The Co-op Party and the credit union movement have welcomed a report from the London Assembly calling for a more diverse and socially oriented banking system.
The report on financial inclusion, from the Greater London Authority’s Economy Committee, says the capital “is a leading global financial centre, but many of its citizens are struggling to access quality and affordable financial services”.
It makes a number of recommendations to London mayor Sadiq Khan to tackle financial exclusion, including looking at how “community banks and credit unions could be supported to work together to provide products and services that improve the financial health of Londoners”.
“Credit unions should be seen as one of a number of important players in the sphere of mission-oriented banking,” says the report. It says the credit union sector should be put forward among other solutions, such as responsible finance providers.
It cites research which says financial exclusion means:
- 1.5 million people in the UK lack a current or basic bank account
- Between 10 and 12 million people regularly use high cost payday lenders
- The University of Bristol says being poor can cost an extra £490 a year, with more expensive forms of credit, and more expensive forms of billing such as prepayment meters.
- These problems are likely to be worse in London, thanks to high housing costs, flatlining wages and high levels of self-employment and small businesses.
Other recommendations in the report include “a summit with industry leads, fintech providers, not-for-profit organisations, local government, and the charitable sector to explore new ideas and innovations that can support the financial health of Londoners”, and ensuring that the authority’s “microloan fund is promoted effectively to SEMs in London’s poorest communities struggling to access affordable credit”.
It also recommends a money advice week in the city to promote these kinds of alternative credit options, and using ad space on tube platforms and bus shelters to promote credit unions as a viable alternative.
The report has been welcomed by the Co-op Party. Writing on the Party’s blog pages, communications and digital officer Ben West said: “It’s less clear that Britain’s highly concentrated, highly commercialised banking system is good for the health of the economy as a whole”.
He points to other countries, such as Germany, which “have a vibrant banking system consisting hundreds of local, public, co-operative and state banks, 85% of UK current accounts are held by just five large banks – all of them for-profit plcs”.
The Assembly report cites research by the New Economics Foundation which found that socially oriented ‘stakeholder’ banks stakeholder banks lend 66% of assets to the real economy, compared to 37% by commercial banks.
Mr West argues that the big commercial banks favour the quick, safe returns of unproductive assets such as property over longer-term, but more productive small business and consumer lending.
“While economies such as Germany surge ahead, supported by a diverse and vibrant financial sector, business lending in the UK has remained slow since the 2008 financial crash,” he said.
“The answer, as the Assembly’s report makes clear, lies in fostering a more diverse banking system in the capital by supporting the growth of “locally rooted, mission-led banks, lenders and credit unions” such as London Mutual Credit Union and Greater London Mutual community bank.
“These types of financial institutions are owned by their customers, offering affordable borrowing, current accounts and savings to individuals from all backgrounds, with community banks also providing small businesses with access to the finance they need to grow and succeed.”
Mr West added: “As the GLA’s report makes clear, the opportunity is huge. Long a centre of financial innovation and business enterprise, London is in a unique position to use its expertise to build a banking system that has social and economic objectives at its core.
“Inspired by the kinds of inclusive, diverse and vibrant financial sectors that already underpin the world’s most successful economies, London can be at the forefront of developing a model that the UK sorely needs and deserves.”
ABCUL’s head of policy and communications, Matt Bland, also welcomed the “excellent” report.
He said: “We were particularly pleased to see it recommend that the mayor take steps to support a broader role for London’s credit unions through promoting them, for example on London’s transport network.
“There are 27 credit unions in Greater London who, at 30 September 2016, had 107,000 members and outstanding lending of £80 million. They have grown lending by 62% since 2012 and play a hugely valuable role in providing affordable credit and encouraging members to save alongside borrowing – the powerful Save As You Borrow technique – in communities and workplaces across the capital.”
He added: “We look forward to the mayor’s response to the report and hope that he will act on the report’s recommendations. We are very encouraged by commitments the mayor made in his electoral manifesto around financial inclusion and the role of credit unions as well as his proposed Good Work Standard which highlights the role of credit unions in London’s workplaces.
“Devolved and regional government has great potential to catalyse credit union growth and support the financial health and wellbeing of their communities. The London Assembly report coincides with new funding announced by the Welsh government; support for promoting credit unions planned by the Scottish government and similar financial health initiatives by the Greater Manchester mayor, Andy Burnham.
“ABCUL strongly supports these efforts and looks forward to working with regional and devolved authorities on this agenda going forward.”