What is financial inclusion?
Financial inclusion, or the lack of, is up there with the most pressing matters for our society in our ongoing fight for equality. Yet it is not nearly talked about enough. Financial inclusion evades the attention of many due to its multiple guises and a lack of clarity on its real, monetary impact on individuals. It’s a simple problem – those on lower-incomes do not have the same access to affordable financial services as those with higher-incomes. So, let’s get talking about it.
How is Big Issue tackling Financial Inclusion?
The Big Issue fights for financial inclusion on multiple fronts. In Parliament, Big Issue founder Lord Bird proposed the Creditworthiness Assessment Bill, ensuring that fair credit is available for those who need it most. On the social enterprise front, Big Issue Invest’s Social Enterprise Investment Fund II has committed £4.9m to supporting enterprises tackle this issue head on, including investments into Fair For You, Five Lamps, Moneyline and Street UK.
It is no secret that payday loans are exploitative, charging extortionate rates for those who are in the most need of fair credit. In recent years charges have been capped and regulations tightened, but these haven’t prevented APRs of over 1,000% offered by lenders with punitive charges on rigid repayment schedules. The answer though cannot simply be the demise of these payday lenders. The very fact that there is demand for loans this expensive shows that solutions need to emerge and scale to provide a different option to support the cashflow for those struggling to make ends meet.
How do we provide a fairer solution for financial inclusion?
Lenders that understand their borrower and can price and set up repayments accordingly is one powerful answer. It is vital when lending to a ‘riskier’ customer that the lender takes into consideration all information they have at their disposal. It’s in both parties interest to make an informed decision on whether the individual can repay and show flexibility to manoeuvre repayments around the customer’s unique circumstances, without any hidden charges for making a mistake. Ethical lenders provide a much needed alternative to incumbent payday lenders. As we have seen, Big Issue Invest’s investees demonstrate time and time again that low or irregular income households can be good borrowers.
Whilst understanding that there will always be a need for fair credit, these solutions should be developed in conjunction with models that reduce the need for credit for those with low incomes in the first place. Taking on the issue at source requires innovation, education and capital. With a challenge for ethical lenders to achieve financially sustainability whilst scaling, and for emerging innovative solutions to make their presence felt, we need to give these organisations the recognition and support they deserve to which will only encourage more ethical lending.
If you’d like to enquire more about what Big Issue Invest is doing for financial inclusion, you can contact Jonny Page at firstname.lastname@example.org.