THOUSANDS OF DERBY RESIDENTS TRAPPED IN POVERTY

An economics expert at the University of Sheffield says about 15,000 Derby residents are trapped in poverty and being forced to borrow money from loan sharks.

Professor Paul Mosley of the University’s Department of Economics and lecturer Dr Pamela Lenton have published a book investigating millions of people in the UK who do not have access to high-street bank deals.

The book also researches alternative banks, known as community development financial institutions (CDFIs), which lend money to thousands of poor people with no savings and security, charging low rates of interest and saving them from becoming trapped by expensive loans from money lenders.

“In the Derby area, about 15,000 people are trapped in a spiral of debt and poverty because they cannot borrow from the high-street banks,” said Professor Mosley, who is a director of Sheffield Credit Union and Moneyline Yorkshire.

“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. People don’t realise they are being ripped off.

“Anyone paying those rates will find it difficult to ever escape from the debt trap, and living standards, especially for those on welfare benefits, have gone down during the recession. “While a £500 loan from one of these companies might cost an additional £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.”

Focussing on the period 2007 to 2009, during which the UK went into a global recession, this book investigates how CDFIs work and how well they have helped low-income people and businesses to weather the financial storm in Sheffield, Derby, Birmingham and Glasgow.

The study, which took six years to research and write, covers ethnic minorities, crime, and even how this summer’s riots could have been avoided through better finance for poorer people.

“Loans to people in poverty could have helped them set up self-employed businesses - which would have put them on the side of those who were trying to protect their businesses, rather than those who were rioting,” added Professor Mosley.

“Also, if given to clusters of people rather than individuals, loans could promote cohesion within inner-city communities, which would also deter rioting.”

Financial Exclusion and the Poverty Trap, Overcoming Deprivation in the Inner City, is available from Routledge and is priced at £85.