An interest-free loan scheme aimed at helping thousands of UK households struggling amidst the cost of living crisis to shop for essential food is now being rolled out across the UK.
The scheme came around as the result of a collaboration between one of the UK’s largest supermarket chains, Iceland, and a charity-owned loan lender, Fair You, in response to growing concerns from struggling UK households that have been unable to either access or afford existing forms of credit.
The interest-free scheme has been designed to enable UK households to cover their grocery bills over the school holidays by providing interest-free ‘microloans’ of between £25 to £100 to fund the spending towards everyday items and foods.
The scheme was extended across the UK yesterday, after a successful pilot phase which saw interest-free microloans provided to over 5,000 UK households, thus helping to remove the dependency on products such as pawnbrokers and payday loans. These microloans were made available to customers through preloaded cards, with repayments set at £10 a week.
In order to make the loans entirely interest-free for the rollout, Iceland has additionally invested an undisclosed amount, with hopes that the scheme will benefit many more UK households than it initially did in the pilot phase.
A consequent independent evaluation of the interest-free loan pilot phase found that 92% of customers who had previously relied on food banks had now stopped or reduced their use. Furthermore, 71% said that they were now less likely to fall behind on paying their rent, council tax or other bills.
Anyone is able to apply for the interest-free loan scheme. If successful, customers can use the credit either instore in one of Iceland’s 1,000 shops, or online using the preloaded card. The scheme, dubbed the Iceland Food Club, will place a £100 credit limit on their cards, and when joining the scheme, customers can loan initial top-ups of between £25-75 onto their cards.
The scheme has been met with praise by a number of UK organisations, including the social enterprise, Challenge Works and the Esmée Fairbairn Foundation, a grant-making charity.
Earlier this year, the South Manchester Credit Union trialled interest-free loans for UK households struggling in financially vulnerable situations. A wider pilot is due to be rolled out later this year. Furthermore, the UK Government provided a not-for-profit organisation, Fair4All Finance, with £3.8 million worth of funding so that loans between £100 to £2,000 could be tested. These loans were intended for use towards much-needed items such as upfront nursery fees or school uniforms.
Iceland’s Managing Director, Richard Walker, told the BBC that they had “started piloting for 18 months in some of the most deprived areas around the UK and actually the results were phenomenal.
“The Social Impact Reporting showed that over 90% of people reduced their need to go to food banks, improved people’s credit scores, their mental health, they ate better, and 70% of them didn’t fall behind on essentials like rent and council tax.”
Walker explained that Iceland is not “the loan provider but Fair for You will only loan to people who can afford to repay it. Those on a regular salary and people who are well off, it wouldn’t apply, and nor would someone who you know, quite frankly couldn’t afford to repay.”
Walker went on to say that the scheme was intended to be part of a “collaborative, flexible process, people are helped not harassed. The debt is not sold off to third parties, and third party debt collectors are not brought in.”
Successful applicants for the interest-free loan scheme should receive their preloaded card within five to seven working business days.
Successful applicants for the loan will receive a preloaded food club card within five to seven business days.
