Funding for Lending Scheme

FLS scheme introduced by Bank of England and HM Treasury was launched in August 2012. The £80bn scheme aims at boosting the lending industry which is now experiencing a low growth rate. This scheme will encourage banks and housing societies to lend more to houses and businesses.

According to this scheme, price of each bank’s borrowing will depend upon the reference period ie (from end-June 2012 to end-December 2013).The fees for those banks which lend during that period will be 0.25pc per year on the amount borrowed. The increase in the fees will be linear, as it would be adding 0.25pc for each 1pc fall in lending, up to a maximum fee of 1.5pc of the amount borrowed for banks.

The participating bank will be able to borrow an amount up to 5%of its stock of existing loans to the UK non financial sector. The new incentive structure will encourage bank to lend more by making them to borrow an extra £5 for every £1they lend. They will be able to borrow £10 in 2014 for every £1 they lend in 2013.

According to the recent report in February, the lending business in UK has fallen down to £4.8 bn.That shows a dip of 4.4% in loans to companies and small firms from the same period a year earlier.

Critics say that the individuals and firms may not need much loan. The first report of FLS in December 2012, said that, 6 banks or building societies have actually used the scheme. Total amount borrowed by all these institutions are £4.4bn and their net lending has only come up to £496m

In March 2013, 39 banks took part in the scheme, together they borrowed £14bn.But in 4^th quarter of 2012 the net borrowing came down to £2.4bn.These reports says that FLS will take time to give a stable performance.

UK is struggling to hold its stride in the midst of euro crisis. Chancellor George Osborne has assured that this act will improve the economy and UK is still capable overcoming the economic crisis.