Community lenders (CDFIs) and affordable credit

Community development finance institutions (CDFIs) are lenders with a social purpose: they exist to offer financial help to individuals with a poor credit history and to others that mainstream lenders turn away, rather than to maximise profit¹. They sit alongside credit unions in the small but growing corner of UK lending known as affordable credit, and they are the only kind of lender whose investors can get a tax break for putting money in, through Community Investment Tax Relief worth up to 25% of the value of the investment².

This page explains what CDFIs are, who they lend to, how a CDFI decides on an application, how to find one near you, and how community lending compares with the high-cost credit that people shut out of mainstream borrowing often end up using. It also covers the limits of the sector: community lenders do not operate everywhere, and their reach is one of the sector's recognised weaknesses.

What community development finance institutions are

A community development finance institution is a lender set up to serve people, businesses and social enterprises that the mainstream financial system does not reach. The definition that carries weight in practice comes from the tax rules: HMRC guidance on Community Investment Tax Relief is addressed to "an individual or company who invests in accredited community development finance institutions"⁵, which means a CDFI is, formally, a lender that has been accredited so that investments in it qualify for tax relief. That accreditation matters to investors, but to a borrower the practical meaning is simpler: a CDFI is a not-for-profit or purpose-led lender that exists to fill the gap left by banks and mainstream loan companies.

The sector is small relative to the whole credit market. For context, around 36,000 firms are authorised by the Financial Conduct Authority with credit permissions, and the bulk of those are credit brokers rather than lenders⁶. CDFIs are a tiny fraction of that number, and they are spread unevenly across the country, which is why finding one starts with a search by area rather than a walk down the high street.

What a CDFI offers depends on the individual institution. Some lend mainly to individuals, some to small businesses and social enterprises, and some do both. What they share is a mission built around access rather than margin, and in Scotland the government funds them on exactly that basis: the Scottish Community Lenders Fund exists "to support credit unions and Community Development Financial Institutions (CDFIs) which offer financial help to individuals with poor credit history"¹. That phrase, from an official description of the sector, is as good a summary of the CDFI purpose as any.

Who CDFIs lend to: people mainstream lenders turn down

The people CDFIs exist to serve are the people who apply for credit and are refused it. The FCA's Financial Lives 2024 survey, published in May 2025, paints a picture of what happens to those people. Among UK adults who were declined a regulated credit agreement and then used an alternative lender or a different product, 58% ended up paying a higher interest rate and 23% ended up borrowing less⁴. A smaller group felt the refusal itself was not about money at all: 19% of declined adults felt non-financial factors were involved in the decision⁴.

The problem is not evenly spread. Official analysis in Scotland found that "a significant proportion of low income households have been increasingly unable to access regulated and mainstream consumer credit"⁷, and the same review found that "over a third of low income households refused regulated credit options hold loans with loan sharks, doorstep lenders, payday lenders, and pawnshops, almost 4 times more likely for each loan type than those who successfully applied for credit"⁸. In other words, being refused by a regulated lender does not stop people borrowing. It pushes them towards the most expensive and, in the case of loan sharks, unregulated ends of the market.

This is the gap a CDFI is built to fill. Where a mainstream lender sees a declined application, a community lender sees its core customer. The comparison matters for cost as well as access: official guidance on consolidating debts warns that "if you have a poor credit rating, you may only be able to get a loan at a high interest rate or secured against your home"⁹. A community lender is one of the routes by which someone with a poor credit history can borrow without being pushed to those terms, and the site's guide to getting a loan with a poor credit history sets out the other routes alongside it.

Affordable credit, not a quick payday fix

"Affordable credit" is the term used across government and regulator documents for lending that is priced and structured so the borrower can realistically repay it. The Welsh Government describes credit unions as providing "access to fair and affordable credit for people with a poor credit history, help those who cannot access mainstream forms of credit or those who may be unaware of affordable providers"¹⁰. CDFIs sit in the same space for people who need a loan rather than, or as well as, a savings account.

Affordable credit is not the same as free credit, and it is not a substitute for dealing with problem debt. The Money and Pensions Service launched an updated supportive debt recovery toolkit in September 2026, its first update in five years, which "encourages creditors to place greater emphasis on early intervention, affordable repayment arrangements and evidence-based support"¹¹. That toolkit is aimed at creditors, but it signals the direction of travel: lenders of all kinds, including community lenders, are expected to work with borrowers on arrangements they can actually afford rather than chase arrears.

Two features of the regulatory landscape shape how community lenders operate. First, not-for-profit lending bodies are treated differently from commercial lenders in some regulatory respects: the FCA has stated that it is "not proposing any periodic reporting requirements for credit reference agencies or not-for-profit bodies (except not-for-profit debt advice bodies)"¹². Second, the FCA's Borrowers in Financial Difficulty project is "a comprehensive programme covering a range of retail lending products including first and second charge mortgages, personal loans, credit cards, high-cost products, retail finance, motor finance and overdrafts"¹³, which means community lenders' treatment of struggling borrowers sits within a wider supervisory push.

For a borrower comparing options, the practical point is this: a CDFI loan is still a loan, with interest and repayments, and it still has to be affordable. What distinguishes it from payday lending and high-cost short-term credit or home credit and doorstep loans is the purpose of the lender and the way the product is structured, not the absence of cost. The guides to how loan interest is calculated and loan APR explain how to compare any loan's true cost.

Finding a community lender through Finding Finance

Finding Finance is the search service for the community lending sector. It works as a directory rather than a lender or a broker: you tell it a little about what you are looking for, it shows you providers that may be available in your area, and you contact a provider yourself. It does not lend money and it does not recommend one provider over another, which means the choice of who to approach stays with you.

Because community lenders are local or regional, where you live determines what you will find. MoneyHelper, the government-backed money guidance body, lists credit union finders separately for England, Scotland and Wales, and for Northern Ireland¹⁵, reflecting the fact that community lenders are organised on national lines within the UK. If a CDFI search returns nothing near you, a credit union may still cover your area, and the site's guide to credit union borrowing covers that route.

Each lender makes its own decision: eligibility and assessment

No community lender, and no directory, can tell you in advance whether you will be approved, because each provider sets its own eligibility and assessment criteria. What every lender must do, whatever its ownership and purpose, is check that the loan is affordable. As nidirect guidance puts it, "All lenders must check your credit worthiness and satisfy themselves that you can afford the repayments before lending you money"³. That rule applies to CDFIs in exactly the same way as to banks.

A CDFI's assessment may look different from a bank's in practice, because a lender whose mission is to serve people with poor credit histories has reason to look beyond a credit score. But the affordability obligation is not relaxed for them, and the Consumer Duty adds a further layer: firms must "support you while you're using their product or service; be flexible and find ways to support vulnerable customers"¹⁶. The site's guide to loan affordability checks explains what lenders look at and what you may be asked for.

If you are refused by a community lender, or by any lender, the options do not end there. Bank and building society accounts exist "that accept those with a poor credit history"¹⁷, and other borrowing routes, including guarantor loans and the No Interest Loan Scheme, are covered in their own guides. What a refusal should not push you towards is unregulated lending: the evidence from Scotland on loan shark use among refused households is the clearest warning of where that path leads⁸.

Borrowing through retailers: the Affordable Lending Portal

Some community lenders reach borrowers not through their own shopfronts but through retailers, via the Affordable Lending Portal. The idea is that when someone is buying something from a participating retailer and needs to spread the cost, the portal connects them with a community lender rather than leaving them to default to a high-cost option or the retailer's own finance. The portal is a route to a lender, not a lender itself, and it does not decide who gets a loan.

The regulatory position of such arrangements matters less to a borrower than the practical one: whoever ends up lending carries the same obligations as any other lender. The lender must still check creditworthiness and affordability before lending³, and the Consumer Duty still requires it to support the customer during the life of the product and to be flexible with customers in vulnerable circumstances¹⁶. The FCA's Borrowers in Financial Difficulty project covers retail finance among the lending products in its scope¹³, so borrowing arranged at a retailer's till is not outside the framework that governs other credit.

If you borrow through the portal, the agreement you sign is with the lender, not the retailer or the portal, and your rights are the rights attached to that credit agreement. Those rights, including the 14-day right to withdraw, your protections under the Consumer Credit Act, and how to complain about a lender, are the same as for any other regulated loan.

Credit unions and CDFIs: two kinds of community lender

Credit unions and CDFIs are the two main kinds of community lender in the UK, and they overlap more than they differ. The Welsh Government describes credit unions as "not for profit community lenders, providing affordable loans, and savings"¹⁰, and MoneyHelper describes what they offer: "A credit union provides loans, savings, bank accounts and other services to their members"¹⁵. A credit union is a mutual: it is run by and for its members, and its purpose is to benefit the community it serves rather than to make a profit for outside shareholders.

The differences are in structure and reach. A credit union is member-owned and typically serves a defined community, employer or area, and it offers savings products alongside loans. A CDFI is purpose-led rather than member-owned in the same way, and it may lend to people, businesses and social enterprises. A credit union is also not a full bank: as a Northern Ireland Assembly research paper notes, "a credit union is not a bank and cannot offer overdrafts, mortgages, electronic banking services and payment methods or business loans in the same way as a bank"¹⁹. Neither kind of community lender is a substitute for a full current account with a bank, though credit union accounts exist and are covered in MoneyHelper's guidance¹⁵.

Both kinds have attracted outside support over the years. Lloyds Banking Group's Credit Union Development Fund was set up with £4 million of funding and resources²⁰, and fourteen Welsh credit unions have delivered Financial Inclusion Growth Fund contracts for the Department for Work and Pensions²¹. That support reflects the sector's role in the wider financial inclusion effort rather than any guarantee of availability: the funders' money does not mean a lender operates near you.

Where community lending falls short: limited reach

The honest limitation of community lending is that it is not everywhere. CDFIs and credit unions are local or regional, their number is small compared with the thousands of firms holding credit permissions⁶, and the sectors' own supporters describe reach as a constraint. In Northern Ireland, analysis of a proposed regional mutual bank noted that "membership rules mean that a regional mutual bank will not have access to venture capital and only members (in the location) can invest"¹⁹, a structural limit on how fast community-based financial institutions can grow.

Access problems compound each other. The Financial Conduct Authority "raised concerns that this may be contributing to these groups' financial exclusion" in relation to rural branch distance and disabled and elderly customers²², meaning that even where community lenders exist, getting to them is not equally easy for everyone. And the underlying demand is growing: low income households have been increasingly unable to access regulated and mainstream consumer credit⁷, while over a third of refused low income households in Scotland already hold loans with loan sharks, doorstep lenders, payday lenders or pawnshops⁸.

Public and charitable money has moved to shore the sector up. In 2024, Fair4All Finance, set up in 2019, announced a £5 million resilience fund for credit unions and other community financers¹, and the Scottish Community Lenders Fund supports CDFIs and credit unions serving people with poor credit histories¹. In England, the Money and Pensions Service funds community-based debt advice through four grants worth around £35m per year²³. These are signs of a sector being built up, not of one that has arrived: if no community lender covers your area, the alternatives in the guides to cheaper alternatives to a payday loan and Budgeting Loans may be what is actually available to you.

Investing in a CDFI: Community Investment Tax Relief of up to 25%

Community Investment Tax Relief (CITR) is the scheme that lets individuals and companies put money into accredited CDFIs and claim tax relief for it. The relief "is available to individuals and companies and is worth up to 25% of the value of the investment in the community development finance institution"². It is claimed through a Self Assessment tax return, where it appears in the list of tax reliefs you can claim alongside reliefs such as Enterprise Investment Scheme subscriptions and private pension contributions²⁴.

The mechanics are straightforward. The investor puts money into a CDFI that is accredited for the scheme; "once a community development finance institution has received a suitable investment, it should issue the investor with a tax relief certificate"², and that certificate supports the claim. HMRC's guidance on claiming the relief is addressed to "an individual or company who invests in accredited community development finance institutions"⁵, and the accreditation of the specific institution at the time of the investment is what the claim depends on.

For an investor comparing tax-advantaged schemes, the rates differ sharply. CITR is worth up to 25% of the investment². The Enterprise Investment Scheme gives income tax relief of 30% of the amounts subscribed for shares in early stage qualifying trading companies²⁵. Venture Capital Trusts are moving the other way: legislation reduces the VCT income tax relief from 30% to 20%, with effect from 6 April 2026²⁶. Those schemes invest in different things for different purposes, so the rates are not the whole comparison, but the direction of each scheme is clear from the official documents.

CITR is a relief for investors, not borrowers, and it does not change what a loan from a CDFI costs the person taking it. Its significance for a borrower is indirect: it is one of the mechanisms by which community lenders raise the money they lend, and the growth of that mechanism is part of the effort to extend the sector's reach.

Where to get free help

Whatever kind of lender you end up dealing with, free and independent help exists. Official guidance notes that many organisations offer free and independent advice to help people deal with debt problems, while some financial advisers charge a fee⁹. MoneyHelper provides free money guidance, including its credit union finders for each nation¹⁵, and StepChange Debt Charity publishes research and provides free debt advice, including its call for the FCA to investigate unaffordable overdraft lending²⁷.

Community-based debt advice is itself funded at scale in England: the Money and Pensions Service describes it as "free, trusted and quality debt advice based within communities", delivered through four grants worth around £35m per year²³. Its supportive debt recovery toolkit, updated in September 2026, aims to strengthen how creditors and debt advisers work together, with an emphasis on early intervention and affordable repayment arrangements¹¹.

If you are struggling with repayments on any loan, including one from a community lender, the guides to what to do if you can't repay a loan, complaining about an unaffordable loan and the wider debt help section set out the steps and the free organisations that can take them with you.