An empowerment approach to loaning money
Many Community Sponsorship Groups have established a process by which they will make an interest-free loan of funds to the family they are supporting. Having additional money to support a specific ambition or to fill a gap can be empowering to a family who have been resettled in the UK, but it’s important to think through how this might work for your Group.
As a Group, you have already talked through some of the ways in which your Group members will work with the family, at which time you may have discussed giving or lending money.
If you decide that you will lend the family money, it’s important to design a clear and easy to understand process for this, that you can share with the family you support and your Group members. This resource will help you to plan a process that works for you.
Why would we lend money?
Community Sponsorship groups have shared with us that they have loaned money to the refugees they support for specific reasons, and your group should decide what is and isn’t appropriate. It may be that you need to make a decision based on a request made by the family during the period of your sponsor agreement.
Keep in mind that refugees resettled through non-Community Sponsorship methods may not have anyone to ask to make a loan to them outside of statutory services. Be ready to explain to the family you support why you are in a position to do this for them, and that you are unlikely to make this available to those not supported through your group.
When making a decision, consider:
- why the loan is being requested? – don’t be nervous about asking why the family need additional funds; it might be that you can better help them to budget their income.
- what impact not making the loan might have?
- does loaning on this occasion set a precedent for future loans?
- are there other ways of helping the family to access funding for this specific purpose?
- does your Group have enough funds to make a loan? Remember that you may need to access funds throughout the entirety of the 12-month Sponsor Agreement.
- would your Group prefer to make a gift of what the family would like to purchase rather than giving a loan? For example, would your Group be comfortable funding the purchase of suitable winter clothes for the family? If you decide to make a gift, accompany the family on the shopping visit, with a clearly stated budget, and pay for the items directly. Also, make it clear this is a gift due to your fundraising efforts.
Purpose of Loans
Community Sponsorship Groups have made loans for many reasons, and equally, have decided to not make loans. Some of these are included below:
Explaining the terms of a loan
It’s important that should you agree to make the loan to the family, you are clear in the terms of this loan: why it has been made on this occasion and the terms by which this should be paid back and how this should happen. Whilst we don’t recommend making this a legal document, putting things in writing can really help. Be clear in:
- The amount of the loan
- The purpose of the loan and how funds should be used (you may decide to purchase the thing the family need e.g. a monthly bus pass rather than giving the money directly to the family member)
- The repayment conditions (e.g. in a lump sum once a benefits back payment has been received, or monthly for a period of xx months)
- What the family member should do if they are unable to repay the loan
Make sure the family member understands the terms of the loan, and that they have a copy of any written agreement you make with them.
It may feel a little strange; making a loan out of money you have raised to support a family being resettled in your neighbourhood, but it’s crucial you keep in mind your empowerment approach throughout. By loaning money, ask yourselves whether this empowers the family. Living on benefits in the UK is hard, it’s difficult to budget, however, this is the case for everyone receiving benefits and it’s essential to budget to live within your means.
It may be feel easy to ‘write off’ the loan you have made should the family member not be able to pay this back, however, remember that the repayment itself is empowering, and will help the person you’ve made the loan to feel they have achieved something; it may be that in reality, your Group uses this repayment to make a further loan or fund an activity, but keep in mind the responsibility you have to those who donated toward your fundraising to spend their donations wisely.
Things to be aware of
It may be the case that the family are finding it hard to budget their income. It may be that they are sending money to a family member who are still in their home country or in the host country where the family has been before coming to the UK. Or it could be that they are repaying a debt they incurred whilst in their host country. The Home Office advise that sending money to the MENA region may have security or safeguarding concerns so Community Sponsorship groups should be vigilant to this and ensure that by sending money abroad the family’s life in the UK is not negatively impacted. Any international transfer should be made through regulated, legal money transfer processes. If you are concerned about money being sent abroad by the family you are supporting, you should speak to your Home Office Contact Officer.