Universal Access to Affordable Credit

1
Universal Access to Affordable Credit

• Jenny Rossiter
• Urban Development Consultant

2
AFFORDABLE CREDIT

• What is the need?
• What is available?
• What and where are the gaps?
• Challenges, policy, institutional arrangements,
  products needed.

3
What is the need?

• The demand for affordable credit is huge
• 8 million people systematically denied access to
  mainstream credit (Datamonitor 2002)
• Sub-prime market is worth 16 billion per year to
  non standard lenders in UK (Datamonitor 2003)
• 1 million people without access to affordable
  credit (HMT)
• Third of lending simply to pay household bills
• Much of remainder on basic necessities, clothes,
  children etc.

4
WHAT IS AVAILABLE ?

• FROM THE BANKS
• FROM THE PUBLIC SECTOR,
• FROM THE COMMUNITY/VOLUNTARY SECTOR

5
Affordable credit from the Private Sector

• SUB-PRIME SECTOR. Credit but not affordable.
  Legislation may tackle some unfair practices,
  but wont make it affordable.
• MAINSTREAM BANKING SECTOR. Dont directly
  provide affordable credit to people on low
  incomes.
• BANK PARTNERSHIP ARGEEMENTS. Do provide savings
  and loans to some people via third party
  agreements
• Cambridge Housing Association Cambridge
  Building Society
• Prospect HA and Bank of Scotland in Wester Hailes
  Edinburgh
• SUPPORT FOR CDFIs. Many banks now have Community
  Banking Teams and provide grants/loans to CDFIs
  and CUs.
• PREFERENTIAL TERMS. Sometimes give reasonable and
  flexible terms to credit unions and CDFI.

6
Private sector Comments

• SOME VERY GOOD EXAMPLES OF PARTNERSHIP AGREEMENTS
  WITH BANKS AND VOLUNTARY SECTOR ORGANISATIONS TO
  DELIVER AFFORDABLE CREDIT. Examples are few,
  isolated and small scale, but they do provide a
  good model for scaling up.
• HOUSING ASSOCIATIONS AND BANKS ARE PRESENT
  THROUGHOUT THE COUNTRY. The are therefore well
  placed to provide (in partnership) extensive
  affordable credit schemes.

7
Affordable credit in community/voluntary sector

• CREDIT UNIONS Growing, and offer more than
  financial services. Many under-capitalised, lack
  financial and human resources. Need to save
  before borrowing. Only 1 of population, but
  regional variations
• CDFIs - some new and innovative schemes in
  Portsmouth, London, Salford, East Lancs
• HOUSING ASSOCIATIONS - c70 involved in financial
  inclusion schemes, but few in loans schemes. HAs
  sitting on 3billion and 80 of financially
  excluded live in social housing.
• LOCAL AUTHORITIES - could offer co-ordination,
  funding, leadership and strategy to voluntary
  sector.

8
WHAT ARE THE GAPS IN PROVISION?

• Financial inclusion is more than opening a bank
  account It includes access to affordable credit
  and other financial products.
• Access to affordable credit has lagged behind the
  progress made to address other aspects of
  financial inclusion basic bank accounts,
  budgeting and literacy.

9
Geographical Challenges

• Target most deprived LA areas?
• Delivery agents
• Be able to reach people
• Have links and knowledge of community
• Be trusted and friendly
• Have a physical presence
• Have easy to use products

10
Financial inclusion partnerships? (FIPS)

• FINANCIAL INCLUSION PARTNERSHIPS (FiPS) IN
  DEPRIVED AREAS To provide range of financial
  services including credit, savings, money advice
  and budgeting services.
• PARTNERSHIP WITH LEAD AGENCY Could be CU, CDFI,
  Bank, Building Society or Housing Association.
• SIMILAR MODEL TO SURE START?
• AREAS OUTSIDE THE MOST DEPRIVED - DIFFERENT
  APPROACH NEEDED, eg countywide (netCUDA pilot in
  Essex) or rural

11
Joined up solutions?

• Joined up approach at policy and delivery level
  of all aspects of financial inclusion.
• WE NEED TO CHANGE EXTORTIONATE CREDIT INTO
  AFFORDABLE CREDIT