WEBINAR OVERVIEW Financial veganism: How responsible lending is changing as sustainability goes mainstream

The role of responsible lending is going beyond ensuring borrowers can make repayments and towards embracing wider sustainability, according to an FSF webinar on 13 April.

Hosted by Fiona Couper, Business Development and Marketing Director at financial services agency Teamspirit, the session brought together execs from fintech businesses in the responsible lending space to discuss how the sector was evolving.

Fiona opened the session by highlighting some recent figures from the government’s loan schemes, the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS). The CBILS scheme has loaned nearly £23.28 billion to nearly 100,000 businesses while the BBBLS scheme has loaned £46.53 billion to one and a half million businesses.

She said this showed the lending market was “jumping back into action” and moving beyond simply providing emergency funding during the pandemic.
Fiona asked the panellists about their definition of responsible lending: Overall the panellists agreed that transparency was key. Stacy Clementson, Head of Credit & Underwriting at business loans firm Fleximize, said that there can be up to four or five different ways of displaying interest rates and ensuring customers that are not necessarily highly informed can understand.

Another element was affordability. Aneesh Varma, Founder & CEO at credit scoring agency Aire, said lenders need to be aware of the range in which a consumer can afford a loan, outside of which it becomes a debt burden.

He described both understanding a customer’s overall creditworthiness and ensuring that the customer understands the obligation they are getting into as the “philosophy” of responsible lending.

Chris Gardner, Founder & COO at property lender Atelier Capital Partners, added that responsible lending increasingly needs to go further than this and incorporate sustainability as a framework, with more long-term decision-making underpinning loan decisions.

Andrea Reynolds, CEO at business lending platform Swoop, agreed with this point, saying that ESG metrics increasingly needed to be reflected in lending.
“Responsible lending doesn’t just help the customer, but it is now going to help us bring change in society, and I think that’s where the sustainable finance elements will come in.

“And there is no better army of change makers than small and medium businesses, which make up 99% of businesses, not just in the UK but worldwide, so I think we’re in for an exciting period of how lenders and banking in general can help bring in and sustainability changes across businesses.”

The discussion moved onto how firms can use data to support responsible lending. Stacy said that the pandemic forced processes to change very quickly, with lenders forced to take a wide range of sources of data into account to achieve a more rounded perspective about the customer.

“There were a lot of businesses closing their doors very, very quickly and it’s very difficult for us as a lender to know exactly how that’s going to impact them, especially over such an uncertain length of time, and so it was adjusting those measurements to say, actually, we need to give her a lot more leeway in these circumstances.”

The company also adjusted its affordability assessments “because actually we need to account for the fact that these guys are probably going to have no income for a period of time.”
She said that fintechs can adapt more quickly than traditional counterparts to these types of changes.

Chris spoke about a range of both traditional and novel metrics for assessing how responsible a loan was, the key traditional indicator being whether it comes back “in full and on time”.

He said when the company set out to measure responsible lending it was “more of a data collection than a data creation exercise”.

“A lot of the [data] is already there, start with what’s in front of you and you’ll be pleasantly surprised.”

Chris emphasised that lenders can take a proactive role in developing socially desirable projects by defining what they would and wouldn’t lend for. For example, Atelier Capital Partners will no longer provide loans for housing developments where the unit size is smaller than 30 square metres. It has a preference for lending on brownfield sites and for office conversions to residential, with one particularly impactful loan supporting the building of new affordable homes on the former site of an unsightly petrol station in Hertfordshire.

He added that there is only one direction of travel in terms of sustainability.“This isn’t fringe – it’s financial veganism,” he said. However, Andrea talked about the importance of guiding smaller businesses through the process and giving clarity.

“SMEs have good intentions to build in sustainable ways, but they are very busy. They don’t have a chief sustainability officer.” “I think bringing in ways we can benchmark and have comparability, give guidance on how to have a sustainable business and make sustainable decisions,” she said, highlighting that ESG scoring already exists for publicly quoted companies.