Financial Inclusion for SME’s
Financial Inclusion / Exclusion for SME’s
What is financial exclusion?
This affects SME’s by leaving them without appropriate access to finance.
The trouble with British banks (Reported from the RSA “The Road to resilience”)
This report considers that part of the reason for this “trouble” is a deliberate failure to keep credit flowing through small and medium-sized businesses and within communities.
Following the 2008 financial crisis, a £500bn bail out of British banks alongside new regulatory arrangements were seized upon by banks to, in fact, shrink the credit supply to small and medium-sized businesses and vulnerable citizens.
In 2016, a survey from the Bank of England reported that 30 percent of small businesses were unable to access the necessary finance they needed to grow.
Part of the reason for these problems is that the UK banking sector is dominated by a few monolithic banks which have relatively little local knowledge of businesses, area needs and personal needs of customers. They rely on old-fashioned legacy systems (eg telephone banking) and find it difficult to provide tailored support.
Struggling to access small business loans
Katrin Herrling, who went on to establish Funding Xchange in 2015, explains that when her bank “suddenly changed their lending criteria” and were unable to provide vital finance in the midst of the financial crisis, she felt stranded.
“I didn’t know where to turn ... I [knew] that just going to another bank where I didn’t have an established relationship wasn’t going to solve the issue. Outside of banks, I had no idea”.
Moreover, the UK has an unusually high percentage of purely commercial banks in its industry. This skews the product offer away from ‘riskier’ loans towards safer asset-backed property investments. Small business lending and supporting vulnerable customers is hard work and much less profitable than other avenues, such as mortgages, which account for 50 percent of total bank lending.
Similarly, with regard to access to credit, consumers will need safe, available sources of liquidity to help them to deal with disruption to their budgets and play an active role in the recovery.
Alternative, not-for-profit lenders will only be able to meet a fraction of the demand; ministers and regulators need to ensure a viable mix of alternative and commercial providers to ensure the availability of credit at sufficient scale.
Despite positive sounds from the Treasury at the time of the evidence sessions, ministers have since announced there will be no Bank of England funding for Non-Bank Lenders.
This is an oversight: NBLs are the ‘small boats’ that provide working capital to millions of small and micro-sized businesses, plus individual borrowers who banks won’t touch.
Their inability to lend due to lack of funding would significantly hamper the recovery.
Bloom’s comments on the Report
Bloom considers that the report was overall very constructive but yet again it appeared to miss the main problem - the lack of coverage available of alternative fair finance lenders in the UK.
Please note the following facts about existing Credit Unions and Responsible Finance Organisations (RFO's) in the UK
Bank of England statistics issued on 28th August 2020, shows there are now just 277 remaining Credit Unions in England, Scotland and Wales with 145 in Northern Ireland.
The Community Investment Steering Group Report Nov 2019 - Scaling up Community Investment in the UK states that there are only 23 active RFO's in the UK.
From these statistics it estimated that no more than 5 - 10% of the UK has any coverage available from a Credit Union or a RFO. There are 69 cities and over 48,000 towns in the UK. In the last 10 years many Credit Unions have been closed and NO services replace those lost to the massive detriment of the Community in which they were based.
