A financially inclusive society is one that enables everyone to access appropriate and affordable financial services. Financial exclusion can affect anyone, however it particularly impacts individuals with low or unstable incomes.
Financial exclusion is an individual’s inability, difficulty or reluctance to access appropriate mainstream financial services. It is estimated that up to seven million people use sources of high cost credit, up to four million low-income households have poor access to mainstream financial services and up to two million adults in the UK don’t have a bank account. Financial exclusion is also thought to be a major contributor to a ‘Poverty Premium’ of up to £1,300 per annum.
Not-for-profit community lenders, such as credit unions and community development finance institutions (CDFIs), provide consumers with access to financial services. Social investment has a role to play in helping certain community lenders to scale and diversify their products to reach a wider market. Beyond the provision of capital, social investors can also support the sector through advocacy, research and collaboration.
The high cost credit market, including payday lenders, has come under increasing regulatory scrutiny from the Financial Conduct Authority (FCA) during the past year. Regulatory changes have marginalised some unethical lending practices; however the demand for fast and affordable credit remains. This has presented an opportunity for community lenders to serve this demand, whilst engaging their customers with a wider range of financial services, such as savings and financial education.
Financial technology (fintech) solutions are emerging to transform the way commercial and community lenders engage with their customers. These new models cover four areas: Payments, Platforms, Data and Software.
Other emerging sector trends include peer-to-peer lending models, consolidation of existing providers and rent-to-own alternatives.