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Giving credit where it’s due will ensure financial inclusion

Good financial inclusion measures will protect consumers from predatory lenders. Flickr/rinkjustice

The Australian government has begun to focus on the issue of financial inclusion, as reflected by an allocation of $60.6 million in this year’s federal budget.

This follows earlier government support for financial inclusion programs in the wake of the global financial crisis.

Until recently, the government had responded to the inability of low income Australians to access safe and affordable credit from mainstream banks by focusing on minimising the harms of high-cost and exploitative credit options, such as payday loans.

There has been inadequate focus on fostering safe and affordable credit alternatives.

According to recent research conducted by the Centre for Social Impact at University of New South Wales, around 15.6% of the adult population in Australia were either fully excluded or severely excluded from financial services in 2010.

Fully excluded Australians had no transaction account, credit facility or basic insurance, and severely excluded Australians had only one of these products.

Most of the severely excluded lacked access to credit, and 54.5% of the fully or severely excluded could not raise $3,000 in an emergency. If those people had no informal, family networks to turn to for credit, they would have been left to access high cost, exploitative forms of credit.

A lack of access to credit for such things as whitegoods, furniture and essential bills leaves people in a situation of financial exclusion, which in turn has been found to lead to social exclusion where people cannot participate fully in society.

Stories abound of people without refrigerators living out of an Esky and having to throw out food; people without washing machines not being able to keep up with washing school uniforms and children getting into trouble for wearing casual clothes to school; or school students getting into trouble for not having typed assignments because they do not have a computer at home.

There are also problems associated with lack of reliable transport to attend job interviews or medical appointments.

A number of small loans programs – both low interest and no interest – have been running since around 2006 through partnerships between banks such as National Australia Bank and ANZ and community sector organisations, such as Good Shepherd Youth and Family Service and Brotherhood of St Laurence. These have been run on a fairly small scale compared to the need, as demonstrated by the increase in the numbers of high cost credit providers in Australia.

They have also been run without Federal Government support, until an allocation of funds following the GFC. Those government funds have not only supported bank and community sector partnerships offering small loans, but have also been allocated to a community development finance institution (CDFI) pilot launched in February 2011, designed to support CDFIs to provide small amount loans to low-income Australians.

The announcement of $60.6 million over four years in the federal budget for “innovative money management” will assist the expansion of low interest and no interest loan products, as well as matched savings schemes also run through bank and community sector partnerships.

While this is a pleasing development, it is unlikely to fully address financial exclusion without additional funding from both government and industry.

Only three of the major four banks in Australia, and none of the smaller banks, have engaged in programs to address financial exclusion.

Given that this is a problem that has arisen as a result of the banking industry failing to provide adequate services for all members of the community while pursuing more profitable customers, it is a problem which should be addressed by banks as part of their corporate social responsibilities.

The next step taken by the Federal Government should be to investigate appropriate regulatory measures to encourage a more comprehensive engagement by banks in addressing financial exclusion in Australia.

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