The ABCD of Financial Inclusion

We argue that credit unions cannot and should not try to do it alone. Furthermore, other sectors such as the money advice sector equally will fail to deliver on financial inclusion if they work in isolation. The solution is through partnerships that can practically deliver the wider range of products and services that financially excluded people need. The latest Government’s policy towards financial inclusion recognises the need for joined up thinking and can be summarised as the ABC approach, providing:

• Advice – solving money and debt problems at no cost to the household

• Banking services – increasing the take up of basic bank accounts and other similar services like those a credit union could provide

• Credit – providing affordable loans

We fully endorse these but also add a fourth factor…

• 'D' for Deposit making.

Deposit making, or savings, is important because it creates a ladder to financial inclusion and over time can prevent households and individuals becoming re-excluded.

Having reviewed many existing financial inclusion initiatives both in the UK and abroad we advocate an innovative Community Banking Partnership (CBP) approach.

The CBP approach offers the flexibility and regulatory rigour necessary to bring together through joint venture arrangements: the specialist expertise of credit unions, advice and support agencies, and community development finance institutions (CDFIs).

Our approach here is not through any rigid model, but through careful consideration of what elements are already in place within the local community. There are five key elements based on a philosophy of a ‘customer first’ approach:

1. Access through a service-level agreement to appropriate money and debt advice involving financial literacy training and help with household budgets and paying bills.

2. Accessible affordable credit, based on the assumptions that the competition is doorstep lenders, and that the sustainability of the community finance lender is of paramount importance.

3. Access to mainstream banking services, with basic banking accounts being the start not the end of financial inclusion.

4. Access to a savings vehicle because asset building is a pathway to financial inclusion.

5. Providing integrated access points for both lenders and advice agencies so that there is an efficient and effective delivery of services.

In order to achieve these aims we have found it is first necessary to set up a series of open exploratory sessions between the potential partners. At this initial feasibility stage the future stakeholders work towards clarifying both the problem and finding a market based solution. A number of important issues need to be considered if any partnership is to be successful:

1. Partners must accept their own limitations. Working to achieve financial inclusion has to take preference above narrow sectorial interests.

2. Partners need to be willing to consult, mediate, and negotiate.

3. An understanding of the market and the needs of the customer is central to any success.

4. That doorstep lenders often provide a good quality service that many people find useful, but that the cost of this service is detrimental to them and the local economy.

5. Advice support and long-term technical assistance can’t be subsidised by income from interest rates alone. Additional resources are needed.

6. Credit unions and CDFIs are financial institutions, not social services. Therefore, they need to adopt a business model that is operationally sustainable and not unduly dependent upon long-term grant funding.

7. There is a need for benchmarks, common reporting standards, and public disclosure of information.

The solution to financial exclusion requires a partnership that is unique to its locality to reflect the nature of the existing suppliers and relationships.

Broadly there are four levels of engagement in a CBP that offer an evolutionary way to deliver a better customer experience. The most important feature is the nature of the contracts between the partners and specifically the agreed performance targets. If the community banking partnerships are to grow and deepen, it is necessary from the outset that all parties understand what each other are to deliver. Carefully negotiated protocols, delivery plans and service level agreements need to be drawn up together.