HM Treasury News Release
182/98 3 November 1998
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COMMUNITY BANKING: INCREASING ACCESS TO FINANCIAL
SERVICES
Seminar at No 11 to Learn Lessons from the US
A call for banks to exploit the opportunities that exist to
help the unbanked in our poorer communities was made today by
the Economic Secretary, Patricia Hewitt.
The Minister was speaking at a seminar at No 11 Downing Street
where the Government and UK banks and building societies were
listening to representatives from the US who were spelling out
their experiences of community development banking.
The Minister stressed there were lessons to be learned from
the US experience. She said:
"Community banking can offer a win-win solution - it
improves services for people in the poorest communities,
and can prove profitable for the banks.
"This Government believes strongly that wider access to
financial services - through positive action by the
banking community - is vital. And we also believe that
the driving force will be banks and building societies
searching for new, profitable market opportunities.
"US banks have found profitable market opportunities in
areas they might have ignored.
"I should emphasise that we are not planning to copy the
US legislation. But we are interested in increasing the
response of UK banks to the opportunities that exist for
profitable banking in our poorer communities."
Ms Hewitt praised the work of credit unions in providing
access to financial services for those on lower incomes and
said there would be Government proposals published on how to
encourage the credit union movement. The Minister said:
"Credit unions have an important role in tackling
financial exclusion. They provide savings facilities, a
source of low cost personal credit and financial
education and advice.
"Our approach to credit unions is to encourage the
movement to grow, while retaining and strengthening its
traditional focus on the poorer members of society.
"This will be partly through legislative change, lifting
some of the restrictions on Credit Union operations. We
have also been thinking about how the movement should be
regulated in future; and the scope for setting up a share
protection scheme."
The Government's proposals for credit unions will be published
shortly.
The Minister also set out other initiatives in the area of
financial exclusion which are being undertaken by the
Treasury. They include:
a taskforce, to explore ways in which banks can work more
closely with credit unions to increase their
effectiveness, and it is studying existing good practice
here and in other countries. The taskforce is chaired by
Fred Goodwin from the Royal Bank of Scotland; and
two action teams, set up following the Social Exclusion
Unit report, Bring Britain Together. One of the teams is
looking into the prospects for increased access to
personal financial services for people living in poor
neighbourhoods, especially retail banking, but also
credit unions and insurance. The other team will
concentrate on encouraging enterprise in deprived
neighbourhoods: looking at access to capital for small
firms especially those starting up in poor neighbourhoods
and better access to appropriate advice.
NOTES TO EDITORS
1. The full text of the Minister's speech is attached.
2. Other speakers at the event were:
Ron Grzyinski, Chairman of the Board - Shorebank
Corporation
Cliff Rosenthal, Executive Director, National
Federation of Community Development Credit Unions
Gary Hattem, Managing Director, Bankers Trust
Company
Susan Rice, Head of Branch Banking, Bank of
Scotland.
3. If you have access to the Internet, you can find this
news release and other Treasury information at
http://www.hm-treasury.gov.uk
SPEECH BY PATRICIA HEWITT MP, ECONOMIC SECRETARY TO
THE TREASURY, TO THE DOWNING STREET SEMINAR ON
PROFITABLE COMMUNITY BANKING, 3 NOVEMBER 1998
Introduction
1. Good morning and welcome to Downing Street.
2. We invited you here today to explore community
development banking, to hear about the US experience, and
to consider what we can learn from it. Community banking
can offer a win-win solution - it improves services for
people in the poorest communities, and can prove
profitable for the banks.
3. How can we ensure people have basic cash access
facilities? What is the best way of helping people begin
to save and get credit? How can we expand Credit Unions?
How do we bring small scale capital into deprived areas?
Do we do this through banks? Through credit unions? What
about micro-credit organisations? These are some of the
many questions I hope we will explore today.
We are extremely fortunate to have with us:
Ron Grzywinski of Shorebank;
Greg Hattem of Bankers Trust;
Cliff Rosenthal of the National Association of Community
Development Credit Unions; and
Susan Rice, currently with Bank of Scotland, but formerly
with NatWest's US subsidiary, Bancorp.
4. I want to start by why there is a problem with social
exclusion. Then I want to move on to talk about the
steps the Government is already taking to tackle social
and financial exclusion. I will conclude by looking at
how to take the agenda forward.
General policy considerations
5. My concern is financial exclusion, which is both a
symptom and a cause of social exclusion. Combatting
social exclusion is at the very heart of this
Government's agenda.
6. We have watched the gap between rich and poor in this
country widen over the last twenty years.
7. Most people in Britain have benefited from rising living
standards; and this is reflected in the growth and
prosperity of the financial services industry.
8. Of course this is good news, and we will be doing all we
can to ensure it continues.
9. But for the poorest people, concentrated in the most
deprived neighbourhoods, it is a different story.
10. They have not shared in the increased wealth and greater
opportunities so many of us enjoy.
11. And, crucially, they do not - or cannot - access
financial services products.
12. In my own constituency in west Leicester, there are outer
city estates with too few jobs and too much crime, where
most children leave school without qualifications - and
where financial services all too often mean benefit
cheques and illegal loan sharks.
13. It is in the poorest communities that we find the highest
concentrations of people without bank accounts, without
access to other financial services.
14. People in these communities can very often by locked into
the cash economy, cannot get affordable property or
possessions insurance, can only access credit at
unbelievably high interest rates, and do not use
mainstream savings opportunities. Also, the chances of
accessing appropriate finance and support for self-
employment or starting their own businesses may be
effectively zero.
15. This Government is not prepared to accept a society where
economic opportunity is restricted in this fashion.
Government response
16. For many of those living in our most deprived
neighbourhoods, the policies of the past bear much of the
blame.
17. But the past is the past. We must now get on and deal
with the problems head-on.
18. We have to bridge the gap between the poorest
neighbourhoods and the rest of the country - and this is
a priority issue.
Tackling financial exclusion
19. The Government cannot overcome problems of social
exclusion on its own, and nowhere is this more evident
than in the area of financial exclusion.
20. Our policy is to promote wider access to financial
services, where progress has been made, but is in danger
of becoming stalled.
21. We set out overall agenda for deprived neighbourhoods, in
the Social Exclusion Unit report, Bring Britain together,
which was published in September.
22. This set out our proposals, to be taken forward by 18
policy action teams, over the next year.
23. Two of these action teams concern financial services.
They are to be run by the Treasury and will report to me
by July next year.
24. One of them will look into prospects for increased access
to personal financial services for people living in poor
neighbourhoods, especially retail banking, but also
credit unions and insurance.
25. The other will concentrate on encouraging enterprise in
deprived neighbourhoods.
26. This means better access to capital for small firms
especially those starting up in poor neighbourhoods; and
better access to appropriate advice.
27. Let me now turn to the main areas of interest to the
banking industry.
Access to bank accounts
28. First, access to bank accounts, and those who don't have
bank accounts.
29. Whilst access to banking is the norm, at least for those
in regular full-time employment, there is a conspicuous
unbanked minority, predominantly poor and not in regular
full-time work, for whom life without a bank account is
becoming increasingly inconvenient.
30. We are talking here about somewhere between 2 1/2 and 3 1/2
million people, concentrated in the most deprived
neighbourhoods.
31. We used to think that the main reason people did not have
bank accounts was that banks turned them down.
32. But recent research, sponsored by the British Bankers'
Association, dealing specifically with people without
current accounts, reveals a far more complex pattern.
33. Only a very small number of people had been refused
accounts, or did not ask for one because they feared
refusal.
34. Far commoner were people who thought traditional bank
facilities were not for them, the so-called self-
excluded.
35. But to depict the main problem as self-exclusion is to
avoid the issue, which is how banks can redesign their
products, to better suit the circumstances and
preferences of those currently without access to them.
36. I would like to think that such difficulties can be
overcome. Some banks are offering new accounts where an
on-line debit card replaces the cheque book and access to
credit is withheld until the customer and the bank feel
comfortable with it.
37. I know a number of you are already thinking on these
lines.
Contribution of credit unions
38. Credit Unions too have an important role in tackling
financial exclusion. They provide savings facilities, a
source of low cost personal credit and financial
education and advice.
39. Our approach to credit unions is to encourage the
movement to grow, while retaining and strengthening its
traditional focus on the poorer members of society. This
will be partly through legislative change, lifting some
of the restrictions on Credit Union operations.
40. We have also been thinking about how the movement should
be regulated in future; and the scope for setting up a
share protection scheme. Proposals in these areas will be
published soon.
41. But even within the existing legislative framework, we
believe there is considerable scope for expansion. We
have established a taskforce to explore ways in which
banks can work more closely with credit unions to
increase their effectiveness, and are studying existing
good practice here and in other countries.
42. I am delighted to see most of its members here today,
and we look forward to Cliff Rosenthal's presentation,
later in the morning, on how the banks have helped the
credit unions in the United States.
Small firm finance
43. Just because a neighbourhood may be poor in its physical
and economic standing does not mean that it cannot be
rich in people with ideas and initiative to start up and
run their own businesses.
44. But to realise their ambitions for business, these
budding entrepreneurs will often need more capital,
advice and mentoring than is presently available. Access
to capital is a key component of strategies to regenerate
poor neighbourhoods and encourage greater self-reliance.
45. At present there is too often a mismatch between
potential enterprise and the support needed to realise
it, with the deficit greatest in the poorer areas where
it is most needed.
46. The key to generating sustainable and productive
enterprise in deprived neighbourhoods is to create the
right incentives for the private sector to work with
public agencies. This could help lever in fresh capital
where it is needed most. Without access to capital there
will be no new enterprises to support.
47. We need to help pull together the expertise and
disciplines which commercial finance and business advice
can bring, along with the local understanding of
neighbourhoods which local agencies provide.
48. The work of the Treasury action team involves examining
the current roles of large corporations, banks and
professional service firms in community regeneration, and
how this complements the voluntary sector and community
support networks.
49. The role that innovative community investment projects
can play in building and sustaining local economies has
already been vividly highlighted in some the world's
poorest regions. The Grameen Bank in Bangladesh, for
example, offers Microfinance - savings and loans at a
human level, providing first stage finance to enable
individuals to make a go of their enterprise. This has
proved itself viable.
50. We will look at the availability of debt and equity
finance, and we will see how that capital can be put to
best use by making sure enterprises have the right
technical advice and mentoring when they need it most.
51. We will also examine critically the role of the various
Government support schemes, such as the loan guarantee
scheme, Business Links and Training and Enterprise
Councils.
52. So we - and I hope you - are interested in innovative
approaches to small firm finance, to help overcome the
disadvantages experienced by those seeking to start up on
their own in poor areas.
Conclusion
53. Like the Clinton Administration in the US, this
Government believes strongly that wider access to
financial services - through positive action by the
banking community - is vital.
54. And we also believe that the driving force will be banks
searching for new, profitable market opportunities.
55. This has been the experience in the United States, as our
guest speakers today will testify.
56. In the US, the banks are obliged to report on their
provision of credit to all sections of the community; but
they are not required to do anything that is inconsistent
with sound banking principles.
57. The result, so we are told, has been a huge injection of
finance into low and moderate income neighbourhoods. And
US banks have found profitable market opportunities in
areas they might otherwise have ignored.
58. I think there is much to be learned from considering the
implications of that message for what we do in this
country. I should emphasise that we are not planning to
copy the US legislation. But we are interested in
increasing the response of UK banks to the opportunities
that exist for profitable banking in our poorer
communities.
59. That is the objective of this seminar, which I hope you
will find enjoyable and thought-provoking. So it is a
pleasure to hand over to Ron Grzywinski, the Chairman and
Chief Executive Officer of Shorebank, considered by many
to be the pioneers of community banking in the United
States.
# = pounds sterling