheaper," proclaims a sign outside one nearby lender in giant letters. Below them in rather smaller type are the rates being offered – many higher than 500pc per year, though in the worst case annual paid rates can get as high as 13,000pc.
Fair Finance's own rates are not cheap by conventional standards: its typical APR on a 12-month £500 loan is 53.17pc, which Rahman admits is higher than that charged by many of the big banks, but he says that this misses the point.
"Many of our customers simply don't have access to the conventional banking system and so their only sources of credit are payday lenders and loan sharks," he says.
It was into this void that Rahman launched Fair Finance six years ago. Backed with small grants from banks, including Royal Bank of Scotland and Barclays, the operation has grown quickly and now has four branches scattered across East London.
But last month's two financing deals, which comprise a £1m funding package backed by French banks BNP Paribas and Societe Generale and a further £1m loan from Santander UK, will allow Rahman to greatly expand the size of the business.
The affect of this on some of London's poorest families could be profound. Rahman estimates that the funding he has received will mean Fair Finance could take between £25m and £40m of income away from local payday lenders.
"My ultimate ambition is that all our customers should be able to bank with one of the big banks, but in the meantime I just want to help people get away from the lenders I see taking advantage of low-income borrowers," says Rahman.
Not surprisingly, his mission has not proved popular with some of those who make their livings providing short-term loans to East London's poor and Rahman has received several anonymous death threats.
These threats have largely ceased, but Fair Finance, and other social enterprises like it, that aim to provide affordable loans to those not normally able to get them are aiming to sound the death knell for the loan sharks.
Indeed, one impact of the growth of microfinance lenders like Fair Finance has been to force payday lenders to cut their rates in order to compete for business, in effect making them become fairer lenders.
There were 66 so-called community development finance institutions (CDFIs) at the end of last year, their numbers having more than doubled in the past decade, and interest in the sector is growing as everyone from wealthy individuals and large institutions to the Government look for new ways to provide affordable credit to low-income families and individuals.
Sir Ronald Cohen, the millionaire founder of private equity firm Apax Partners and an early adviser to Fair Finance, has been a strong advocate of social enterprise and his support has led to increased Government interest in the sector.
Bernie Morgan, chief executive of the Community Development Finance Association, reckons microfinance lending is likely to expand rapidly in the UK in the coming years and even Britain's largest banks are beginning to see opportunities in the area.
Total lending assets of CDFIs currently total just under £1bn, with £531m of loans outstanding and £260m of uncommitted funds, along with a further £158m of committed funds. Rahman believes organisations like Fair Finance could lead the way towards a banking industry that is better able to serve the poorest in society, but says there is still a long way to go.
"With the funding we have we can make a real difference in London, but I'd like to see the concept take root across the country," he says.
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