Community banking to help tackle social exclusion to financial services?
This article by Andrew Bibby, in a slightly different form, was first published in the Housing magazine, 1999
When Lloyds Bank moved out from the run-down inner-city neighbourhood of Winson Green, Birmingham, the credit union moved in. The community-run group took over the impressive old Victorian bank building, complete with banking hall and strong room, and behind the engraved glass still offering Executor and Trustee Business began offering a rather different kind of financial service.
That was back in 1987, and in the years since then the Rotton Park-Winson Green credit union has demonstrated just how a determined group of local people can successfully build up a co-operatively-run savings and loan service. In a neighbourhood where unemployment remains high and incomes are low, the credit union arguably offers far more appropriate facilities for local people than a conventional bank branch could ever have provided.
But many redundant bank buildings have a less happy after-life, offering a stark visual metaphor of the problems of financial exclusion. There is certainly no shortage of such buildings: Barclays, for example, has chopped its branch network by 650 in the nine years since 1990 (another 50 will go next year). NatWest has cut over 1,000 branches over the same period.
The energetic Campaign for Community Banking Services is engaged in a feisty, but probably forlorn, attempt to stop the tide of closures, with its spotlight recently falling on the Norfolk seaside town of Heacham where the last remaining bank branch closed in November. Whilst the loss of a bank can be very damaging, especially to smaller communities, cash machines, telephone banking and increasingly the Internet do offer some alternative for many people. A large minority of British people remain excluded from financial services in a much more profound sense, however.
A study produced for the Joseph Rowntree Foundation in March (Kept out or opted out?: understanding and combating financial exclusion) suggested that as many as one and a half million households made no use at all of even basic financial services such as current accounts and home contents insurance. Local authority and housing association tenants were three times more likely than average to be in this category.
The Rowntree study also found that three-quarters of these households had never had access to mainstream financial services. They included older people on low incomes, young people, single women caring for children, and some ethnic minority groups.
The Rowntree report followed closely behind reports from both the Personal Investment Authority and the Office of Fair Trading on aspects of social exclusion from financial services, published respectively in October 1998 and last January . However the publication last November  of the reports from two of the eighteen Policy Action Teams set up by the government as part of its social exclusion initiative has provided the opportunity for financial exclusion to move much higher up the political agenda.
PAT3 (Enterprise and Social Exclusion) is concerned with access to business capital for self-employed people and small business people who for various reasons cannot access the usual sources of business finance. The complementary report from Policy Action Team 14 (Access to Financial Services) looks at the more general issue of financial exclusion.
PAT14 covers the three main areas of banking, insurance and credit union development and comes up with a raft of recommendations and a proposed time scale for implementation. By the end of next/this year  for example, PAT 14 wants to see the Housing Corporation and the Local Government Association get together with the government and the insurance industry to promote Insurance with Rent (IWR) schemes, so that by 2003 there is a substantial increase in the number of tenants who can buy basic household contents cover via their landlord. By 2005 PAT14 hopes to see low-income household usage of banking and insurance at similar levels to other social groups.
Both Calderdale MBC and Hereward Housing Association get a pat on the back from PAT14 for their existing efforts to develop Insurance with Rent initiatives. As the report points out, many households in lower-income areas do not have basic household contents, and therefore particularly suffer from the effects of crime. In Calderdale, tenants currently can choose to pay 23p a week extra with their rent for each £1,000 of contents cover (the policy, which is with Independent Insurance, includes accidental damage and new for old replacement, and also offers a premium discount for pensioners). Hereward, in Ely, has a similar scheme running with insurer United Friendly: cover up to £10,000 is offered for £1 a week, again with discounts for pensioners, and includes a free 24 hour legal and emergency helpline facility.
PAT14 suggests that the concept of Insurance with Rent could be extended to include longer-term family protection insurance, such as simple term life cover. The report points out that the traditional door-to-door insurance collection service, a well-used and well-respected (if expensive) facility in many working class areas, is rapidly disappearing and needs to be replaced. But PAT14 perhaps ducks the controversial red-lining issue (the decision by an insurer automatically not to lend to people in some areas), and is also more generous than it might be to financial sales people who sell long-term investment products with poor surrender values to customers on low incomes.
Treasury minister Melanie Johnson welcomed the PAT14 report, adding that the governments full response would come during 2000, as part of its overall approach to neighbourhood renewal. She urged banks and insurers to tailor more of their products for those on lower incomes, and she also immediately announced plans to widen the role of credit unions and to encourage the development of the proposed new Central Service Organisation (CSO) for the credit union movement.
As the Rotton Park-Winson Green experience demonstrates, well-run community credit unions can play a valuable part in combatting financial exclusion On the other hand there has also been growing recognition in recent years that volunteer-run small-scale credit unions can struggle to survive, and the LGA has encouraged local authorities to think more deeply before rushing to set up more top-down credit unions. The pioneering savings and loan scheme set up by Cambridge Housing Society in conjunction with the Cambridge Building Society, perhaps offers something of an alternative model. The New Horizons scheme enables all housing association tenants and family members to open a building society account (no minimum balance), with interest payable on the total held collectively. The housing society has primed the scheme with a lump sum which both increases the interest rate and also operates as a guarantee fund for loans made to tenants. As a result, for a trial period small loans will be available to all tenants, even those who have not yet made any savings.
Perhaps the last word should go to Melanie Johnson, representing the government: "The way forward lies in developing new and alternative means to deliver and provide access to financial services, as well as ensuring that those existing services can reach the whole community," she says. But she adds: "There is no single or simple solution".
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