Why community-based propositions matter

During the two years of lockdowns and restrictions that prevented us from doing so many of the things we love, there was perhaps one activity that almost everyone yearned the most. Simply hanging out with our fellow humans.

That’s because time spent with friends and family helps give us a sense of community, benefitting our physical and mental wellbeing.

But even when we were unable to see those we care about face to face, a good deal of us found community online and sought out initiatives to help our neighbourhoods and folk in need.

According to the United Nations, the pandemic sparked a surge in new volunteers.

For instance, the International Committee of the Red Cross received 48,000 sign-ups in the Netherlands and 60,000 in Italy. France’s Tous Bénévoles platform attracted 40,000 new volunteers.

In short, lots of people want to be part of something bigger – and make a difference to their local and often the global community.

Indeed, finance providers can play a positive role supporting and strengthening communities too, with specialist lenders created by socially-minded entrepreneurs or communities making a measurable impact. Community lending refers to an arrangement where a group can take out a loan from, or put money into, a shared pool of money between a community of people with cultural similarities or shared interests. In its 2022 Impact Report, Responsible Finance, the membership body for responsible finance providers, revealed that non-profit and asset-locked CDFIs (community development finance institutions, community lenders) lent £34 million to 67,000 customers.

According to the report, a further £25 million was lent by responsible finance providers with a mission to provide innovative, new ways of transparently accessing credit. Of these loans, 98% were of £1,000 or less and 96% were for a term of 12 months or less, with an average loan size across the sector of £374.

Responsible Finance claims that the loans helped every customer “save at least £190 compared with high-cost lenders’ published rates”, keeping £30m in lower-income households.

Marqeta’s latest research published in our Seeking out the alternatives: how consumers are engaging with the Lending 3.0 landscape report examined people’s attitudes towards community lending alongside a range of other modern finance propositions. A fifth of the people we surveyed would “definitely” be up for joining a lending community and a third of respondents would be interested in learning more.

Our audience also told us they were most likely to choose a community lender for repayment flexibility benefits, and three quarters of respondents liked the idea of lending making a positive impact in their community. There was, however, some scepticism towards placing all of one’s banking into the hands of a community-based entity, with 64% of surveyed people telling us they “wouldn’t trust any community enough to bank with them”. In terms of a generation split, younger audiences appear to be more inclined to use a community lender, with an average of 38.5% those aged between 18 and 54 surveyed stating that they’d be interested in learning more about joining a lending community as opposed to just 21.2% of people surveyed aged 55 and above.

Additionally, men seem to be more in favour of joining a lending community than women, at 59.3% versus 48.9% being either definitely open to the idea or interested in learning more.

Taken together, these various pieces of research highlight a significant need for finance providers to develop propositions for the underserved and aid financial inclusion – particularly at a time of high inflation, when more people may be struggling with the cost of living.

The research also shows a strong appetite among consumers surveyed for lending propositions that deliver public goods. This could be supporting environmental restoration initiatives, helping disadvantaged families with monthly bills, or funding health and social care charities amongst other causes.

Perhaps the key takeaway though is this: lenders who find ways to harness people’s desire for strong communities and then weave that into their business model, stand a good chance of thriving long into the future.

This content forms part of a series of blogs exploring the findings in our research paper, Seeking out the alternatives: how consumers are engaging with the Lending 3.0 landscape. The first blog – about digital currencies’ role in finance – can be viewed here.