Answer extracted from the The Responsible Finance Podcast — listen to the full episode below.
When people can't access legal credit, what happens next?
Without access to legal credit, people have no choice but to turn to illegal lenders—leading to cascading consequences including shoplifting, abandoned tenancies, and families unable to meet basic needs. Yet the deeper issue remains: credit alone cannot solve the problem of incomes, wages, and benefits that fall below the cost of living.
The logic is stark. When formal banking and regulated lending are closed off, people don't simply accept financial hardship in silence. Instead, they seek alternatives—and those alternatives are often loans from unlicensed, predatory lenders who operate outside any regulatory framework or consumer protection.
As Neil Alexander explains in The Responsible Finance Podcast, the consequences ripple across entire lives and communities. People resort to shoplifting to cover expenses they cannot finance. Tenants abandon their homes because they cannot manage rental arrears. Families slip further into poverty when credit becomes a band-aid on a wound that requires genuine income support.
The reality of illegal lending
Research conducted by Fair4All Finance through We Fight Fraud paints a detailed picture of who turns to illegal money lenders and why. The organization interviewed 287 people with lived experience of relationship-based illegal lending across four UK sites: Glasgow, Port Talbot, Preston, and South London.
The profile that emerges is important: these are not people outside the formal economy. Around 70% of current illegal lenders' users are employed, with typical annual incomes between £20,000 and £25,000. They take average loans of approximately £3,000. These are working people for whom the gap between income and cost of living has become unmanageable.
This reality is discussed in detail in this episode of The Responsible Finance Podcast, where Alexander emphasizes that addressing illegal lending requires understanding not just the lending side, but the desperation that creates demand for it in the first place.
"If people cannot access forms of credit in a legal way, they will begin to access it in an illegal way."
Neil Alexander — Markets and Consumer Insights Manager, Fair4All Finance. Neil has spent decades working in financial inclusion and community development, tracing his expertise back to the Tony Blair government's Policy Action Team 14 in 1997, which first examined financial exclusion systematically. He was a community worker who established the Westerhales Community Banking Agreement with Bank of Scotland, which opened approximately 1,800 bank accounts for previously unbanked people in just 18 months.
Why credit is not the answer to poverty
A critical insight emerges from this research: lending alone cannot solve systemic income poverty. Alexander emphasizes this point plainly—credit may provide temporary relief, but it cannot address the fundamental inadequacy of wages, benefits, or social support structures.
When someone earns £20,000 per year in a region where housing, food, and utilities cost £22,000 or more, a loan simply delays the crisis. It does not close the gap. This is why Fair4All Finance and similar responsible lenders embed wraparound services—advisors who help borrowers address root causes and connect with benefit support, debt counseling, and income-building pathways.
The broader policy implication, explored at length in the full podcast conversation, is that financial inclusion requires both accessible, affordable legal credit and parallel action on wages, benefits adequacy, and living costs themselves.
See also
What was the Westerhales Community Banking Agreement and what did it achieve?
The Westerhales Community Banking Agreement was a written, signed agreement between Bank of Scotland and the community of Westerhales, a disadvantaged housing estate in Edinburgh, which resulted in opening approximately 1,800 bank accounts for previously unbanked people in an 18-month period.
What role do wraparound services play in responsible community finance lending?
Organizations like Fair4All Finance, Moneyline, and Scott Cash embed debt and money advisors, provide benefit calculators, and offer warm referrals to support services, helping borrowers address root causes of financial hardship beyond the loan itself.
What were the key findings from Fair4All Finance's research on illegal money lending?
We Fight Fraud interviewed 287 people with lived experience of relationship-based illegal money lending across Glasgow, Port Talbot, Preston, and South London, finding that 70% of illegal lenders' users are employed and take average loans of approximately £3,000.