Buying co-operative Anglia Farmers has launched a scheme that will allow its members to lend to and borrow from each other.
The scheme runs along similar lines to a growing number of ventures known as “peer-to-peer lending”. It allows members with cash to lend to other members requiring short-term finance, with both getting better than market rates.
“In the current climate of low interest rates, investor members will receive a better return on their money, as the interest rate for investors will be set above the market rate,” said AF chief executive Clarke Willis.
“This rate will, however, be below the market rates normally available to borrowers, making this a win-win situation for all participating members.”
The scheme was launched in response to member demand and since it opened on 15 May has already had £150,000 deposited by lenders, with about the same amount borrowed.
The minimum sum to be loaned or borrowed is £5,000. Borrowing must be used for goods and services bought through AF and will be deposited into members’ individual AF accounts.
The current interest rate for lenders is 6% and is paid pro-rata according to the length of time the money is loaned out. For any time that the money is not being loaned to another member, lenders will be paid the bank deposit rate.
Funds are held for a fixed period and must be repaid on a fixed date. Returns to lenders will depend on the amount of money advanced and the length of the advance, as well as the interest rates set by AF.
Risk is also pooled, so it is not carried by individual lenders, and Mr Willis was keen to stress that the history AF had on its members would allow it to make informed decisions on borrowers.
“An independent structure has been established to ensure that any lending risk is carried by the lenders and not by the membership generally, but AF’s knowledge of the borrowers’ trading patterns should minimise the risk to lenders,” Mr Willis said.
The scheme is being run through a wholly-owned subsidiary company, AF Finance Limited, which receives a fee of 0.2% of the amount advanced to borrowers, as well as a fixed £100 arrangement fee.
Lenders are free to enter at any time at monthly intervals, but must commit to leave their money in the scheme until 15 January 2013. AF Finance may turn down deposits if there are not enough borrowers taking part in the scheme.
Borrowers can apply for an advance for any period from one month up to the number of months remaining until the end of the 2012 scheme in January 2013.
AF, which has more than 2,500 members, has already confirmed the scheme will be run again next year from February 2013.