Despite the best efforts of successive governments, there is a serious problem of financial exclusion in the UK. More than a million adults do not have a bank account; 50% of households in the bottom half of the income distribution do not have home contents insurance; 2½ million use doorstep loans; more than 400,000 households use ‘Rent-to-Own. And, despite the (very significant) reforms introduced in 2014 and 2015, there is still a thriving payday lending industry that addresses a real need for short-term credit – while, at the same time, often aggravating the underlying circumstances.
There has been progress. As noted, new rules govern the payday lending industry, and the FCA has recently announced a review of the entire high-cost credit market. Governments have poured money into the credit union movement, and required banks to provide fee-free basic bank accounts. Local authorities have also launched their own initiatives (e.g. Sheffied Money). Perhaps as significant, there are many more ‘ethical’ start-ups that are offering cheaper, better-value and ‘fairer’ alternatives to standard payday lenders and ‘Rent-to-Own’ providers. Many of these are drawing on FinTech, which offers the possibility of much lower-cost alternatives aimed at market segments that conventional financial services firms cannot reach profitably.
But it is a slog; it is fragmented – and any honest evaluation of the problem has to conclude that, sadly, many people who are poor and/or have fluctuating incomes will continue to be outside the reach of affordable financial services. Some are vulnerable to illegal lenders. Most of the initiatives in the market or on the horizon address the problems of those who are already on the first or second step of the ladder; those who cannot even get on the first step look likely to remain under/un-served.
This report stems from an initiative of the then-Bishop of Durham, Justin Welby, who commissioned the CSFI to look at the potential of parishes within the diocese of Durham to develop as a network of credit unions. When he became Archbishop of Canterbury, that work expanded into the Task Group on Responsible Credit and Savings, chaired by Sir Hector Sants, who wrote the foreword to the report. Other contributions come from a variety of perspectives, including Sir Sherard Cowper-Coles, chair of the Financial Inclusion Commission.
According to Andrew Hilton, director of the CSFI:
“We believe this report is one of the most comprehensive and objective surveys of what is going on in the battle against financial exclusion in the UK to have been published in recent years."
The report, Reaching the poor: the intractable nature of financial exclusion in the UK authored by Christine Allison, the CSFI’s Financial Inclusion Fellow, is being launched today. Our Chair Sir Sherard Cowper-Coles is chairing.