This year we saw public trust in banks dive to an all time low. Their former position as pillar of the community and stalwart of the high street has gone. In many communities you are more likely to find betting shops, pawnbrokers and payday lenders where your bank branch used to be.
Meanwhile, the number of users of high cost credit companies have quadrupled in the last four years to four million.
One of the biggest and most high profile payday lenders is Wonga. It recently announced its profits in 2011 trebled to £45.8million. Wonga lends small amounts, up to £400 for first time personal customers, for a few weeks. If its interest rates are annualized they come out at a staggering 4,214%.
It does not surprise me that the number of people seeking help after getting into trouble with multiple payday loans is also growing. According to the Consumer Credit Counselling Service more than 2,000 people with five or more loans have sought help this year - up from 716 in 2009.
Labour MP Stella Creasy, is one of the campaigners fighting for tighter rules on consumer lending. She's described payday loans as a "toxic" form of credit.
But it's easy to see why so many people are turning to these lenders. According to the Economist, 15% of the population are excluded from mainstream bank lending; household and energy bills are increasing; and high-interest lenders are taking an increasingly aggressive approach to marketing.
But there is an alternative.
An affordable, ethical alternative. It's just not on every high street, yet.
Community development finance institutions (CDFIs) are locally based, not for profit lenders offering financial products to individuals (and businesses) unable to access bank loans. They provide affordable personal loans, as well as advice and support, to vulnerable households
It may not be a household name, but the word is spreading about CDFIs. Last year enquiries to CDFIs for personal loans soared by 119%, and they made almost 29,000 loans.
CDFIs provide a lifeline out of high-interest debt traps for many households and an essential solution to the problem of over indebtedness in the UK. Last year 65% of CDFI customers had previously been using illegal or high interest credit providers. With an average APR of 44%, vulnerable customers were saved £7.5m in high cost credit repayments by visiting a CDFI.
CDFIs help people improve their employability by gaining new skills (such as driving lessons), go into self-employment and improving their home.
One example is My Home Finance, which provides affordable loans to people across the West Midlands. Last year they helped a 27-year-old woman with a new baby and unemployed partner with a loan to help with water bill arrears, as well as advice on managing her finances. The customer, who had never received budgeting advice before, managed to stay on top of her income and outgoings, paying all her bills on time. She later secured a part-time job and paid off the loan in full.
The Community Development Finance Association is committed to building a thriving network of CDFIs across the UK. Our members currently lend around £200million each year, but they need more funding and support to meet the increasing demand for their services. In October Vince Cable launched a new Regional Growth Fund programme that will invest £60million into CDFIs - but only those supporting businesses and social enterprises.
Large scale funding is now needed for CDFIs that help consumers.
According to AC Nielson MMS, Wonga's advertising budget last year was £16million. CDFIs can't compete with this. We are not likely to see a CDFI advertised on the front of a premiership football shirt any time soon. But channelling investment to vulnerable communities, helping them out of spiralling debt traps and into improved homes, new skills and employment should be a government priority.
So we need to get the funding in, and the word out.