Inclusive growth requires inclusive finance. Surely that point doesn’t need to be made? But it does.
At the panel Fair4All Finance partnered with Centre for Social Justice (CSJ) to deliver at the Labour Party Conference I shared a whole barrage of evidence of what is not working in our financial services system and which leaves millions of people without good choices, or none at all.
As we heard from WPI Economics’ Rachel Gregory, tackling financial exclusion presents a £6.4 billion annual growth opportunity for the Government – if they want to seize it. We know that financial exclusion negatively impacts people’s mental and physical wellbeing, security and is a barrier to anyone reaching their full potential. It’s only natural that this has an impact on the economy.
The research, commissioned by Fair4All Finance identifies three areas where improvements could be made including improving financial wellbeing, establishing better short term savings, and removing the poverty premium to make car insurance more inclusive and affordable.
Muna Yassin, CEO of Rooted Finance highlighted the crucial role that shared savings schemes have provided. This is something we saw in our Levelling the Playing Field report, which also pointed to this vital alternative source of finance for those who are excluded.
‘I think there’s something that is sometimes overlooked that is the savings habits and financial behaviours outside of the mainstream financial services sector.
For example most ethnic minority communities use something called a Rotating Savings Club, ROSCAs, and a lot of those are outside of any banking structure
Some organisations and some fintechs are now trying to digitise that process and they need to be supported’
Muna Yassin, Rooted Finance
These come in many forms and names – Rotating Savings and Credit Associations (ROSCAs) as mentioned by Muna, pardner schemes, susu schemes. They are practiced widely on a global level helping people in a community save and borrow together.
We found 5% of people in our survey used such a scheme, with over half (56%) using one at least once a month. Muna is calling for these schemes to be made much more capable of scale and to make them recognised in mainstream banking, as opposed to being assumed to be illegal or channeling money laundering activities.
When Fair4All Finance looks back and looks around the world, we also see amazing examples of communities supporting each other.
The first credit union in the UK was founded to tackle the discrimination that Caribbean Windrush migrants were encountering. Hornsey Co-Operative Credit Union, founded by members of the Ferme Park Baptist church, is now known as London Capital Credit Union. From it’s hyper local origins it now has 20,000 members and £22 million in savings.
The whole GB credit union sector has 1.4million members and £2.3billion in savings and there is more that can be done with this model.
If the success of the Northern Irish Credit Union sector which has 44% adult membership (c650,000 people) holding £1.7billion in savings were replicated in England, Scotland and Wales we’d have £58bn of Credit Union savings and 23 million members. That could be transformational in term of the mutually owned, democratically governed approach to finance.
In Australia the collaboration between Good Shepherd and the banking sector has led to the ongoing success of the No Interest Loan Scheme and in the United States the Hebrew Free Loan Society has been providing interest free loans to New Yorkers of all faiths and none, since 1892.
Finland’s consolidation lending guarantee scheme – came about because prison chaplains recognised the vital need to give people a chance to rebuild their lives. It was organised by the Lutheran Church and funded through government, charities, the churches and the gambling sector.
These examples are great proof points of what people can do to help people. Imagine if they were ubiquitous and household names.
Imagine if mainstream financial services were a key part in how they were funded to get to that scale, if mainstream providers were ready to step in and offer services to complement these for those who are excluded.
Inclusive growth is an economic imperative. We’ve got to sort out our sluggish economy and productivity lag.
This makes inclusive finance not just an issue of fairness, of what is right, but also an economic challenge.
As our work with WPI Economics shows – having access to appealing, appropriate and affordable credit, insurance and savings options can generate an extra £6.4bn per annum.
Let’s get what works scaled. Let’s make sure that, as Nikhil Rathi said last year, we get a sustained and growing economy with a step change in financial inclusion which will take ‘a willingness to take more risk and to experiment, accepting that not every idea will work; and a determination from everyone with a part to play to improve outcomes.’
