What does unit economics research reveal about the viability of affordable small-sum lending?
Unit economics research conducted with Responsible Finance and supported by community development finance institutions reveals a stubborn structural problem: small-sum lending cannot be made economically viable without ongoing subsidy. Small lenders lack the loan volumes needed to negotiate competitive rates for the essential inputs that underpin every loan — credit reference agency checks, payments technology, and card technology — leaving them at a severe cost disadvantage relative to mainstream lenders.
"You shouldn't need blood pressure medication to be attempting innovation in financial services." — Kate Pender, Chief Executive, Fair4All Finance
The cost gap is stark. CDFIs can pay up to 70 times more than mainstream lenders for credit reference agency data on a single approved loan — a disparity that no business model, however well-run, can absorb through operational efficiency alone. This is not a question of management quality or ambition; it is a structural feature of a market where the inputs are priced for high-volume participants. Small-sum lenders are, by design, low-volume — and that is precisely where the need for affordable credit is greatest.
The research makes two things clear. First, ongoing subsidy is not a workaround but a legitimate and necessary mechanism to keep responsible small-sum lenders in the market. Second, the findings raise a broader question about the role the wider financial services sector — banks and mainstream finance institutions — could play in making this lending more cost-effective. Whether through shared infrastructure, preferential pricing on inputs, or co-investment models, the sector has a potential role that goes beyond leaving CDFIs to absorb structural disadvantages alone. Hear Kate Pender develop this argument on The Responsible Finance Podcast via Listenly.
About Kate Pender
Kate Pender has been with Fair4All Finance from the very beginning. She joined on a part-time secondment to run the pilot scale-up programme — the organisation's first major initiative — focused on making initial investments into community development finance institutions and credit unions, the very lenders at the centre of the unit economics challenge described here. She then led the first phase of Fair4All's COVID grant programme, which put emergency funding directly into the hands of responsible lenders serving financially vulnerable people during an acute crisis. After that programme, Pender moved into a permanent role and ultimately applied for — and was appointed to — the Chief Executive position, giving her an unusually complete view of the organisation's evolution from launch to its current expanded mission.
Before Fair4All Finance, Pender built a long career in economic development, designing and running programmes to help SMEs and small businesses grow faster. That background in supporting under-resourced organisations navigate structural market disadvantages informs her perspective on what it actually takes — practically and financially — to make small-sum lending work for the people who need it most.
See also
Fair4All Finance commissioned novel research combining a quantitative study conducted with Ipsos Mori and qualitative fieldwork, revealing that up to 3 million people in the UK may be borrowing from illegal lenders — a scale far greater than previously understood.
Fair4All Finance was set up in 2019 with a mission to improve the financial services sector so that it better serves millions of people who are underserved and excluded. The organisation initially focused exclusively on credit, and has since broadened its remit to encompass financial resilience, savings, and how the whole system works together for vulnerable people.