A new not-for-profit lending scheme is being unveiled aimed at giving manageable loans to financially excluded people.

A pilot scheme has been set up in the West Midlands called My Home Finance, in the hope of diverting people away from borrowing from loan sharks.

However, the interest being charged is higher than the maximum by law that credit unions can charge.

It will charge 29.9% APR in the pilot scheme, rising to 49.9% APR in April.

Mark Lyonette, chief executive of the Association of British Credit Unions welcomed the new initiative, but pointed out that his members could offer loans at cheaper rates.

"By law credit unions are allowed to charge no more than 2% per month interest (26.8% APR) on the reducing balance of a loan," he said.

"This means that a £100 loan will never cost more than £2 per month to borrow."

Target
My Home Finance has been set up by the National Housing Federation (NHF), with 10 branches opening as part of the pilot project.

Customers would have to go through a 45-minute interview to check they would have a realistic chance of repaying the loan before being allowed to borrow sums of about £500. This would then have to be paid back weekly.