Economist praises joint Glasgow City Council and GHA initiative to fight loan sharks

Nov 9 2011 By Tristan Stewart Robertson

AN initiative to help people out  of the jaws of loan sharks has been praised by a top economist.

Up to 50,000 people in the city are unable to borrow from high street banks.

So thousands turn to illegal loans or high-interest deals from legitimate “home credit” companies.

Professor Paul Mosley said many were borrowing cash to cover their day-to-day living expenses.

But he said Scotcash – a community development financial institution run by Glasgow City Council and Glasgow Housing Association – could help.

Prof Mosley, of the University of Sheffield, said: “In the Glasgow area, about 50,000 people are trapped in a spiral of debt and poverty because they cannot borrow from the high-street banks.

“They are forced into much more expensive ways of borrowing simply to afford day-to-day necessities.

“Legitimate ‘home credit’ companies such as National Provident charge up to 500 per cent APR.

“Payday loan companies such as Quick Quid and Wonga charge even more, often well into the thousands.

"Anyone paying those rates will find it difficult to ever escape from the debt trap.”

Prof Mosley found Scotcash were one of the most successful institutions in the UK in helping lift locals out of poverty.

Those helped saw an average household income rise of 19 per cent, and savings increased from £58 to £102.

He said: “While a £500 loan from one of these firms might cost an extra £400 in interest, a similar loan from a community development financial institution would cost just £80 or £90 –and even less from a credit union."

“There is little doubt that the majority of clients of CDFIs have been helped to weather the financial storms of the last years and some of them have made a decisive leap out of poverty and out of dependence on loan sharks.”

Scotcash chairman Steve Inch said: “The people in our communities in most need of advice and support are also those most likely to fall prey to loan sharks and doorstep lenders, and the least able to break free.

“We can offer people positive choices and help them break down financial
barriers.”