How can we promote financial inclusion and protect those who have little if any financial resilience?
By Simon Tweddle
During December I collaborated with Fair4All Finance, the Financial Conduct Authority and several other market participants and subject matter experts in a sprint facilitated by the FCA. The subject: Affordable Credit.
I first met Sacha Romanovitch, the CEO of Fair4All Finance, when she spoke at a Cornhill Club event. Fair4All Finance is a not for profit organisation that is working to make the financial services sector fairer for everyone.
Why is this important?
Millions of people are unable to access mainstream products and services that others rely on to meet their financial needs. "Without safety nets like credit, insurance or savings, everyday life events or financial shocks can tip people into vulnerable circumstances." (Fair4All Finance)
Having to choose between going without essentials or turning to high cost credit or illegal money lenders has a huge impact on peoples’ physical and mental health. "It can start a spiral into long term debt and limit peoples’ ability to properly participate in society." (Fair4All Finance)
Illegal money lenders ! Many of you will have heard me and others at Shapes First use the word “nexus.” Well, here it is again: the affordable credit, money laundering nexus. Financial services is an ecosystem, nature abhors a vacuum and so do criminals. Unless we do something to tackle financial inclusion, and specifically affordable credit, we will be exacerbating other problems.
Like most, indeed all, societal issues, the problems are intractable. That doesn’t mean we shouldn’t examine them and give as much as we can to present solutions, make plans and execute those plans.
The Sprint
The sprint in December was another material step towards having a plan to fill a large gap in the market with something legal (of course), but also something that will consider the needs of those that are less financially resilient than perhaps the people reading this post.
For those of you who have never participated in an FCA sprint, I would describe it as “full on and worth it.” The team at Fair4All Finance and the Financial Conduct Authority did a fantastic job of moving the event from in-person to on-line at short notice. The scribes and others, we’ll call them stewards rather than floaters, used the technology seamlessly and kept us on topic and on time. Well done!
We had 3 problem statements to discuss
How can the regulatory environment encourage innovation and participation in the sector while maintaining a high-level of consumer protection?
How do we create structures and incentives to sustainably fund and service affordable credit provision to customers in financially vulnerable circumstances?
What would meet the needs of financially vulnerable consumers and deliver good outcomes? What do products that are specifically designed to meet these needs look like?
Plenty more nexuses to discuss there as you can see, including the Consumer Duty. I participated in problem statement 2: How do we create structures and incentives to sustainably fund and service affordable credit provision to customers in financially vulnerable circumstances?
I can’t possibly do the discussion justice in this short post, but in summary we concluded that a funding route for non-bank actors needs to be created and that investing in the affordable credit market needs to be made more attractive for it to thrive. There is a £3bn gap in the market according to the research that was presented and that sounds like an opportunity to me.
We didn’t say exclude banks from the solution, we did however think that more has to be done before the banks can play their part. Legislative and regulatory change is necessary, as whatever the general public might think “didn’t banks cause this problem by de risking?” – it’s not quite as simple as that and there are many legitimate reasons why banks cannot face certain types of customers directly.
In terms of looking at incentives: our group proposed that some of the schemes available for other types of investment such as SEIS and EIS are applied in this sector too. Real tax and capital benefits for investors and opportunities for small businesses to lend into the sector. Perhaps more employers could participate in this too. There used to be interest free loans and mortgage subsidies – now there are cycle to work schemes. Well maybe there should be, buy replacement white goods, buy food, and pay your utility bill salary sacrifice schemes too.
The overarching message that came out, from our group at least, is that the current market participants whether not for profit, or for profit need to get together and speak with one voice to policy makers and investors alike. When market participants get together, look at problems through a collaborative lens, the very ethos of the sprint I took part in, a range of solutions will rise to the surface.
I’m looking forward to staying in touch with the people I met on the sprint in December, and also to other sprints on the subject. Financial inclusion is a big subject and we in financial services should be looking to participate in solutions.
Looking to the future
Looking to the future we need to consider the potential consequences of not dealing with these issues, because as the cost-of-living crisis bites it is going to get worse and more households will slip towards that cliff edge. An illegal money lender or put more simply: a criminal providing the “safety net”? Not so safe, is it? We should also look abroad to how other nations who may be more familiar with dealing with poverty have improved themselves. Perhaps these issues have crept up on us, perhaps they were staring at us all along and were entirely avoidable. Whatever your opinion (or the facts), the time to act is now.
I’d like to thank Fair4All Finance and the FCA for inviting me and say a big thank you to my fellow participants. It was a great way to spend an afternoon and to feel part of something that will really make a difference.
Please take the time to read the Financial Conduct Authority’s own “Financial Lives 2022 Survey” at this link
Also visit the Fair4All Finance website here
