Financial Exclusion: An Introductory Survey

Stephen Sinclair

Centre for Research into Socially Inclusive Services

Edinburgh, 2001

1
Contents

Summary 4
1. Introduction 10
2. Definition of Key Concepts 13
3. Why Is Financial Exclusion Important? 21
4. Available Indicators Of Financial Exclusion 26
5. Financial Exclusion: The Evidence 29
6. The Social Distribution Of Financial Exclusion 36
7. Causes Of Financial Exclusion 53
8. Responses By The Financially Excluded: Alternative Financial
Sources 61
9. Policy Recommendations In The Financial Exclusion Literature 69
10. UK Government Policies On Financial Exclusion 79
11. Scottish Executive Policies On Financial Exclusion 89
12. Community Action On Financial Exclusion: Initiatives In
Wester Hailes 93
13. Conclusions 96
References & Notes 98
Appendix: Key Texts & Studies 111
Bibliography 123

2
Acknowledgements

I would like to thank the Wester Hailes Representative Council for providing the
results of the Community Banking Baseline Study and allowing them to be
reported in this review. I am also grateful for the helpful comments received
from my CRSIS colleagues Glen Bramley, Mike Chapman and Tania Ford. This
work is a core activity of CRSIS, partly funded by Research and Development
Grant no’ 128 from the Scottish Higher Education Funding Council.

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Summary

1. What Is Financial Exclusion?

 Financial exclusion means the inability to access necessary financial services

in an appropriate form. Exclusion can come about as a result of problems
with access, conditions, prices, marketing or self-exclusion in response to
negative experiences or perceptions. (2.2)

2. How Much Financial Exclusion?

 About 1.5 million households in Britain (7% of all households and over two
million adults) do not use any mainstream financial services at all. A further
20% are on the margins of financial services and use just one or two
services - normally a single bank account. (5.1)

 Over 10.5 million people (28% of all people in households) experienced

financial insecurity in 1999; i.e. they could not afford to save, insure the
contents of their homes or spend money on themselves. (5.1)

 About 30% of households in Britain in 1997/98 said that they had no

savings or investments at all. The comparable figure for Scotland was 22%.
(5.2)

 66% of the British public believe that regular savings of £10 a month are
essential for every adult household, yet 10 million people (21% of the
population) could not afford this. (5.2)

 The proportion of households without savings or assets doubled between

1979-1996. (5.2)

 Estimates of the proportion of people in the UK without different types of

bank or building society account vary from between 7% of the population (3

4
 million adults) with neither a current nor savings account at all, up to 23%
without a current account. (5.3)

 The Social Exclusion Unit calculates that about 10% of the UK adult
population (equivalent to 4 million people) is without a bank or building
society account (5.3)

 It is estimated that the additional transaction costs incurred by not having

bank account are £5 per week. (3.2)

 Between 20-25% of households in the UK (roughly 6 million people) do not

have home contents insurance. (5.4)

 About one third of low income households have problem debts. 15% of
working age household with a mortgage were in an economically vulnerable
position in 1997/98. (5.5)

 The Citizens’ Advice Service has seen an increase of 37% in the number of
people seeking advice for credit debt problems in the last two years. In
Scotland in 1999, Citizens' Advice dealt with 34,000 new inquiries about
debt. (5.5)

 Approximately one in four adults in Britain does not have a private or

occupational pension. This is most common for lower income groups,
women and minority ethnic group employees. (5.6)

 25% of those who had a private or occupational pension in 2000 were

paying less than £50 per year in contributions. (5.6)

3. Who Is Financially Excluded?

 The groups most likely to experience some form of financial exclusion are

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  The long-term unemployed.

 Old age pensioners, particularly those aged over 70.

 Those excluded from earning through sickness or disability.

 Female single parents.

 Certain ethnic minority groups, particularly Pakistani and

Bangladeshi households.

 Those who are reliant on state welfare benefits or living in

rented accommodation. (6.1)

 Households with a weekly income below £150 are the most likely of all to be
financially excluded. (6.1)

 About 50% of the financially excluded live in the 50 most deprived local
authority districts in Britain (6.2)

 Those living in one of the 50 most deprived local authorities in England and
Wales, or in Scotland, are twice as likely to be financially excluded as those
with comparable personal or economic circumstances living in less deprived
areas. (6.2)

 80% of financially excluded households live in council or housing association

accommodation. (6.3)

 27% of lone parent households have no bank or building society account,

compared with a national average of about 9%. In Scotland, only 18% of
single parent households have savings or investments compared to 62% of
small adult households. One in three single parents in Scotland said they
had worried about money almost all the time compared to a national
average of one in eight (6.4)

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 Those classifying themselves as Pakistani are four times more likely to be
without a bank account than those who are white, Bangladeshis three times
as likely, and Indians twice as likely. (6.4)

 Financial exclusion is a dynamic process: about one quarter of those who

are not using mainstream financial services at any time have done so at
some point in the past, and will resume use in the future. (6.6)

 The risk of financial exclusion is greater in Scotland than other parts of

Britain, and especially so in areas of concentrated social exclusion. (6.7)

4. What Causes Financial Exclusion?

 There is no single nor straightforward cause of financial exclusion, but

barriers of access, expense, conditions and perceptions inhibit the use of
mainstream financial services by excluded groups. (7.1)

 Financial exclusion has been exacerbated by structural features in the

financial services industry, in particular increased competition and the
pursuit of more affluent customers. (7.2)

 In 1999 there were 5,679 fewer bank and building society branches in the
UK than 10 years before. (7.3)

5. How Do The Financial Excluded Respond?

 There has been an increase in the use of licensed money lenders in Britain,
particularly among the financially excluded: 3 million people used these
credit sources in 1998. (8.1)

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 There are approximately 255,000 members in over 800 credit unions in the
UK, and about 50 new credit unions are being formed each year. Credit
unions are particularly strong in Scotland: 21% of British credit unions are
based in Scotland and 42% of British members live in Scotland. (8.2)

 However, even in Scotland only about 1% of the population in are members

of credit unions. 43% of all credit union members in Scotland belong to one
of the eight largest work-based unions. The large majority of credit unions
in Scotland and Britain have fewer than 200 members. (8.2)

6. What Should Be Done About Financial Exclusion?

 A range of responses have been proposed to tackle financial exclusion. The

main recommendations include: improving the flexibility of credit sources to
widen access, improving the regulatory framework of the financial services
sector, developing intermediaries and using public-private partnerships as a
gateway to services, reforming credit unions, improving financial advice
services and modifying social security.(9.1)

7. What Is The Government Doing About Financial Exclusion?

 The British government has adopted several of these policy

recommendations and others proposed by the Policy Action Teams set up by
the Social Exclusion Unit. These appear in the National Strategy Action Plan
for Neighbourhood Renewal. (10.1)

 The main activities of the British government in response to financial

exclusion have included: requiring banks to establish basic accounts suitable
for low income groups, creating a Universal Bank to be operated through
the post office, reforming credit unions and various measures to encourage
social enterprise. (10.3-10.6)

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 The Scottish Executive have developed several parallel and additional
activities to facilitate financial inclusion as part of its social justice strategy.
These also include a programme of credit union development, improved
financial advice services and community finance investment (11.1-11.5)

9
1. Introduction

1.1. Background

Interest in financial exclusion has grown to the extent that it is now regarded
as ‘a new buzzword in Blair’s Britain’1. At the same time, there has been
growing interest in what has become known as ‘research-based evidence’ in
British policy circles, with the government in particular emphasising that ‘what
counts is what works’2. Social policy interventions are now justified less by
reference to values or ideology and increasingly by reference to evidence and
experiences of best practice. For example, one of the initial tasks of the Social
Exclusion Unit (SEU) when it was established in 1997 was to develop research-
based policy initiatives3.

These two features underpin this review of the literature on financial exclusion.
It is a recognition of the fact that a summation and clarification of a growing
and multi-faceted field and the numerous policy initiatives relating to it could
provide a useful contribution to knowledge. The purpose of a review such as
this is to introduce and take stock of knowledge ‘scattered over many...
disparate publications’4. Literature reviews have been described as ‘a form of
intellectual housekeeping’, a means of bringing order to a complex field of
research5, summarising the current findings and serving as ‘an aid to navigation
through the literature’6.

There have been other attempts to fulfil this function, but the present review
has two features which distinguish it from its predecessors. Firstly, it is
intended to be part of a series which covers a much wider field of issues
relating to financial exclusion than is currently available. Secondly, particular
attention will be given within each part of this series to conditions of social and
financial exclusion in Scotland. Much of the existing research on financial

10
exclusion applies to England and Wales, with relatively little reference to the
distinctive conditions in Scotland. As will be shown later (e.g. Sect. 6.7), there
are certain features of the financial exclusion situation in Scotland which merit
special consideration; e.g. the scale of financial exclusion at lower levels of
income, the size and development of credit unions, and the distinctive
measures taken by the Scottish Executive in response to financial exclusion.

Within Scotland, as throughout the UK, there are areas where the problems of
financial and social exclusion are particularly severe. One of these is Wester
Hailes, a large estate on the western edge of Edinburgh. Particular attention
will be given to the situation in Wester Hailes, partly because it serves as an
illustration of significant area-specific differences, but also partly because
community led organisations there have been energetic in documenting the
scale and nature of local financial exclusion (Sect. 6.7.2) and in developing
imaginative responses to this (Sect. 12)

For the most part, the present review concentrates on financial exclusion at the
level of individuals and households and mostly on what has been described as
‘protective’ financial services (see Sect. 2.3. below). Of course, businesses and
communities can suffer financial exclusion also7, but this is an issue reserved
for another component of this series which examines the literature and
research on what have been described as community finance and the social
economy. The only aspects of these areas which are considered in the present
review are those on which the British government and Scottish Executive have
been particularly active, for example the development of credit unions (e.g.
Sects. 10.5, 11.4).

1.2. The policy context

The Economic Secretary to the Treasury, Patricia Hewitt, has declared that
tackling financial exclusion is that the heart of the government’s agenda on

11
social exclusion8. The Secretary of State for Scotland has also insisted that
‘Everyone should be able to access financial services and the benefits this
brings’9. Similarly, within the Scottish Executive, the Minister responsible for
policies on social justice and social exclusion has said that ‘The fight against
financial exclusion must be won if we are to deliver social justice in Scotland’10.

This emphasis on financial exclusion has been reflected in many of the 100 or
more policies dealing with poverty and exclusion which have been introduced
by the British government since May 199711. One of the initial concerns of the
SEU was ‘the exclusion of sections of the population from access to financial
services such as banks.’12 Two separate Policy Action Teams (PATs) were set
up within the Treasury in 1998 to report on different aspects of financial
exclusion13: one charged with examining access to personal financial services
such as bank accounts, credit and insurance (PAT 18), and the other to
investigate the finance needs of small firms (PAT 3). A third working group was
established specifically to investigate the future of credit unions14.

The interest shown in financial exclusion by government has been matched by

an unprecedented level of academic research and policy investigations by think
tanks and numerous non-governmental organisations15. Clearly, financial
exclusion is an issue of growing interest and prominence, and this review offers
an overview of the principal developments in the field.

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2. Definition of Key Concepts

2.1. Social inclusion/exclusion

In order to get to grips with the expanding literature and understand financial
exclusion, it is useful to relate it to the wider issue of social exclusion 16. This
concept is explored more fully in another part of the financial exclusion review
series, so only a brief discussion is provided here.

Unfortunately, problems are encountered immediately upon even the briefest

discussion of social exclusion as ‘there is no universally accepted definition’ of
this term, ‘either theoretically or operationally.’17. One of the most frequently
cited statements on this issue is the Prime Minister’s description of the
problems which the SEU was established to deal with. Social exclusion, the
Prime Minister said, was

‘a short-hand label for what can happen when individuals

or areas suffer from a combination of linked problems such
as unemployment, poor skills, low income, poor housing,
high crime environments, bad health and family breakdown’18

In Scotland, the term social inclusion is more frequently used (particularly by

the Scottish Executive) than social exclusion. However, this more positive
phrase covers essentially the same problems, and refers to the need to
overcome

‘the complex set of linked problems centred around

lack of opportunity and diminished life circumstances,
including unemployment, poor skills, low incomes,
poor housing, high crime environments, poor health
and family breakdown’19

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Social exclusion can therefore be thought of as consisting of a number of inter-
related deprivations which restrict the opportunities of individuals, families and
whole communities or neighbourhoods to participate in mainstream social life.

The Poverty And Social Exclusion survey20 distinguishes four principal

dimensions of exclusion:

1. Impoverishment - which involves exclusion from adequate income and

resources.

2. Labour market exclusion - most notably unemployment but also the wider
condition of unwilling economic inactivity.

3. Service exclusion - among which would be include financial exclusion.

4. Exclusion from social relations - social isolation and non-participation in

what are widely accepted to be socially necessary activities.21

A distinguishing feature of the idea of social exclusion is that these problems

can be linked and compound one another22, leading to what policy
commentators in the 1970s called multiple deprivation. Research studies have
confirmed that forms of exclusion combine and interrelate so that experience of
one increases the likelihood of being subject to others23. For example,
deprivations at key stages in an individual life-cycle (such as poor educational
attainment in childhood and youth) can inhibit subsequent social participation
(such as employment) and the ability to access necessary resources (such as
financial resources)24. This becomes evident from research into the
characteristics of those individuals and groups at the greatest risk of social
exclusion: they are more likely to have few formal educational qualifications,
more likely to be homeless or inadequately housed, more likely to be
unemployed or low waged, and so on.

In addition, social exclusion refers not only to individuals and households, it can
also ‘mean whole communities deprived of proper access to transport, to

14
healthcare, and to financial services' and other services essential for full and
effective participation in society25. Again, the different spheres of exclusion can
overlap and compound at the community and neighbourhood level, so that poor
standards of housing and high unemployment are associated with higher levels
of crime which in turn can lead to a decline in access to services, such as
financial services and shops.

‘The links between finance in the one hand and poverty and social exclusion on
the other are complex.’26 Direct causal connections are always difficult to prove
in such areas. There are several reasons for this, one of which is that non-use
of a service may be attributable to different causes, not all of which would be
regarded as ‘exclusion’ by service providers. For example, individuals or groups
may not use a service due to:

 Access exclusion - e.g. banks refusing accounts to certain types of

applicant or insurance companies ‘red-lining’ neighbourhoods which they
will not cover.

 Condition exclusion - e.g. banks requiring a certain deposit or balance

level which might deter certain customers.

 Price exclusion - e.g. where charges are too high for certain groups to
afford.

 Marketing exclusion - e.g. where the promotion, image or delivery of a

service deters certain types of applicant.

 Self-exclusion - e.g. where people do not take up a service because they

have been discouraged27.

Those who provide services in the private market may deny that there is any
process of exclusion occurring at all if certain groups of people choose not to
make use of what is on offer at the price and in the manner determined by

15
market competition. Therefore, whether the terms social and financial exclusion
ought to apply to all four of these processes is a matter of judgement.

2.2. Financial exclusion

Financial exclusion can be defined in either a narrow or a broader sense. In the

narrow sense it has been defined as ‘Exclusion from particular sources of credit,
and other financial services (including insurance, bill-payment services, and
accessible and appropriate deposit accounts.)’28. In the wider sense it refers to
factors which have the effect of ‘shutting out of the less well off from
mainstream money services.’29

Examples of the financial exclusion of individuals and households would include

several conditions, extending from access to specific facilities and resources to
much wider capabilities:

 Lack of access to a bank or building society account.

 Lack of access to necessary financial services and credit, such as

appropriate lending facilities or mortgages.

 Lack of savings or protection against risk, such as insurance and pensions.

 Limited access to services which could improve an individual’s financial

situation, such as advice or education.

 Absence of the ‘skills or circumstances’ required to ‘make an economic

contribution to the community’.30

The last feature is notably wider than the preceding ones and relates to the
idea of economic citizenship considered below (Sect. 3.1).

16
2.3. Protective and promotional financial services

There are different types of financial service which perform different functions.
These can be classified into three broad forms:

1. Transmission services: basic transaction facilities, such as deposit and

withdrawals, bill payments, etc.

2. Protective services: measures which offer some safety against the risks
and vagaries of life, such as insurance and savings.

3. Promotional services: resources required to facilitate autonomy and to

develop enterprises, such as loans and credit.31

Protective services themselves can be divided into two forms which offer
respectively:

I. long-term financial security, such as life assurance and pensions.

II. medium-term financial security, such as home-contents insurance.32

It should be recognised that an important protective role is performed by

governments through social security provision and the regulation of terms and
conditions in employment33. This recognition is necessary to avoid the mistake
of equating financial protection and inclusion with access to private services
and therefore overlooking alternative provision opportunities. It has long been
recognised in social policy that services should be classified and examined in
relation to their functions, effects or objectives rather than in relation to
conventional administrative criteria34.

Nevertheless, the main focus of the literature which deals with financial
exclusion concentrates on private sector services and this is reflected in the
current review. In addition, the bulk of this study will concentrate on protective
services required by individuals and households; a subsequent review is

17
devoted to promotional services for small and medium sized enterprises
(SMEs), other groups, communities and neighbourhoods.

In relation to these protective financial services, there is some evidence of a

hierarchy of access: ‘People who have only one or two products are most likely
to have a current account or savings accounts with a building society or bank.
At the other extreme, insurance provision for ill-health or loss of income is very
rare among those who are most excluded, as are most investment products
(TESSAs, PEPs, unit trusts etc).’35. The distribution of financial exclusion will be
dealt with more fully in Sect. 6 below.

2.4. Microfinance

Microfinance is a term used to describe a range of services mainly designed for

microenterprises, although the boundaries between these and personal finance
cannot always be drawn sharply. A microenterprise is a small business, usually
defined as a business with fewer than 10 staff or sometimes with fewer than 5
staff. Approximately 90% of all businesses in the UK have fewer than 5
employees36.

Forms of microfinance include the ‘provision of small loans, savings facilities

with no minimum deposit’ and other service such as insurance, money-transfer
and bill-payment facilities designed for people on low incomes and
microenterprises37. A wider definition of microfinancial services would include
specialised deposit facilities, insurance, and training in financial literacy.38

Micro-credit or a micro-loan fund is a particular form of microfinance: a

specialised form of funding ‘based on distinct products... designed to service
micro-enterprises and not merely the occasional provision of a very small
loan’39. For example, it may supply ‘stepped loans’ (i.e. loans which grow larger
with each successful repayment40), lend to peer and mutual guarantee groups,

18
or be accompanied with business advice and support services41. Although often
operating with social as well as economic objectives, many such microcredit
initiatives charge market rates of interest ‘in the belief that access to finance at
the right time is more important than its cost’42.

There are several well known examples of established non-governmental

microcredit initiatives in the UK, such as The Prince’s Trust, the Full Circle Fund
in Norfolk run by the Women's Employment Enterprise and Training Unit
(WEETU43), the Wellpark Enterprise Centre, the Glasgow Regeneration Fund
(established in 1993 to support small business development and operated by
Development Strathclyde Ltd), and the Sustainable Strength project in
Birmingham44. Government programmes include Street UK45, and the Phoenix
Fund. The latter is a three year grant programme which started in November
1999 at the Department of Trade and Industry and which is run by the Small
Business Service. It is now operating stage two funding46 All of these examples
will be discussed in a subsequent part of the review series.

2.5. Community finance

Another term which appears frequently in the financial exclusion literature is

that of community finance and the closely related idea of Community
Development Financial Institutions (CDFIs). Community finance refers to
‘initiatives which seek to widen the access of disadvantaged people and
neighbourhoods to capital and other financial services’47, and CDFIs are
‘financial services providers ... whose mission specifically requires them to
achieve social objectives.’48

CDFIs have emerged ‘to develop creative solutions for extending credit and
other financial services to communities, especially the most disadvantaged’49 in
response to the reluctance of mainstream financial institutions to support the

19
self-employed and small enterprises which are perceived as being outside the
‘margin of conventional finance’50.

There is clearly an overlap between CDFIs and providers of microcredit, such as

The Prince’s Trust51, but the latter extend beyond the provision of finance to
include a much wider range of financial and business support services whose
mission involves social objectives52.

Some of the best known examples of CDFI include community development

banks (such as the Grameen Bank in Bangladesh); community loan funds and
community development venture funds (such as the Aston Reinvestment
Fund); social, ethical and charity banks (such as the Triodas bank which
originated in The Netherlands and entered the UK in 1995), the ‘community
investment’ arms of commercial banks; the Industrial Common Ownership
Finance (through which the British government provides business support to
commercial co-operatives53); credit unions54; mutual guarantee societies (such
as Co-operative Housing Finance Society); Local Exchange and Trading
Schemes (LETS), and Time Banks55.

It is estimated that CDFIs in Britain serve around 500,000 people either directly
or indirectly, and control over £400 million capital, including £96 million in loan
and microcredit funds and £74 million in social banks56. It is also claimed that
such activities and organisations not only combat financial exclusion, but also
engender community regeneration and stimulate ‘social capital’ (i.e. social
networks, relationship and capacities). A fuller discussion of these programmes
will be provided in a later element in the review series.

20
3. Why Is Financial Exclusion Important?

3.1. Participation & economic citizenship

There is now ‘a rich and varied body of work… emerging which is involved in
documenting the adverse effects associated with financial exclusion’57. The first
manifestation of these adverse effects is the inability of certain individuals and
groups to ‘participate in the institutions patronised by the majority.’58

Access to a bank account, credit and insurance are now widely regarded as
‘essential supports for personal financial management and for undertaking
transactions’ in modern societies59. In fact, most people organise their lives
around some form of credit, (such as a mortgage) which has considerable
influence over their opportunities and life chances60. Speak and Graham
describe a number of indispensable private services which ‘can now be
considered essential to sustaining any meaningful degree of real economic and
social participation in contemporary Western societies’61. These include food
retailing, energy supplies, telephone services and simple financial facilities, such
as a bank account and basic credit. Effective participation in contemporary
economic and social life requires access to these ‘lifeline’ services 62, a condition
which can be described as one of ‘economic citizenship’63.

3.2. Additional expenses

Access to financial services is a necessary prerequisite for access to a range of

other benefits and conveniences64. For households without a bank or building
society account, paying bills and household budgeting is both more difficult and
often more expensive65, as it can result in charges for cash payments which
increase the costs of basic services, such as fuel66. For example, it is estimated

21
that about 15% of households in the bottom 40% of the income distribution do
not have a bank account and therefore cannot take advantage of direct debit
discounts for bill payment67. Many use pre-payment meters to pay fuel costs
and are, in effect, penalised by higher premiums for doing so68. Structural
geodemographic factors also means that poorer households tend to pay more
to insure their homes, when they have insurance at all69.

According to the campaign group Debt On Our Doorstep, running a home

without access to basic banking services costs an average of £5 a week more 70.
This is a substantial cost for households which can least afford it.

Financially excluded households are more likely than any other to use the
services of companies such as Provident Cheques and Shopacheque which
specialise in high interest loans to low income households and can charge
repayment rates of between 100% and 500% APR71. Low income customers
also make higher than average use of loans from pawnbrokers such as Cash
Converters and credit retailers which buy and sell at high interest rates 72. For
example, in Easterhouse ‘A penniless parent can get a fridge, a washing
machine and a TV, straight away, at a total cost of £739.05. But at an APR of
29%, with payments over 156 weeks and an added service charge, the real
total is £1,636.44 - well over double the original price’73.

Even more popular are weekly collected credit agencies - door-to-door loans
with high interest rates. Aside from the considerably higher charges of such
services, the main concern of their critics is the practice of ‘rollovers’ whereby
customers nearing the end of one expensive loan are persuaded to take out
another, with a common practice being to entice borrowers with seemingly
cheap offers in a shopping catalogue74. Lack of access to necessary and
appropriate financial services can therefore exacerbate debt problems and
social exclusion, and become self-reinforcing75.

22
More serious even than this is the persistent problem of extortionate credit
from unlicensed money lenders and illegal ‘loan sharks’. It was estimated that
in 1994 some 3 million households in the UK depended on such sources of
credit which may charge interest rates of up to 500% and enforce repayments
by the threat of violence76.

The Department of Trade & Industry (DTI) subsequently commissioned a

Report on Extortionate Credit In The UK in 1998 which estimated that only a
‘few hundred thousand at most’ suffered from extortionate credit of this kind.
However, this is still a serious problem given that such people are likely to be
among the most vulnerable in society77.

The authors of this Report faced the problem that there is no fixed definition of
what would count as ‘extortionate’ credit. They also found that there were
many perfectly legal lenders with Consumer Credit licences which charge
annual percentage rates up to 1,000%78.

3.3. Autonomy & effective budgeting

Access ‘to controlled credit can be a way for people to take charge of their lives
and create their own futures.’79 by extending opportunities and choices80.
Operating on a tight budget with little room for manoeuvre can be a stressful
and time-consuming exercise in which households are compelled to engage in
frantic hand-to-mouth juggling. As one low income lone mother said: ‘you feel
like life’s doing things to you, you’re not in control of life’81

Without appropriate financial services, many options are foreclosed. For

example, anyone without a bank account will face far greater difficulties in
securing a mortgage and determining their choice of tenure freely82. Exclusion
from mainstream borrowing and credit sources can lead to a vicious circle of
compounded financial exclusion as lack of a credit history is interpreted by

23
many commercial lenders as an indication of a bad risk because there is no
record of successful debt repayment83.

The DTI Report on Extortionate Credit also raised concerns about the
‘alternative credit market’ which ‘comprises lenders who concentrate on those
with a credit rating that places them outside the mainstream banks and building
societies.’ Low income and economically vulnerable groups are more likely to
fall into this market, including ‘lone parents, the long term out of work, hostel
dwellers and those living in high crime areas.’84 This is a matter of concern
because of the additional costs involved.

3.4. Is financial exclusion a public policy issue?

A recent Report entitled Paying For Peace Of Mind: Access To Home Contents
Insurance For Low-Income Households considered whether the number of
people without home contents insurance is a matter of public concern and
policy85. According to Mark Bolèat, former Director General of the Association of
British Insurers, such ‘exclusion’ would only be a matter of public concern ‘if
there was evidence that a significant proportion of the uninsured population
wanted insurance and were unreasonably being denied access to it.’86. As this
Report concluded that only a very small minority of uninsured households had
actually been refused home contents insurance, he concluded that there was
‘no great public policy issue that needs addressing’. According to Bolèat, home
contents insurance may be very desirable, but it is not absolutely essential.
Everyone has access to the market where the service is available, and if some
choose not to do so either ‘because they cannot afford to or because they
prefer to spend their limited resources on other goods and services’ than this is
a private decision rather than a public concern.

Similarly, several banks have argued that those described as ‘financially

excluded’ are in fact often voluntarily excluding themselves and may not even

24
have attempted to open a bank account or acquire credit87. Nationally, only one
to two per cent of those without a bank account have applied and were refused
by providers88. Banks do not accept that they are culpable for the situation of
those who have simply not sought to purchase financial services.

Against this it could be argued that many financial service providers have not
taken the steps necessary to encourage access and use by excluded groups.
Furthermore, the consequences of this situation go beyond mere personal
inconvenience: ‘financial exclusion of an individual has an impact, not just on
that individual’s life but on the quality of the community as a whole’89. It has an
impact on retail spending and trading, business opportunities and the sense of
participation in mainstream life which a vibrant community and inclusive society
require.

In addition, financial exclusion is not evenly distributed throughout society (see

Sect. 6 below), it is concentrated among the most disadvantaged groups and
communities and, as a result, contributes to a much wider problem of social
exclusion. For these reasons, it has been accepted as a significant social
problem and a responsibility of public policy.

25
4. Available Indicators Of Financial Exclusion

In practical terms, the extent of financial exclusion can be assessed in relation

to:

 Levels of access to basic banking services for money transmission (e.g.

current accounts)

 Levels of access to credit,

 Levels of access to insurance,

 Levels of debt and debt assistance,

 Levels of long term savings - the most important of which are pensions,

 Levels of financial literacy.

In theory, additional indicators are possible, but few others are mentioned or
documented in any detail in the literature90. However, one factor which arises
in considerations of the distribution of wealth and is related to savings and
assets, is housing equity. House ownership plays an important role in the
distribution of financial exclusion (see Sect. 6.3), but has a double-edged
relationship to exclusion; on the one hand, it leads to the incorporation of
mortgage holders into mainstream financial services (e.g. borrowing,
insurance), but on the other is a potential source of problem debt (see Sect.
5.5).

The supply of financial services is only one half of the problem, it is also
necessary to consider demand. In particular, in order to take account of self
exclusion, attention should be given to latent or potential demand; i.e. the level
of demand which would be likely if those currently not using mainstream
financial services were aware of their options and genuinely encouraged to

26
increase take-up91. By its very nature, this is an difficult feature to measure, but
draws attention to the significance of information, education and programmes
of raising awareness in reducing financial exclusion.

A number of studies have attempted to formulate indicators of financial

exclusion based on existing data sources. One of the most prominent of these
is the New Policy Institute’s (NPI) annual studies Monitoring Poverty & Social
Exclusion. The NPI draws three indicators of financial exclusion in Britain from
existing government sources92:

#43 - the percentage of households without a bank or building society account.

#45 - the percentage of households without household or home contents

insurance.

#50 - the percentage of households in mortgage arrears for over 12 months.

The following table summarises the NPI’s assessment of recent trends and
distributions at the British level in each of these areas.

27
Table 1: New Policy Institute Analysis of Recent Trends in Financial Exclusion,
1997-1999.

Over a 5-year Over latest year Approximate Variations across

period of available data numbers groups
affected in latest
years

#43: % without Steady Steady N/A The poorest fifth

a bank or of the population
building society is more than 3
times as likely not
account
to have an
account as those
on average
incomes

#45: % without N/A Steady N/A Households

home contents without insurance
insurance. are nearly twice
as likely to be
burgled as those
with insurance

#50: % in Improved Improved 45,000 N/A

mortgage
arrears for 12
months93

Source: New Policy Institute, 2000.

The targets and milestones set out by the Scottish Executive in its annual Social
Justice reports contain only one indicator which could be interpreted as of
direct relevance to financial exclusion: #20: ‘increasing the proportion of
working age people contributing to a non-state pension’94. In addition, there
are three milestones relating to reducing the number of people living on low
incomes (#2 relating to children, #14 relating to working age people, and #19
relating to older people)95.

Unfortunately, there is no single authoritative source available to measure the

extent of financial exclusion in Britain, and therefore estimates of its extent
vary somewhat across different sources.

28
5. Financial Exclusion: The Evidence

5.1. General features

In this section, unless otherwise indicated, the evidence presented refers to

Britain. Subsequent sections will consider evidence specific to Scotland and
communities within Scotland (see Sect. 6.7. below). Despite the variations in
the measures and methods used, all the UK-wide evidence on financial
exclusion leads to the consistent conclusion that ‘a significant number of people
lack access to affordable and appropriate financial services.’96.

In summary, there is a considerable body of data which confirms that persistent

financial exclusion, and even localised ‘financial deserts’ exist in Britain, both in
relation to services required for daily money management and products for
long-term financial security97:

 1 in 3 households has no home and contents insurance.

 1 in 4 households has no savings.

 1 in 3 households do not have a private or occupational pension.

At the most extreme, about 1.5 million households in Britain (7% of all
households and over two million adults) do not use any mainstream financial
services at all98. A further 20% of British households are ‘on the margins’ of
financial services and use just one or two services - normally a single bank
account99.

Over 10.5 million people in households (28% of the total) experienced financial
insecurity in 1999100; i.e. they could not afford to save, insure their house
contents or spend money on themselves101.

29
5.2. Savings

In 1997/98, about 30% of households in Britain said that they had no savings
or investments at all102. The comparable figure for Scotland was 22%103. The
proportion of British households without savings or assets doubled between
1979-1996. According to the Poverty & Social Exclusion report, 66% of the
British public believe that regular savings of £10 a month is an essential
requirement for every adult household, yet 10 million people (21% of the
population) could not afford this104.

Some 50% of adults have less than £500 in disposable financial wealth, and
between 47%-64% of families earning under £20,000 per annum have no
savings at all105. Only 14% of households had savings of more than £20,000106.

5.3. Access to bank and building society accounts

It may initially seem a paradox, but the relative deprivation of those who have
no bank or building society account has worsened as the number affected has
decreased. The simple reason for this apparent anomaly is that as access to
banking facilities has become increasingly widespread and accepted as part of
everyday life, the marginalisation of those who remain without such facilities
intensifies. The long-term trend towards payment of wages by monthly
automatic credit transfer has increased the penetration of the financial service
market; for example, in 1975 about 45% of adults had a current account, but
by 1998 the proportion had risen to between 80-85%107.

Estimates of the proportion of people in the UK without different types of bank

or building society account vary from between 7% of the population (3 million
adults)108 with neither a current nor savings account at all, up to 23% without a
current account109. The SEU offers what would come closest to an ‘official’

30
calculation of those without a bank account for the UK as a whole of about
10% of the adult population (equivalent to 4 million people)110.

Part of the reason for these varying estimations is that many low income
households keep a ‘dormant’ bank account, or choose to close their account
temporarily when they encounter particular financial difficulties111.
Consequently, the figure may be subject to fluctuations in both extent and
composition. At an aggregate level, however, the NPI’ annual analysis of social
exclusion concludes that ‘There has been no improvement for the last three
years in the proportion of low income households without a bank or building
society account.’112.

5.4. Exclusion from insurance

Estimates of the number of households without home contents insurance are

also variable, although the range is somewhat narrower - between 20-25%
(roughly 6 million people)113. The Poverty & Social Exclusion survey found that
80% of the British population regarded insuring home contents as a necessity
but that 7% could not afford this and another 5% did not want it (it should be
noted that these conditions are not the same as not having insurance)114. A
further 45% of households are without life assurance115.

Again, however, the number without insurance is not static: just under half of
those households without home contents insurance did have it in the past, but
had let it lapse - usually due to financial difficulty - and about one fifth had not
go around to taking out insurance but were likely to do so in the future 116.
Nevertheless, a significant proportion of those without home contents insurance
said that they would have liked it but could not afford it.

31
5.5. Debt

About one third of low income households had problem debts in the 1990s, i.e.
‘difficulties in paying household expenses or consumer credit payments’117.

Table 2: Incidence Of Problem Debt By Income For Non-Pensioner Households,

1992.

Net weekly income Proportion with problem Proportion with multiple

debt debt118

up to £100 33 10

£100-150 22 4

£150-200 13 4

£200-250 9 2

£250-300 10 1

£300-400 8 1

£400 or more 12 -

Source: Berthoud & Kempson, 1992.

The most serious form of debt for many household is long-term mortgage
arrears, a problem which increased considerably during the economic recession
in the early 1990s which was accompanied by a sharp fall in the level of house
prices and the emergence of ‘negative equity’ as a widespread condition. In
recent years the number of households with serious mortgage arrears has
fallen, but it still remains more than double the level it was a decade ago119.
The number of mortgage repossessions over recent years is summarised
below:

32
Table 3: Mortgage Repossessions, 1970 - 1999.
1970 - 3,760
1975 - 4,870
1980 - 3,480
1985 - 19,300
1990 - 43,890
1995 - 49,410
1999 - 30,000
Source: Wilcox, 2000: 146 (Table 46).

In addition, exposure to the risk of debt and mortgage arrears remains high,
particularly for those with little or no savings to draw upon: in 1997/98, 15% of
working age heads of household with a mortgage were in an ‘economically
vulnerable position’, that is, in part-time work, unemployed or economically
inactive120.

A less extreme form of financial problem is the amount of outstanding

unsecured consumer credit, which has increased elevenfold in the UK since
1979, considerably more than the increase in national income (GDP), which
increased three-fold121.

This coincided with a boom in consumer credit and borrowing, ‘coupled with
irresponsible lending practices and a lack of clear information for consumers
about the consequences of taking out too much credit’. The result was an
increase in repayment difficulties and associated financial problems122. The
Citizens’ Advice Service has seen an increase of 37% in the number of people
seeking advice credit debt problems in the two years up to 1999/2000 123, and
in Scotland in 1999, Citizens' Advice dealt with 34,000 new inquiries about
debt124.

33
5.6. Exclusion from private and occupational pensions

In June 2000 it was estimated that approximately one in four adults in Britain
did not have a private or occupational pension125. 7% of all employees aged
20-59 were excluded from membership of their employers' occupational
pension scheme, either because they earned too little or were employed on
non-standard contracts126. This situation was a characteristic of lower income
groups, women and minority ethnic group employees127 .

Access to a non-state pension is not in itself sufficient to prevent poverty and

exclusion in retirement: the level of contributions has to be sufficient to
generate a valuable annuity and retirement income. However, in June 2000,
one quarter of those who did have such a pension were paying less than £50
per year in contributions, not enough to safeguard against deprivation in later
life128.

An important issue in relation to private and occupational pensions which is

often overlooked is the considerable volume of public subsidy which is devoted
to this area in the form of tax rebates and what is known as ‘fiscal welfare’.
There are two reasons why this merits attention. Firstly, as can be seen from
the following table, the sums involved are very large: tax benefits to private
occupational and personal pensions in Britain amount to nearly twice as much
as the basic national insurance pension129, and 45% more than all the selective
and means-tested assistance paid to low income people in retirement130.

34
Table 4: Cost Of Tax Relief to Private Occupational Pension Schemes, 1992-98.

Total - Rounded to the nearest £100m:

1992/93 - £7.9 billion

1993/94 - £7.3 billion

1994/95 - £7.6 billion

1995/96 - £9.1 billion

1996/97 - £9.9 billion

1997/98 - £8.9 billion

Source: Inland Revenue, Statistics & Economics Division, 1998: 75.

Secondly, this fiscal subsidy is an example of what has become known as

‘reverse targeting’ or ‘upside-down’ financial assistance as it provides most
support to the better off and the level of support also increases as incomes
rise131. Both of these factors raise the question of whether the use of tax reliefs
in this area represent an effective use of resources 132. However, the discussion
of fiscal and pensions policies goes beyond the scope of this review and indeed
beyond the remit of the Scottish Executive and into matters which remain
reserved for the British government.

35
6. The Social Distribution Of Financial Exclusion

6.1. Differences by income

The groups most likely to experience some form of financial exclusion are

 The long-term unemployed.

 Old age pensioners, particularly those aged over 70.

 Those excluded from earning through sickness or disability.

 Female single parents.

 Certain ethnic minority groups, particularly Pakistani and Bangladeshi

households who may ‘make limited use of financial products because of
language barriers and religious beliefs’133.

 Young householders who have not yet used financial services, but may do
so in the future.

Those who are reliant on state welfare benefits or living in rented

accommodation are also at greater risk of exclusion - conditions more likely
among the groups listed above

These groups are by no means mutually exclusive - overlaps between them are
possible. With the possible exception of the last group, what most of them have
in common is that they are more likely to be low income households, and
irrespective of any other circumstances, low income is the single factor most
closely associated with lack of access to financial services. According to
research conducted by the Joseph Rowntree Foundation, households with a
weekly income below £150 (particularly common among lone parents, the
unemployed and elderly people) are the most likely to be financially
excluded134, and ‘the largest group to make no use of financial services is
householders who have never had a secure job’135. The order of factors which

36
have greatest predictive capacity of financial exclusion, broadly defined (and
including self exclusion) are roughly as follows:

 those claiming means-tested benefits

 people on low incomes

 households where the head had been out of work for some time

 tenants in rented accommodation

 single non-pensioners

 those from Pakistani or Bangladeshi communities

 people who had left school before the age of sixteen136

Particular forms of financial exclusion are also most heavily concentrated within
low income groups: despite the fact that they are more likely to be burgled,
over 50% of the poorest quintile of households have no household
insurance137. More than half of the poorest households are uninsured,
compared with one-sixteenth of the richest households138. Access to
‘contracted-out’ private or occupational pensions is also strongly associated with
income: while 51.% of all males in employment had a private pension in 1998
(and 66% of those earning £600 per week or more), this fell to only 20.3%
among males earning less than £200 per week139. The following table indicates
the economic position of those with and without non-state pensions.

37
Table 5: Characteristics Of Private Occupational Pension Scheme Members &
Non-Members (Employees Aged 20-59, 1993/1994).
MALE FEMALE FULL-TIME FEMALE PART- TIME

Member Non- Member Non- Member Non-

member member member

All 61% 30% 56% 30% 23% 64%

Socio-
Economic
Category140 - - - - - -

1 78% 14% 73% 15% 55% 33%

2 65% 28% 64% 23% 38% 47%

3 66% 23% 55% 31% 24% 64%

4 51% 39% 40% 45% 15% 69%

5 47% 42% 31% 53% 12% 74%

6 42% 47% 30% 45% 11% 76%

Source: Ginn and Arber, 2000: 214 (extract)141.

6.2. Geographical distribution

Financial exclusion is strongly related to income, but where people live is also
important142. In locational terms the ‘hard core of the financial underclass is
easy to identify’: about 50% live in the 50 most deprived boroughs in the
UK143. The result of such concentration is that many of the different elements
of social exclusion are closely associated and compounded in particular areas.
For example, areas with a high proportion of financially excluded residents are
also more likely to be have higher crime rates (and so higher property
insurance rates) and lacking in other generally expected services 144. The
Department of the Environment, Transport & the Regions (DETR) Index Of
Local Deprivation has identified 1,370 estates which it classifies as ‘run-down’.
There is a strong overlap between these and the 3,000 ‘poor neighbourhoods’

38
in the English House Condition Survey, and the 44 local authority districts
highlighted by the SEU as containing the ‘highest concentrations of deprivation
in England’. These areas contain ‘nearly two thirds more unemployment than
average, a level of underage pregnancy and lone parenting one-and-a-half-
times the norm, mortality rates 30% higher than average and up to three times
the level of poor housing.’ 145.

The risk of financial exclusion is unevenly distributed and also concentrated:

people living in the 50 most deprived local authorities in England and Wales, or
living Scotland, are twice as likely to be financially excluded as those with
comparable personal or economic circumstances living elsewhere146.

While the most deprived and socially excluded areas are urban, financial and
social exclusion also exists in rural areas147. Unfortunately, there is much less
survey evidence available to identify its extent and whether there are any
distinctive aspects of such an experience, although it is known that low pay is
more common in rural labour markets and access to non-state pensions may be
lower148.

6.3. Distribution by Tenure

There has been an increasingly strong association between tenure and

economic status in recent years149, as a result of the rise in owner occupation
(increasing in Scotland from 36.4% of all tenures in the UK in 1981 to 61.3% in
1998150). This has led to the ‘residualisation’ of social housing and the
concentration of lower income households in this sector151 as shown by that
fact that 80% of households accommodated in socially rented housing have a
weekly income of less than £200152, and more than one third have less than
£100153. According to the latest NPI ‘poverty audit’, almost two-thirds of heads
of households in council and housing association homes are without jobs154.
Consequently, 80% of financially excluded households live in council or housing

39
association accommodation155. This reflects the compounded nature of financial
inclusion: the very nature of mortgages means that it is effectively impossible
to be an owner-occupier and be excluded from credit and insurance.

6.4. Demographic factors

6.4.1. The financial exclusion of lone parents

The association between low income and financial exclusion means that certain
demographic groups are especially prone to this problem. Prominent among
these are lone parents, which overwhelmingly means lone mothers, as over
90% of lone parent household are headed by women. According to the Director
of the National Council of One Parent Families: ‘Lone parents are forced to live
at the margins, excluded not just from what money can buy but from the
society it gives access to.’156

Despite recent reforms such as the New Deal and additional childcare provision,
it remains the case that most lone parents in Britain are not in paid
employment, which usually means a lower income and dependency upon state
welfare benefits. If lone parents are in employment, they are more likely than
most to be in part-time or ‘flexible’ employment, both of which are also
associated with lower earnings and reduced likelihood of access to a non-state
pension. Lone parents are also only half as likely as other groups to be owner-
occupiers.

According to the NPI poverty and exclusion survey of 2000, on average 9% of

households have no bank or building society account, but the figure among
lone parent households is 27%157. In Scotland, single parent households are
also the least likely demographic group to have savings or investments - only
18% of them have these resources compared to 62% of small adult households
and 64% of older small households158. One in three single parents in Scotland

40
said they had worried about money almost all the time compared to a national
average of one in eight159 [153].

6.4.2. The financial exclusion of minority ethnic groups

Those classifying themselves as Pakistani are four times more likely to be

without a bank account than those who are white, Bangladeshis three times
more likely, and Indians twice as likely160. The national average proportion of
households without a bank or building society account of 9% compares with
27% among Bangladeshi and Pakistani households161. There is some evidence
that this lack of use extends to other financial services162.

This relative under-use is generally attributed to ‘structural discrimination’

rather than overt racism; that is, minority ethnic groups are more likely to have
the characteristics which make them relatively less attractive to lenders and
therefore more likely to fail standardised credit-screening processes163. For
example, British Asian financial service customers may be screened out
because they are self-employed or work in a family business with a low
turnover; banks and building society valuers may also be reluctant to provide
mortgages or other loans to properties which have been redesigned to suit
extended inter-generation families164. The Commission for Racial Equality has
concluded that, under current race relations law, no prosecution for
discrimination is likely to succeed as lenders are able to argue that they are not
refusing service on the basis of ethnicity.

There may be an additional element of self exclusion among certain minority

ethinic and cultural groups, such as among Muslims whose faith proscribes
usury, or groups which have a traditional of informal credit within extended
families and communities. However, the extent to which such practices are
entirely voluntary or reflect the unsuitability of existing mainstream financial
services remains unclear.

41
6.5. Flexible & precarious employment

Most of the groups which are financially excluded are familiar from studies of
low income and poverty. However, one group which has emerged more
recently is those in insecure employment who ‘are both unattractive customers
for financial service providers and, themselves, believe financial service
products to be inappropriate to their circumstances’165. About 1 in 6 of the
workforce is now in flexible employment, self-employed or contract work166.
They also suffer from a form of structural discrimination as, without three years
of continuous employment or carefully audited accounts they are unlikely to be
offered a mortgage by mainstream lenders and may be forced to use the
services of ‘impaired credit’ lenders which often charge more167.

This patterns highlights certain anomalies in the mortgage and lending markets,
as many of these ‘recasualised’ workers are relatively well paid and include the
‘small employers and own-account workers’ which fall into Social Class IV of the
new national statistics measure of stratification. However, it remains the case
that the least secure forms of flexible working tend to be concentrated in low
wage sectors and among those forced to ‘alternate between unemployment and
low-waged employment’168. Women are disproportionately represented among
such workers, as are certain minority ethnic groups and those with lower formal
educational qualifications.

6.6. The dynamic nature of financial exclusion

When considering the scale and distribution of financial exclusion it should be

remembered that the ‘stock’ is different from the ‘flow’; i.e. financial exclusion
is a dynamic process. Many more households move in and out of exclusion than
are without products at any one time169. About one quarter of those who are

42
not using mainstream financial services at any time have done so at some point
in the past, and will resume use in the future. Financial exclusion is no less real
for not being permanent and unchanging: the insecurity and lack of capacity to
plan which is involved in intermittent access and use of services still inhibits
economic and social participation.

People suspend their use of financial services due to (i) a drop in income, (ii)
the loss of a partner, through separation or death (which is particularly
common among women). The experience of financial exclusion for many is
therefore temporary, but recurring, and at any particular time there is a
significant group ‘on the margins of financial services provision and . . .
potentially at risk of financial exclusion.’170. In addition, there is a smaller
number for whom financial exclusion can be a long-term condition, perhaps
even life-long.

6.7. Financial exclusion in Scotland

6.7.1. The national picture

There is evidence that people in Scotland, ‘are twice as likely to be financially

excluded as those living elsewhere’171. This is demonstrated by the higher
proportion of family units which report having no savings - 47% compared to a
UK-wide rate of 36%. A further 17% of Scots report that they have savings of
less than £1,500, although this is slightly less than the UK level of 22%172.

The income differences in savings and investment which exist at the British
level are equally pronounced in Scotland: 74% of those in the highest net
annual household income banding have some savings or investments compared
to 40% of households in the lowest net annual household income banding173.

The groups which are least likely to have savings in Scotland correspond to
those in Britain as a whole - among the ‘unemployed, sick or disabled, or in a

43
non-working lone parent family, 76% have no savings and a further 12% have
less than £1,500.’174. The following table provides another profile of the
distribution of savings in Scottish society.

Table 6: Whether Respondent Or Partner Has Any Savings Or Investments By

Household Type

Single Adult Small Adult Single Small Family Large Family

Parent

Yes 44 63 19 57 49

No 51 32 79 38 46

Refused 5 5 2 5 4

Don’t know 0 0 0 0 1

Total 100 100 100 100 100

Base 2,096 2,507 817 2,191 1,162

Source: Scotland’s People. p.144. Table 4.22.

There is also evidence of divisions within Scotland between high and low
savings areas: 30% of households in areas designated as ‘high income’ in
accordance with the ‘MOSAIC’ categories of the Scottish Household Survey had
£30,000 of savings and investments or more compared to 6% of ‘families in
council flats’ areas175.

The proportion of Scots without access to bank or building society account

according to the Scottish Household Survey is 12%, essentially the same as the
13% recorded for Britain as a whole in the Family Resources Survey176. There is
some indication that the situation at the bottom of the income scale is relatively
worse in Scotland than the rest of Britain: while approximately one-third of

44
households in Scotland with a weekly income below £200 has no bank account,
the figure for Britain as whole figure is about 20%177.

The demographic groups which comprise the low income financially excluded
population in Scotland are similar to elsewhere in Britain:

Table 7: Whether Respondent Or Partner Has A Bank Or Building Society

Account By Household Type.

Single Adult Small Adult Single Parent Small Family Large Family

Yes 80 92 68 93 88

No 18 6 31 5 10

Refused 2 2 1 2 1

Total 100 100 100 100 100

Base 2,099 2,510 817 2,193 1,170

Source: Scotland’s People. p.144. Table 4.35.

Again there is evidence of geographic and neighbourhood differentiation in

access to basic banking services in Scotland - one survey of financial exclusion
in Easterhouse ‘discovered that only 38% of people had a bank account and
that, of the remaining 52%, only around ten per cent would be eligible for
one.’178

45
Table 8: Whether Respondent Or Partner Has A Bank Or Building Society
Account By MOSAIC Group

High Income Middle Low Income Better-off Disadvantage

areas Income owners council d council
owners estates

Yes 96 94 92 82 79

No 3 4 6 15 18

Refused 1 2 2 3 3

Total 100 100 100 100 100

Base 1,686 2,132 1,309 2,397 1,622

Source: Scotland’s People. p.154. Table 4.34.

85% of Scottish households have some kind of home insurance, but this falls to
35% among tenants public rented housing and 45% among tenants of housing
association or co-operative owned properties179.

32% of pensioners in Scotland rely exclusively either on the state retirement

pension, income support or some combination of the two. Those who rely
solely on state pension or benefit provision will almost all have incomes below
half average and so count as living in poverty. ‘Approximately 30% of all
pensioners in Scotland have incomes below half the British average, and a
further one third have household incomes after housing costs of between £130
and £200 per week.’180 Women out-number men by a ratio of 2 to 1 among
current low income pensioners in Scotland relying entirely on state provision.
Access to a non-state pension is more common among pensioner couples than
single pensioners: about half of single pensioners in Scotland rely solely on
state benefits, in contrast to about one quarter of couples. This is partly
attributable to the average younger age of retired people who are part of a

46
couple and also partly due to the fact that most retired people who live alone
are women.

It would therefore appear that there is evidence that ‘financial exclusion . . . is

a more serious problem in Scotland than in the rest of Britain.’181. The following
table summarises some of the main points from the preceding discussion.

Table 9: Financial Issues by Household Type In Scotland, 1999.

Household type Having savings or Having a bank or Worried about Never worried
investments building society money almost all about money in
account the time in the the last few weeks
last few weeks

Single adult 44 80 18 30

Small adult 63 92 10 41

Single parent 19 68 34 11

Small family 57 93 12 29

Large family 49 88 17 26

Large adult 57 90 12 39

Older smaller 63 88 5 54

Single pensioner 53 79 6 51

All household 54 86 12 38
types

Source: Scottish Social Statistics, 2001: 68

6.7.2. The situation in Wester Hailes

The information which follows is drawn from a survey commissioned by the

Wester Hailes Representative Council (WHRC) which was undertaken between
Dec 1999 and January 2000182. Wester Hailes is a large estate located on the
western area of Edinburgh with a population of approximately 11,000. Initial
construction of the estate took place between the late 1960s to early 1970s,

47
but even before this was completed, the effects of national economic recession
were reflected in higher than average local unemployment and signs of
economic and social deprivation which have never since been eradicated.

Reflecting the tenure composition of the area, the survey sample of 512
comprised of 79% council tenants, 9% housing association tenants 11%
owner-occupiers, and the remainder ‘others’183. The survey identified Wester
Hailes as ‘a community that has low levels of saving and which was wary of
exposing itself to unsustainable borrowing.’ 58% of respondents said they
preferred conducting financial transaction in cash, although this figure was only
46% among employed people.

Levels of saving in Wester Hailes were found to be lower than the Scottish or
UK averages: 47% of those surveyed had no savings of any kind (compared
with 39% in the March 1999 Scottish Household Survey); 36% had savings of
less than £500, and only 3% had savings of £5,000 or more (61% in the
Scottish Household Survey). Half of those surveyed in Wester Hailes said they
could not afford to save. However, the situation of single parents in Wester
Hailes was better than that recorded in the Scottish Household Survey - 38% of
single parents in Wester Hailes had savings compared to a national figure of
15%. Nevertheless, most of the single parents who did possess some savings
held less than £500.

17% of the sample had no access to a bank account of any kind, compared to
12% in the Scottish Household Survey , and 13% in the UK-wide Family
Resources Survey. Problems of financial access were highest among the
unemployed (38% had no bank or building society account), those aged under
24 (32% had no account), and those with a net weekly income under £150
(30% had no account). Again, the position of single parents was better in
Wester Hailes than nationally: only 18% had no account, compared to 39% in
the Scottish Household Survey. Further research would be useful to explore the

48
reasons for this and whether there are wider lessons to be learned about
increasing the inclusion of single parents.

8% of Wester Hailes residents who had no bank or building society account had
been explicitly refused one, i.e. almost half of those without an account, a
significantly higher level than typical for Scotland or Britain more generally. The
groups most likely to have been refused an account were, again, unemployed
(56% of those refused) and those with a weekly income of £150 or less (68%).
Specific problems which respondents referred to in opening accounts were
difficulties in supplying acceptable proof of identification and the requirement to
maintain a minimum account balance to avoid a penalty. A higher than average
proportion of those who did have a bank or building society account used a
deposit account only, ‘perhaps because it provides a book showing the account
balance, an important consideration for those on low incomes.’184

There was some indication that the residents of Wester Hailes believed that
banks treated unemployed people and pensioners as second-class customers.
This is shown by the fact that while overall 47% disagreed with the view that
banks ‘do not cater for people like me’ (and only 24% agreed), this rose to
35% among unemployed people.

Only 19% of those with bank accounts had an agreed overdraft facility. 53%
agreed with the statements that they could not afford to borrow, and it was
found that most of the borrowing which took place involved fairly small
amounts185. Only 17% of respondents had a credit card, but retail borrowing
was much more common, especially using the credit facilities of mail order
catalogues.

49
Table 10: Sources of Retail Credit in Wester Hailes

Catalogue - 51%

Providential, etc - 16%

Hire Purchase - 16%

None - 16%

Store - 1%

N = 512

Source: Wester Hailes Community Banking Baseline Study, 2000: 14.

Family and friends were an important source of ‘non-standard borrowing’ - used

by 30% of the sample and 60% of the unemployed. Only 4 respondents out of
512 were members of a credit union, 3 respondents used a pawnbroker and
one unemployed respondent used an unlicensed moneylender or ‘loan shark’.
No one reported using a cheque-cashing shop. It is possible that the latter
forms of borrowing are under-reported.

It would appear that the sources of credit used in Wester Hailes are among the
most expensive, but are also among the most easily accessible: 38% of
respondents said that retail credit was more easy to obtain than credit from
banks. However, only 26% of the sample thought that credit was too difficult to
get generally, compared to 47% of respondents who said that it was to easy to
obtain. A large majority (81%) agreed that credit in general was too expensive.
Focus group participants (all of whom had bank accounts) observed that that
they were ‘constantly being offered loans and credit cards which they knew
they could not afford’186. While this might initially appear to contradict the
common finding that low income groups and areas are denied access to
promotional literature from mainstream financial institutions, it should be noted
that all of those who complained of an excess of offers had accounts and so

50
were not among the most financially excluded sections of the population. It is
also possible that the services which they were notified of were unsuitable for
their needs.

These findings also highlight the anxiety among many low income households
regarding credit and exposure to debt. The issue in tackling financial exclusion
is not simply to increase access to credit and borrowing facilities, but to ensure
that these are suitable for the needs of vulnerable people who are rightly wary
of acquiring potentially long-term debts, which can become a problem for those
whose incomes allow little flexibility.

Overall, 36% of respondents had no insurance of any kind, and 50% of council
tenants had no home contents insurance.35% said they could not afford
insurance, rising to 67% of unemployed respondents. 9% of the sample said
that they could afford insurance but chose not to purchase any.

To summarise the findings of the research in Wester Hailes:

 17% of Wester Hailes residents lack access to bank accounts, compared

to 6% in British Bankers’ Association sponsored research and 12% in the
Scottish Household Survey.

 8%, have been refused bank accounts.

 57% of people trust banks.

 There is a high demand for more banking facilities in Wester Hailes

(93%).

 58% prefer dealing with cash.

 51% use retail credit - primarily mail order catalogues.

 26% expressed an interest in business start-up.187

51
This forms the background for the measures taken by the Wester Hailes
Representative Council to reduce financial exclusion which are discussed below
(Sect. 12).

52
7. Causes Of Financial Exclusion

7.1. General features

There is no single factor which accounts for financial exclusion188. Even within a
relatively deprived and excluded community such as Wester Hailes, it remains
the case that outright refusal of services by financial institutions remains
relatively rare189. On the other hand, until quite recently, mainstream private
financial institutions made few efforts to reach out to economically vulnerable
and marginalised groups190. The result has been that, as a growing proportion
of people make use of an increasingly wide range of financial products
(attributable in part to the payment of wages by automatic credit transfer and
the spread of home ownership and associated increase in mortgages 191), the
position of the minority who remain excluded becomes increasingly stark.

People are excluded from financial services by a ‘combination of marketing,

pricing and inappropriate product design’192. The principal barriers to service
use are:

1. Physical access - which has been made problematic due to the closure of
many bank and building society branches

2. Expense - high charges and penalties, e.g. higher premiums for home
contents insurance for people living in deprived high crime areas.

3. Conditions attached to products which make them inappropriate or

complicated, e.g. accounts which do not provide a cheque-book, cheque
card or cash-point card without strict terms attached.

4. Perceptions of financial service institutions which are though to be

unwelcoming to people on low incomes, and the predominance of
marketing campaigns that target more affluent customers193 [187].

53
These barriers to inclusion have not been constructed deliberately, they are a
result of the structural operation of the financial services industry.

7.2. Structural changes in financial services market

Financial exclusion in Britain is largely attributable to structural changes in the

financial services sector which resulted in an ‘exclusionary turn’194. The most
important of these changes include:

 re-regulation in the 1980s - which ‘broke down the traditional boundaries

that had existed between different sectors of the industry and removed
some of the barriers to entering the market.’195

 increased competition from new entrants to the market

 increased competition due to globalisation

 rationalisation

 mergers

 new technology

 branch closures.

 unprecedented levels of indebtedness and default - among individuals,

corporations and institutions and even nation-states. 196

The result of the industry’s response to these developments was a combination

of cost-cutting activities and the pursuit of more lucrative markets which lead to
increased ‘market segmentation’.

54
7.3. Financial desertification

The most visible and widely publicised manifestation of this strategy has been
what became known as ‘financial desertification’, or more simply, branch
closures. Since 1987, the number of branches of the four main ‘High Street’
banks has fallen by one-third. Research shows that building societies have been
more willing than banks to maintain their branch networks, nevertheless,
overall there were 4,904 banks and building societies branches in Britain in
1998, some 5,679 fewer than 10 years before197. Barclays alone announced the
closure of 172 branches in April 2000, and further closures have been
anticipated with the announcement in April 2001 of the planned merger
between the Bank of Scotland the Halifax.

The pattern of branch closures has not been evenly distributed across the
country: ‘poorer communities have borne the brunt of the closure
programmes’198. The most striking form of financial exclusion is that many
banks and building societies have withdrawn literally and commercially from
deprived areas, so that poorer ‘groups are being erased from the customer
bases of mainstream financial institutions.’199

The knock-on effects of the recent pattern of closures are considerable. Firstly,
access to the financial services increasingly required for everyday activities
becomes more problematic. Secondly, branch closures have also led to ‘the
decline of relationship banking and the loss of detailed local knowledge of
economic opportunities’ which in the past have underpinned lending support
and investment in small local enterprises200. Thirdly, the removal of local
branches creates problems for neighbouring retail outlets as customers with
private transport may find it more convenient to shop and spend elsewhere, so
that the closure of back branches can precipitate other closures201. Finally,
alternative credit providers have moved into the markets vacated by
withdrawing mainstream financial services, such as moneylenders which offer
convenient, available but more expensive services. For example, the number of

55
customers using Provident Financial, the UK's largest licensed moneylender,
has risen by 300,000 in the past four years202.

7.4. The ‘flight to quality’

The policy of branch closure is part of a more general strategy which has been
described as a ‘flight to quality’; i.e. a move away from basic credit- and debt-
related products (such as overdrafts) towards ‘growth orientated investment-
related products’ (such as Personal Equity Plans and Individual Savings
Accounts) which are both more risk averse and which can also be targeted at
higher income market segments at premium prices203. Low income groups are a
much less attractive target for mainstream financial service providers, as ‘their
needs are modest and the profit margins small’204. There are potentially much
greater rewards for attracting and retaining more affluent customers who can
be cross-sold different financial products. The result is that a gap widens
between ‘superincluded’ better-off customers who have increased access to and
information on financial products and the financially excluded205. The financial
services market has therefore polarised. For example, in the credit-provision
sector a dual market is observable, divided between ‘upmarket’ sources such as
credit cards and overdraft facilities on the one hand, and downmarket’ sources
such as ‘doorstep lenders’ and pawnbrokers on the other.206

Another indication of the divided financial services market is how the insurance
market is becoming ‘increasingly niche-orientated’. The previously standard
practice of cross-subsidising less wealthy and less profitable customers by
levying relatively higher premiums on the better off is no longer applied, as it
would involve uncompetitive charges on attractive customers who can get a
better deal elsewhere. Consequently, insurance premiums are now based on
smaller risk pools, which has led to higher charges for higher risk groups, who
are often also lower income groups207

56
7.5. Credit scoring

Improvements in information systems and technology now allow financial

service providers to be more precise in their targeting of policies. As local
branches have closed, personal assessments of credit-worthiness which used to
be carried out by bank managers have been replaced by centralised computer-
based credit scoring208. Similarly, insurance companies are now able to assess
relative risks and set premiums by reference to customers’ full postcode down
to the level of individual streets209. These sophisticated profiling techniques
mean that financial service providers can screen against indices of social and
economic disadvantage and thereby ‘create geodemographies of “good” and
“bad’ areas and customers.’210. Mainstream financial institutions define ‘low-risk’
borrowers as ‘suburban, white, and middle-class’211. The result is that, for
example, a middle income family of four living in a two bedroom house in
Winchester, could pay as little as £70 per year for £20,000 contents insurance
protection, while a lower income family of four living in rented accommodation
in Moss Side would have to pay £364 per year for the same protection.212

The financial services market results in ‘post-code discrimination’ against

higher-risk areas and borrowers, so that disadvantaged neighbourhoods face
credit rationing and may as a result become ‘no-go investment localities’213. The
perception that an area is a high risk for insurance or investment can become a
self-fulfilling prophecy, as it discourages people and business from locating in
them.

7.6. Cost reflectivity

The general trend towards more targeted financial service provision so that
prices reflect risk and profits is visible across a range of economic sectors. In

57
the utility services, for example, British Gas has been instructed by the
regulator OfGAS to allow more free and fair competition by aligning its prices
more closely with costs and follow the principle of ‘cost-reflectivity’214. Cross-
subsidisation of charges is deemed anti-competitive and the result again is
pursuit of more affluent customers and a widening of price differentials as
‘wealthier, bigger-spending customers ... offer companies the best prospects for
profits’. Customers who pay by direct debit and use large amounts of gas are
more likely to provide longer term profits and so are worth ‘cherry picking’ by
offering discounts. British Gas customers who pay by direct debit or within 10
days receive discounts which are not available to the 1 million or so customers
who use pre-payment meters. The result is that lower income households can
end up paying twice as much per unit of gas as wealthier homes. Similar
processes are at work in the electricity supply and telecommunications
industries - sharper competition has encouraged market segmentation and
higher prices for the least profitable customers, which are generally lower
income households. This is an indication that the causes of financial exclusion
extend beyond the financial services sector.

7.7. Inappropriate products

It is clear that there is an increasing range and abundance of financial products

available in the UK, so that financial exclusion is not so much an issue of
access, but rather a question about the ‘appropriateness and affordability’ of
services215. The real problem is the gap between the type and range of
products which has generally been available and the needs of lower income
customers216.

One study of homeless hostel dwellers carried out by Money Advice Scotland
concluded that many among this most obviously financially excluded group do
in fact have money passing through their hands217. Few had explicitly been

58
refused a bank account, many had not bothered to apply for one. Such people
might be deemed to be ‘self-excluded’. Arguably however, they have been
excluded by bank services which do not suit their needs218. Similarly, lower
income households in relatively deprived communities do not subscribe to
house contents insurance due to a lack of suitable cover; i.e. that which is
affordable, does not contain restrictive policy conditions and has a convenient
payment method.

7.8. Information, promotion and perceptions of financial products

The marketing policies of the larger financial services providers may reinforce
the belief among lower income and excluded groups that that financial services
are ‘not for the poor’. There is also evidence of ‘widespread mistrust’ among
the excluded towards many financial institutions219, particularly among those
who ‘fall under the “information shadow” and receive little marketing or
promotional information and who have little contact with financial services
companies220. This was not borne out by the results of the research in Wester
Hailes which showed a generally high level of trust in banks. It would be
interesting to explore the reasons for this, and the more general question of
varying levels of mistrust across different communities.

7.9. Methods of service delivery

The ‘way in which financial products are delivered can also make it very difficult
for low-income households to use them.’221 Telephone banking is of little use to
those without ready access to a telephone, and is unpopular among older
customers and those who prefer to use more overt systems of documentation.
Similarly, currently fewer than 25% of British households own any kind of
computer, and while the proportion is expected to increase rapidly over the

59
next 10 years, this is unlikely to encompass all groups equally. The increasing
popularity of internet banking may therefore become another means by which
certain groups are marginalised or excluded from financial services222.

7.10. Government policies

There are a number of government policies which may have exacerbated or

reinforced financial exclusion. Among the most important of these has been the
practice of paying means-tested social security benefits by giro or order book
which encourages recipients to operate a cash budget rather than use the same
financial systems as those in employment223. There is evidence that social
security claimants adhere to whatever method of receiving payment they start
with and are most used to, and therefore that successive British governments
should have done more to encourage the receipt of benefit payments directly
into bank accounts224. The proposal to pay social security benefits by automatic
credit transfer from 2003 should address this fact.

A second policy in recent years which may have contributed to the market
segmentation in financial services referred to above has been the provision of
tax exempted savings (such as TESSAs and PEPs) which overwhelmingly
benefited more affluent households and encouraged banks and other service
providers to pursue their custom vigorously. There is little indication so far that
the Individual Savings Accounts (ISAs) introduced by the current government
to encourage lower income households to save is having the desired level of
impact or beginning to redress this earlier regressive distribution. ‘All the
evidence we have ... is that tax relief only leads those who already have wealth
to seek to reshuffle it. Tax relief does next to nothing for those with few or no
financial assets.’225

60
8. Responses By The Financially Excluded: Alternative Financial
Sources

8.1. Individual responses

The response of those who find themselves financially excluded can occur at
either of two levels: individually or collectively. The discussion of collective
responses below concentrates on those areas which receive most attention in
the literature and which are also the subject of recent government activity, e.g.
credit unions. Alternative collective responses will be discussed in a subsequent
part of the literature review series.

The lack of options faced by many low income households regarding financial
services means that many of them are forced to rely on informal borrowing
from friends, family and neighbours as their principal source of credit. The most
common form of such credit is between mothers and daughters. However,
although this is a readily available, flexible, interest-free and reciprocal source
of finance, it can involve conflicts and put intimate relations under strain and is
therefore far from ideal as a solution to financial exclusion226.

The use of retail credit and considerable popularity of mail-order catalogues

among financially excluded groups has been demonstrated above. Less popular
but growing in prominence are licensed money lenders and cheque-cashers. 3
million people in Britain use licensed money-lenders, most of which are
pawnbrokers which have diversified into a growing market. A total of £1.5
billion worth of cheques were cashed in 1,200 centres in the UK in 1998, the
average amount being £150. The main customers of members of the British
Cheque Cashiers' Association’s are ‘anyone who has been bankrupt, scores
poorly in a credit rating test, has no bank account or wants an advance on

61
wages.’ They therefore offer a necessary service, but critics claim that the
charges they levy for this are so high that it is exploitative227.

The most notorious source of financial service to excluded groups is unlicensed

money lenders or ‘loan sharks’. Research suggests that use of these is the
exception rather than the norm among deprived and excluded neighbourhoods.
It has also been argued that idea of loan sharks preying on customers might
need to be re-thought, and that it should be recognised that ‘poor borrowers
are reluctant to see any avenue of credit closed to them, however costly’.228

8.2. Collective responses: credit unions

Britain has shown a history of ‘remarkable innovation’ in developing collective

financial services as alternatives to the private sector. Building and Friendly
Societies were pioneered in the UK and flourished from the nineteenth century
alongside Victorian ‘penny banks’, retail banks and the later National Savings
Bank. This relatively rich and successful legacy may account for the
comparatively late arrival and slow development of credit unions in Britain after
their initial formation in Germany in 1849229

The Association of British Credit Unions (ABCUL) offers the following definition
of this form of financial collective:

‘A credit union is a financial co-operative that is owned

and controlled by its individual members. It provides
them with accessible savings, low cost loans, and other
financial services. Credit unions operate in Britain under
the provisions of the Credit Unions Act 1979. They are
regulated and supervised by the Financial Services
Authority (FSA), which is also responsible for the
oversight of all other financial services providers in the
country.’230

62
Credit unions are not-for-profit savings and loans organisations. Although
regarded by some as ‘community banks’231, they are intended to be democratic,
mutually-controlled and serve members’ interests rather than pursue profit.232

Credit unions operate on the basis of a membership criteria known as a

‘common bond’ or shared identity. This bond can take one of four forms:

1. Residential - all members live within a precisely defined geographical area

(known as community-based).

2. Employment - members work for the same employer or group of

employers or have the same occupation (known as work-based).

3. Associational - all members belong to the same association, e.g. religious

group, trade union, etc.

4. Live or Work - a newer form of bond covering members who live or work
within a defined geographical area.233

Members buy a share in the union for £1 and then agree to make regular
savings. This leads to the accumulation of a resource fund which is made
available to members to borrow. After three months, new members become
eligible to borrow a multiple of their savings, which may increase after
successful repayments.234

The interest rate which unions can levy on loans is limited by law to 1% per
month (12.68% APR). Any profits which are made can be paid to savers as a
dividend with an 8% interest ceiling235. Until recently there were rather strict
time limits imposed on how long members were allowed to repay their loans,
but these have been modified recently as described below (Sect. 10.5). Credit
unions are known to have a much lower debt default rate than conventional
commercial lenders - largely due to peer pressure which is exercised by the
common bond of membership and the fact that borrowers must establish a
reputation for reliability.

63
Credit unions have the capacity to provide low cost financial services to those
who might have difficulty getting access to mainstream providers. Their
principal advantages in the area of financial exclusion are held to be that they:

 are available to those on a low income

 can provide a friendly convenient service

 encourage regular savings and financial discipline

 are locally owned, controlled and accountable

 are able to operate ethical lending policies236

In the opinion of the Scottish Executive National Credit Union Strategy Working
Group, the strength of credit unions:

‘lies in their capacity to capture and recycle money within the

local economy, to be a resource for all the community and to
contribute to community regeneration. They are socially inclusive
in nature having to appeal to a broad spectrum of people for
membership and to attract volunteers with a range of skills.’237

There are an estimated 100 million credit union members worldwide. In the UK
it is estimated that there are 255,000 members in over 800 unions. These ‘have
been growing rapidly recently - about 50 new credit unions are established
each year, with an annual increase in membership and assets of about 20%.’
Nevertheless, most individual unions remain rather small with few ever having
more than 200 members.238

64
Table 11: Credit Union Membership & Assets in the UK, 1999.

No. of credit unions Members (000s) Assets (£m)

England & Wales 524 130 69

Scotland 135 95 55

Great Britain total 659 225 124

N. Ireland 174 267 321

UK total 833 492 445

Source: HM Treasury, 1999.239

Despite the fact that work-based credit unions count for less than one in six of
the total number, they account for almost 50% of membership in Britain, and
control over 70% of all assets held by British unions. Therefore, community-
based credit unions are much smaller both in terms of membership and
economic resources.

The credit union movement is particularly large in Northern Ireland, in part due
to strong cultural and political connections with the much more developed
credit union movement in the Republic of Ireland (where approximately 50% of
the population are members of unions).

As can be seen from Table 11 above, the credit union movement is also
relatively stronger in Scotland than in the rest of Britain: 42% of British credit
union members lived in Scotland in 1999, and about 21% of British unions were
based north of the border. On most other indicators too, Scottish credit unions
appear to be more successful than those in England and Wales: they have
‘more members, made more loans, had greater share capitals, greater assets
and greater income.’240 Three of the six British unions which have fulfilled the
criteria allowing them to expand to more than 5000 members are Scottish

65
Table 12: Comparative Credit Union Statistics, Scotland and England & Wales
(September 1998)

Comparator Scotland England & Wales Scottish figures as %

of English and Welsh

Average number of 855 307 278

members per union

Average number of 488 125 390

loans per union

Average total assets £531,507 £171,399 310

per union

Average total income £56,905 £16,973 335

per union

Source: Centre for Economic Development and Area Regeneration /The

Planning Exchange, 2000 (extract).

Despite the relative success of the credit union movement in Scotland, it

remains a relatively peripheral financial institution: only about 1% of the
Scottish population are members of credit unions.

The aggregate figures for Scottish credit unions are also potentially misleading
as they obscure the dominance of a few very large work-based unions. For
example, in September 1998, of total of 124 credit unions in Scotland, 106
were community based. However, 43% of all Scottish credit union members
belonged to the eight largest work-based unions (93% of all work-based
members were members of these eight). Even among community-based union,
figures were distorted by the existence of a few large unions: 15 community-
based union had a membership above 1,000, so that 14% of such unions
accounted for 51% of community-based members.

66
In effect, there are many small community-based credit unions in Scotland with
few members which are barely sustainable and which ‘would be unable to
survive without public subsidy.’241

Table 13: Membership Figures For Scottish Credit Unions (September 1998)

Type of Credit Union Number Total Membership Average Membership

Community Based 106 56,828 536

Credit Unions

Community Based 15 28,691 1,913

Credit Unions with
more than 1,000
members

Work Based Credit 18 49,237 2,735

Unions

Work Based Credit 8 45,957 5,745

Unions with more
than 1,000 members

Source: Centre for Economic Development and Area Regeneration /The

Planning Exchange, 2000.

8.2.1. Current limitations with credit unions

There is considerable support for the idea of developing credit unions as a

response to financial exclusion (discussed in more detail below - Sect. 9.),
however, there are significant problems which the movement must first
overcome to fulfil such hopes242. Even in Scotland union membership remains
low and has not penetrated the lower income and most excluded groups.
Community credit unions in particular continue to struggle to recruit members
and achieve sustainability and long-term viability - on average it takes such
unions between 9-12 years to attract 200 members, and few grow much
beyond this level243. Partly as a result of their lack of finance, such small credit
unions operate only a few services: ‘62% of all community credit unions only
open for six hours a week or less, and a third for three hours or less’, and only

67
17% operate from their own premises244. Such unions survive mainly due to
the commitment of unpaid members and activists, but ‘volunteer burn-out’
limits how far this can be relied upon245. The time and expense involved in
setting up and running a credit union can be considerable: ABCUL estimates
that the process from organising an initial steering group to launch and
marketing can take anything from 6-18 months, and that it can cost between
£30,000-£70,000 over three years to set up a union in the professional manner
- with its own staff and premises - required to attract sufficient members to
achieve long-term viability246.

There remains some scepticism about the feasibility of credit unions as an

effective response to financial exclusion. The Forum for the Development of
Community-Based Financial Governance & Institutions, based at the University
of Salford argues that ‘The promotion of credit unions as a major anti-poverty
tool is wishful thinking. They do some good, but are too small and are seen as
a “poor man’s bank”.’ Critics claim that providing £0.84 million in direct public
subsidy in Scotland to support small, marginal and barely viable community
credit unions is a waste of resources247.

To a certain extent, the fragmentation and small size of community credit

unions in Scotland is attributable to previous Scottish Office policies: the Urban
Programme and the Social Work (Scotland) Act allocated financial support to
small areas characterised by high levels of deprivation which, in many cases,
was used to develop local credit unions. The result was that unions ‘were being
set up in areas of small populations and low incomes and often with limited
potential for developing’248. This demonstrates that public policies can have a
significant if mot always desirable effect, and offers lessons for the future which
are considered further in the next section.

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9. Policy Recommendations In The Financial Exclusion Literature

9.1. General features

One obvious implication of the preceding discussion is that there are no simple
solutions to the problem of financial exclusion - a diverse range of responses is
required which counteract the exclusionary turn of the private sector and
develop an alternative financial infrastructure which can operate more
specifically to serve the needs and interests of vulnerable lower income
groups249. The main recommendations which emerge from the literature on
financial exclusion involve increasing the flexibility of credit sources to widen
access, improving the regulatory framework of the financial services sector,
developing intermediaries and public-private partnerships to offer a ‘gateway’ to
services, reforming credit unions, improving financial advice services and
modifying the system of social security support.

9.2. The basic requirements of the financially excluded

It should be recognised that the requirements of those who currently find

themselves financially excluded are not drastically different from the majority of
the population, and most measures to facilitate inclusion do not require radical
reforms. The main service needs of the excluded have been identified as:

 A simple account for day-to-day money management which allows tight

control of money transfer activities.

 Simple and transparent products for longer-term saving and financial

security which are flexible and allow ‘payment holidays’.

69
 Affordable home contents insurance, in which the payment of premiums
can be spread across the year.

 Short-term credit facilities offering ‘small, one-off, fixed-term loans rather

than ongoing credit commitments’

 Financial products that meet the requirements of Islam.250

What financially excluded people want are ‘simple products which could be
tailored to the way they have traditionally budgeted… products that are safe,
reliable and don't rip them off’251

The principal measures required therefore centre around reducing barriers to

access, improving product design, improving service delivery, and encouraging
more use of services by under-represented groups. As a first step, greater
flexibility among mainstream lenders in allowing access to credit facilities and a
wider range of borrowing opportunities available to low income groups is
necessary252.

9.3. Increased regulation

An appropriate regulatory framework can be effective in reducing financial

exclusion, both by increasing protection for vulnerable consumers and also by
creating incentives for commercial enterprises to pursue social objectives253.

There are frequent demands made for improved regulation of credit to protect
borrowers from extortionate interest rates; for example the recommendation
that the government should put ‘a 20% cap on consumer credit transactions for
essential domestic goods’254. The Citizen’s Advice Bureaux (CAB) dissents from
the idea of a ceiling rate of interest, but has argued that improvements to
consumer credit legislation are required. In particular, urgent reform is needed
of the 1974 Consumer Credit Act which is criticised as too vague and weak to

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be enforced effectively (and which does not even define what counts as
‘extortionate’ credit). It has also been claimed that licences to issue credit are
too easily obtainable, that neither trading standards officials nor the Office of
Fair Trading have sufficient resources to prosecute breaches of the law, and
that the current practice of putting the onus on borrowers to initiate
proceedings deters many from taking action255.

The key changes recommended by the CAB on credit and debt include:

 an amendment to the extortionate credit test in simplified legislation.

 extension of extortionate credit legislation to allow the courts to consider

whether an agreement is extortionate without the need for an application
from a borrower.

 the abolition of ‘distress’ (the removal or threatened removal of goods) as

a method of enforcing repayment of domestic debts.

 that debt and debt enforcement be examined by the Social Exclusion Unit.

 improved access to basic financial services such as basic bank account.

 reform of the Social Fund to become a cheap form of credit for low
income borrowers.256

The 1999 Consumer White Paper indicated that the government initially
intended to reassess credit provision and respond to some of these
recommendations. However, these initial proposals have not yet led to
legislation.

Another form of regulation which has been recommended is legislation along

the lines of the American Community Reinvestment & Home Mortgage
Disclosure Act, 1977. This obliges financial institutions to disclose information
on their lending activities and to address the needs of ‘under-served’ markets,
such as deprived areas. In return, the ‘banks are supported by incentives, in

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the form of loan guarantees, tax credits and funding for CDFIs that act as
partners’ in investment257. After initially being opposed to this regulation,
American banks have increasingly competed with each other to invest in what
they came to regard as new and expanding markets, and this has resulted in
the development of a wide range of community owned intermediary
organisations which work in partnership with banks258. The Treasury-appointed
Social Investment Task Force recommended greater disclosure of banks’
lending activities in under-invested communities in order to counteract the
‘pervasive impression that such communities are, in effect, enterprise “no-go”
areas’. If voluntary disclosure provided insufficient, then compulsion by
legislation should be considered259. The Bank of England now regularly
monitors access to business finance in deprived areas, but the government has
expressed its reluctance to introduce legislation along the lines of the
Community Reinvestment Act. However, both the UK Government and the
Scottish Executive have expressed their expectation that ‘the financial sector do
more to remove unnecessary barriers: develop the right products, open up
delivery channels and inform customers - to ensure that they serve all sections
of the community equally.’260

9.4. Use of intermediaries & ‘gateways’

According the Forum for the Development of Community-Based Financial

Governance & Institutions, there are three course of action available to respond
to the withdrawal of mainstream financial services from socially excluded
communities: (i) do nothing; (ii) increase regulation along the lines of the
American Community Reinvestment Act; (iii) ‘promote the development of new
community-based financial institutions based on partnership between
mainstream banks, the state and local people’.261

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Interest has been growing in the role of intermediaries and ‘gateway
organisations’ which can bridge the gap between established service providers
and excluded customers through partnerships. According to the New Policy
Institute, the role of such gateways can vary in scope:

 limited role - such as liasing with providers and organising customers to

reduce individual charges and administrative costs by pooling resources
and risks.

 proactive role - advising members of the need for financial services and
how to access them.

 administrative role - organising the collection of payments.

 central role - acting as centres for access and delivery for a range of
services, such as Stakeholder pensions, and operating as ‘Approved
Welfare Providers’262

Whether already existing (such as local authority housing departments, housing

associations or credit unions), or specifically created, it is argued that
intermediary organisations can reduce problems of access to service by acting
collectively in the interests of their members and establishing more equal
relationships with banks and other commercial service providers. Such
intermediary organisations also have the advantage that they will be familiar to
groups who mistrust financial institutions and who ‘want to deal with
organisations which are financially secure, trustworthy and understand their
needs.’263

Some interesting experiments in this area have been initiated. For example,
pilot schemes have been set up in Portsmouth and Salford to test a new type of
financial institution that brings mainstream lenders into deprived communities
through community-based financial institutions which act as intermediaries.
These intermediaries attract finance from the private sector and use this to

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provide services needed by excluded local residents, for example, providing
‘back-to-work loans’ for the newly employed, funding money advice centres,
and establishing industrial and provident societies264. A second innovative
initiative involving an intermediary organisation is the agreement reached
between the Bank of Scotland and the Big Issue magazine to launch banking
services designed specifically for homeless people265. Both examples are fairly
small scale projects, in the initial stages of development, and their effects
remain unclear and in need of assessment. Nevertheless, partnerships between
commercial service providers and collective organisations which represent the
interests of excluded groups have interesting precedents in the development of
‘insure with rent schemes’.

9.4.1 Insurance with rent schemes

Insurance with Rent schemes are now familiar and widespread in Britain. In
such schemes local authorities or housing associations arrange a group policy
for a community or estate. Residents benefit from having a representative with
a strong collective purchasing power, being part of a wider risk pool which can
lower premiums, and dealing directly with an organisation which they are
familiar with and trust. Insurance providers benefit from lack of competition,
high levels of customer loyalty and the regular collection of premiums by the
housing provider (which adds this to the standard rent)266. Both the UK
government and the Scottish Executive have expressed an interest in
expanding the coverage of such schemes, with the Scottish Executive
committing itself to ‘looking at ways to encourage local authorities and housing
associations to work in partnership with the insurance industry to provide
insurance with rent schemes’267.

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9.5. Recommendations for the development of credit unions

Credit unions have been described as ‘the Cinderellas of the savings and loans
world’, but many commentators argue that significant opportunities remain for
them to provide more socially inclusive financial services which offer effective
competition to private sector institutions268.

According to the Local Government Association, the successful future

development of credit unions as a means of tackling financial exclusion lies in
improving recruitment and economic sustainability, rather than adding to the
number of credit unions which already exist269. The lesson which has been
taken from the recent increase in the number of small and barely sustainable
community-based unions is that credit unions must increase the size of their
common bond and the number of potential members. ABCUL estimates that a
critical mass of ‘several hundred if not several thousand’ members is required
to make a union sustainable, and that a more diverse membership with a range
ages and incomes - savers as well as borrowers - is also necessary270. Interest
has grown in encouraging greater use of mixed 'live-work' bonds - a hybrid
between community and employment-based membership.

In order to attract a wider membership, credit unions will have to shed their
image as a ‘poor person’s bank’. As Simon Round of the trade union backed
Unity Trust Bank said: ‘you have to attract members across the social board. To
do that you must get rid of the credit union stigma - they're still seen as a
home for those who can't find credit elsewhere.’ This means that, in the words
of the Strategy Action Team of the Scottish Social Inclusion Network (SSIN),
credit unions cannot ‘operate purely out of social need with no consideration for
business acumen and efficiency’271. In order to promote an improved image as
responsible professionally managed financial institutions, credit unions must
adopt more effective business practices, including operating in accordance with
an established business plan, and improving service delivery and marketing272.
ABCUL argues that experience confirms that professional staff and premises are

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now necessary from the outset if credit unions are to be accepted by potential
members as viable financial organisations. Credit unions should also endeavour
to ensure accessibility by operating longer and more convenient opening hours,
provide continued training for staff and volunteer, extend the range of financial
services they offer, and maintain awareness of the best practice of other
unions273.

It seems likely that continued public subsidy for community credit unions will be
conditional upon ‘achieving self-sufficiency, including the agreement of
business plans, target setting and professional management’ The difficult will
be to achieve these outcomes while retaining the traditional social objectives
and inclusive features of credit unions274.

9.6. Improved financial literacy and advice

Knowledge and awareness of financial products is remarkably low among

marginalised and excluded households. Although several banks have introduced
services designed to assist low-income groups, there remains relatively little
awareness of them among the target groups. Consequently, improving financial
awareness and literacy is regarded by many as an important part of the
response to exclusion. Several commentators have argued that committed
public funding to extending money-advice agencies which specialise in
improving financial literacy would be a valuable complement to improving
channels of access to financial services275.

9.7. Reform of the welfare entitlements

Neither the Social Exclusion Unit nor the SSIN deal with tax and benefits policy
nor the role of redistribution in tackling exclusion. Ultimately, however, some

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consideration must be given to the distribution of income and wealth in any
effective long term anti-exclusion strategy276.

The wider implications of this point extend beyond the remit of this literature
review, but the connections between tax, social security and financial exclusion
cannot be ignored entirely. The association between low income and financial
exclusion is well established, and it remains the case that few conditions are as
likely to lead to low income in the UK as dependency upon public social
assistance. For example, it is estimated that Income Support is provides only
about one-third of the income required for a ‘modest but adequate’ budget, and
that families who receive Income Support are up to £39 a week short of a
tolerable living standard277. Previously, the social security system operated as a
‘lender of last resort’ through the provision of grants as emergency needs
payments additional to Supplementary Benefit. However, under the 1986 Social
Security Act, these additional grants were replaced by the Social Fund, a cash-
limited discretionary source which consists mainly of loans which must be
repaid from already meagre benefits. The fact that the Fund is cash limited
means that demand may outstrip supply, and that irrespective of need or
desert, applicant may be refused assistance. The provision of support from the
Social Fund is also conditional upon the ability to repay, and in 1999-2000,
362,000 applicants were rejected on these grounds278.

Reform of the Social Fund is frequently recommended in the financial exclusion

literature. For example, it has been suggested that it become a national system
of social loans for low income households, with a particular purpose as an
‘income bridge’ available to those making the transition between dependency
upon benefits and re-entering employment279 [273]. A recent report from the
Department of Social Security (DSS) on Saving And Borrowing responded to
these calls for welfare reform and recommended that:

I. people should be able to take out a Social Fund loan to begin a savings
account with a credit union.

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II. Social Fund applicants should be informed in advance how much they are
eligible to borrow and when they can apply for further loans.

III. a more flexible repayment system should be introduced which allows for
some loan repayments to be missed without penalty280

Such reforms could build upon those which came into force on 1 April 1999
which expanded the Social Fund budget and modified certain conditions281.

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10. UK Government Policies On Financial Exclusion

10.1. General features

In 1999, Patricia Hewitt, the Economic Secretary at the Treasury, outlined eight
actions which the UK government would take in response to financial exclusion:

1. Improve access to banking services by rewriting the guidelines on the

identification and evidence required to open an account.

2. Deregulate credit unions to allow them to broaden their activities.

3. Transfer regulation of credit unions to the Financial Services Authority

(FSA).

4. Consider the creation of an Industrial and Provident Societies to develop

community finance.

5. Allocate civil servants to secondment on community development projects.

6. Assist in the formation of new intermediary organisations by creating a

‘challenge fund’ programme which would provide seed-corn support to
underwrite community development schemes.

7. Encourage banks and building societies to develop more appropriate

products for those on low incomes.

8. Revise government systems, such as DSS payments, and provide more

support for money advice and debt counselling.282.

Many of these proposals were derived from recommendations made by

specially appointed research commissions and ‘task forces’, most notably two of
the Policy Action Teams (PATs) set up by the Social Exclusion Unit as part of
the development of the National Strategy for Neighbourhood Renewal. For this

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reason, the main findings and policy proposals of these two PATs are outlined
before considering the government’s subsequent action in these areas.

10.2. Policy Action Team recommendations

10.2.1. PAT 14

Eighteen PATs were established after the launch of the Social Exclusion Unit in
September 1998. Their task was to investigate and make recommendations on
specific areas of policy. PAT 14 was charged with studying access to financial
services, and it published its report on November 16 1999. The full PAT 14
report made over 40 recommendations, but its main points can be distilled to
six:

1. Encourage credit union development; e.g. by creating a new Central

Services Organisation for credit unions (this was also recommended by
the separate Credit Union Task Force appointed by the Treasury283).

2. Promote Insurance with Rent schemes, and extend them to private

tenants and owner-occupiers.

3. Continue to encourage banks and building societies to develop basic

accounting services.

4. Revise the requirements from financial institutions for identity documents

from customers.

5. Reform the Social Fund and extend its existing loan facilities to the low
paid.

6. Promote wider access to debt counselling and financial advice.284

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The Action Team also issued an ‘indicative timetable’ to implement these
reforms with different stages to be reached by the end of 2001, 2003 and
2005.

The government’s initial response to this report was the plan of action directed
by the Treasury described in the previous paragraph285. Its final response was
set out in the National Strategy Action Plan - A New Commitment To
Neighbourhood Renewal published in January 2001. This committed the
government to 44 activities under the headings of improving access to banking
and insurance services, reforming credit unions, revising the regulation of
financial services, improving financial education and money advice, and
devoting particular attention to the impact of these reforms on women and
minority ethnic groups286. The main initiatives which have been undertaken in
these areas so far are described below

10.2.2. PAT 3

The SEU also established a PAT under the direction of the Treasury to study
access to financial services for small businesses in disadvantaged communities.
The report of PAT 3 on Enterprise And Social Exclusion was published on 2
November 1999. This made a total of 24 recommendations in three main areas:
(i) support for businesses, (ii) finance, (iii) barriers to enterprise 287. Many of the
PAT 3 recommendations correspond to those offered by the separate Social
Investment Task Force, an independently established commission which was
overseen by the Treasury288. The details of both bodies are discussed more
fully in the CRSIS review of Community Finance & Social Enterprise; at this
point the focus will remain on issues relating to financial exclusion at the level
of individual and households.

The main recommendations of PAT 3 in the area of principal interest here

related to access to banking services. The Team criticised high-street banks for

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contributing to urban neglect by withdrawing from poorer neighbourhoods. It
called for greater transparency and disclosure from financial service providers
about their activities in such neighbourhoods, and for this to become
mandatory if voluntary disclosure and increased social investment did not
transpire. Compulsory disclosure has not been implemented, instead the
government has stated that ‘banks, building societies and other providers
should continue to develop and promote basic account services’289. The
development of what are known as basic ‘money transmission accounts’ has
therefore become an area of considerable activity in financial inclusion policy.

10.3. Money transmission accounts

In the March 2000 budget statement, the Chancellor of the Exchequer called
for banks to help overcome financial exclusion by offering a basic banking
service to all potential customers. Subsequently the Treasury required the
major banks to have such accounts in place by April 2000 290. Basic money
transmission accounts are designed to allow holders to make frequent small
cash withdrawals and deposits. Such services have now been introduced in
various formats by all the main banks291.

Some of these accounts are very basic indeed and are designed to do little
more than meet of minimum requirements outlined by the government. They
allow only the receipt of wages or other regular income (such as benefits),
direct debit or standing order bill payments, and the ability to withdraw money
from ATMs (‘cash machines’) only while the account remains over £10 in credit.
More extensive forms provide a ‘Solo or ‘Electron’ card, which allow customers
to pay for goods and services without the risk of becoming overdrawn, as the
transaction has to be authorised in the shop, and some allow a £10 ‘overdraft
buffer zone’ so that money may be withdrawn from a cash machine even if it is
only a few pounds in credit. Aside from these few cases, however, such basic

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accounts are not intended to offer credit facilities in order to prevent account
holders from getting into debt292. These accounts are intended to be available
without credit-scoring assessments and have more relaxed rules regarding
acceptable forms of identification (e.g. benefit receipt or rent payment books
instead of passports and driving licenses)293.

It is unlikely that banks will make very much money from these basic accounts,
as customers will pay few charges and it is unlikely that large sums will be
deposited in them. Nevertheless, the Treasury has expressed its expectation
that such the accounts will be ‘actively promoted’ by the financial services
sector294. There are some cases where banks have taken a more pro-active
approach to marketing new basic accounts: the Bank of Scotland’s ‘Easycash’
service introduced in March 1998 now has 130,000 customers. As part of the
development of this service, a pilot programme has been set up in Easterhouse
to provide a local financial advice and information service, including assistance
from staff on business start-up and job applications. Similarly, Barclays has
formed a partnership with Salford City Council, the University of Salford and
several local housing associations to encourage excluded groups to open a
bank account and provide help and advice with application forms and supplying
suitable proof of identity295.

10.4. Post Office reform and the universal bank

A second government initiative to increase access to banking facilities has been

the development of a ‘universal bank’ service through the Post Office. This
development has a number of objectives, not least of which is to preserve the
national post office counters network after the introduction of payment of social
security by automatic credit transfer (ACT) between 2003-2005. This will
replace the use of giro cheques and payment books, and channel benefit
payments directly into bank accounts. This reform could potentially threaten

83
thousands of jobs in sub-post offices throughout the country, many of which
are already in marginalised and excluded areas296 [290]. On the other hand,
the increased use of automated credit transfer will either encourage or require
more low income benefit recipients to open bank accounts and may therefore
improve their access to other financial services. The simultaneous programme
of Post Office computerisation also makes a network of over 18,000 branches
(ten times the size of the largest high street bank) available to provide
additional services297.

The Secretary of State at the Department of Trade and Industry, Stephen

Byers, announced the co-operation of Barclays, Lloyds-TSB, the Royal Bank of
Scotland, Abbey National and the Halifax in the formation of a universal
banking service run through the Post Office in December 2000. The objective,
the Minster stated, was to ‘bring those people currently without bank accounts
into the financial mainstream by offering basic bank accounts’. The total cost of
the project is estimated at £400 million per year, but it remains unclear what
the scale of the private sector contribution to this will be. Disagreement
between the government and the banking sector over this issue has delayed
completion of the proposal298.

The universal bank proposals have been criticised by the National Consumer
Council (NCC) as expensive, ill-considered and duplicating activities in other
areas. The Director of the NCC, Anna Bradley, has argued that the key
questions to be asked of the universal bank policy are: who will pay for it and
would the money be better spent in other ways? No government statement has
been issued on how the costs will be shared between the public and private
sectors, but speculation in the financial press suggests that the four largest
British banks are being asked to contribute £10 million each per year, and the
government is trying to raise another £5-£8 million from each of the smaller
banks and building societies, with the taxpayer assuming the remaining
expenses. However, according to the NCC this subsidy will lead to additional

84
costs for other bank and building society customers, and ‘the competitiveness
of the banking sector may be compromised in European and global terms’299.
The NCC questions the principle that banks and other private sector institutions
have social obligations which extend to offering cheaper, cross-subsidised
services to lower income groups, arguing: ‘If this approach were to be
universally applied… we would logically expect insurance companies to insure
everyone regardless of the risk and supermarkets to provide the poor with
cheaper food.’

Aside from this question, the NCC criticises the current proposals for a universal
bank policy as ad hoc policy making which has been developed for reasons of
political expedience; i.e. to preserve a function for a national Post Office
network following the introduction of electronic welfare benefits payments.
According to the NCC, a superior alternative to the government’s scheme has
been proposed in the Cruickshank review of competition in UK banking,
published in March 2000. It recommended that government should ‘define a
universal service obligation and then tender for the lowest subsidy required to
deliver that service. It recommended that it be funded as an explicit subsidy by
taxpayers, treating basic banking as a public good. It rejected solutions
involving cross-subsidies by bank customers, on the grounds that this distorts
competition. And it urged that the problems of the Post Office network be
decoupled from the universal banking issue.’300

10.5. Reform of credit unions

The UK government has committed itself to developing the role of credit unions
in promoting financial inclusion, despite some scepticism that they are able to
have much of an impact among poor groups and marginal communities. A
Deregulation Order introduced in September 1996 had already modified the
1979 Credit Union Act which had long been the main regulatory instrument in

85
the UK. The government intends to develop upon this earlier re-regulation, as
recommended by the Treasury Taskforce report Credit Unions Of The Future
published in November 1999301. The Taskforce agreed with many of the
recommendations for credit union reform expressed by other commentators
which are discussed above (Sect. 9.5). The Task Force concluded that
‘Sustainability will only be achieved by community credit unions if they have an
appropriate mix of people’ and that increased and more diverse membership
can only be achieved by improving professionalism302.

In November 2000, the Treasury announced a range of measures in response

to these various recommendations. These include:

 allowing unions to have more than the current limit of 5000 members

 allowing unions to borrow money from financial institutions

 allowing unions to charge fees for non-core services

 allowing unions to offer interest-bearing share interests

 allowing members under the age of 18 to save up to the current adult

maximum of £5000

 increasing the maximum loan repayment period from two years to three

 giving members similar protection to bank customers303

A further set of reforms were announced in n March 2001 which included

allowing unions to make larger loans for longer periods, up to 12 years in some
cases which may allow credit unions to offer mortgages304 .

A new Central Services Organisation is also planned for introduction in 2003 to

assist with administration, marketing, management and development, and to
make continuing improvements to the regulatory framework305.

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While generally welcomed, the Association of British Credit Unions Limited has
expressed some disappointment that its own recommendations for reform and
expanding the range of services which credit unions are able to offer were not
introduced. Other commentators have also expressed concern that reformed
credit unions and the proposals for a universal bank will be competing for the
same market and ‘mean that both initiatives fail to realise their potential. This
seems to indicate a need for a more coherent strategy to tackling the problems
of financial exclusion.’306

10.6. Other activities

Aside from these more concrete policy initiatives, there have been a range of
other government measures, suggestions and what might best be described as
speculative proposals directed against financial exclusion. For example, a pre-
Budget Treasury report in 2000 expressed an interest in encouraging savings
by piloting ‘matched funding’ savings accounts along the lines already
developed in certain American states307 . These schemes are described more
fully in Sect. 12 below.

Another initiative which is being piloted by six members of the ‘People for
Action’ housing group, and partly sponsored by the Treasury, is a partnership
between housing associations and the Woolwich bank. Under this scheme, the
Woolwich allows housing officers to act as intermediaries and authorise new
customer accounts. The aim is to make basic bank accounts accessible to
people who would not normally enter a bank branch308.

The Budget Statement in November 2000 announced several fiscal reforms

intended to increase economic activity and business development in high
unemployment areas. These implemented some of the recommendations made
in the Social Investment Task Force Report published in October 2000. This
Task Force concurred with a separate Bank of England report into Finance for

87
Small Businesses that there was a particular need for support for small
businesses and social enterprises which had yet to achieve sustainability and
independence. A full discussion of the recommendations of these two reports
and the response of the Treasury is provided in the review of Community
Finance & Social Enterprise309.

Finally, there has been speculation that the Prime Minister is contemplating the
creation of a new government department and Cabinet Minister responsible for
Social Inclusion to take over the work of the Social Exclusion Unit after the
election. This reflects the view that a separate department with an autonomous
budget would be better able to co-ordinate a national response to social and
financial exclusion310.

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11. Scottish Executive Policies On Financial Exclusion

11. 1. Banking agreements

Like the UK government, the Scottish Executive has committed itself to, in the
words of Social Justice Minister, Jackie Bailey solving the problem of ‘the lack of
access to affordable financial services for people living in our more
disadvantaged communities.’311 The Scottish Executive Social Justice Report
(2000) highlights how the Executive is ‘tackling financial exclusion by working
with Scotland's major clearing banks to provide Basic Bank Accounts that offer
full direct debit and standing order capability’ for people who do not currently
have access to such services. This policy is essentially the same as that
described above at the UK level, although there is some indication of a greater
emphasis on the participation of local authorities and non-government
organisations in the banking agreements which result, and additional efforts to
promote up-take of the accounts which result312. For example, the Community
Banking Agreement developed in Wester Hailes described in Sect 12 below was
enabled by research funded jointly by the Executive and the Bank of Scotland.

11.2. Insurance reform

The Scottish Social Inclusion Network Strategy Action Team Report on Local
Action To Tackle Poverty recommended that ‘Serious consideration … be given
to legislation that provides home contents insurance for all people living within
the rented sector, public or private’. The Executive have not gone as far as
introducing legislation, but have ‘asked insurance companies to look at the
design, delivery and promotion of their household contents and life insurance
policies’ with a view to making these more appropriate to the needs of under-
represented groups.313

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11.3. Financial advice

The SSIN Strategy Action Team also examined the information needs of
financially excluded groups and the services currently available to them. As
their report observed, ‘People in need require ongoing accurate and timely
information on the issues that relate to benefits, credit, insurance and other
finance related issues and must be advised of the services and solutions that
are available to them in a clear, understandable fashion.’ This becomes
particularly important when people consider the transition from benefits into
employment. The Strategy Team found many examples of good practice among
both independent financial advice centres and those provided by local
authorities. However, it also found that local-authority advice services usually
fail to co-ordinate with other council services with the result that ‘clients are
pushed from pillar to post’. Furthermore, ‘financial services in Councils are often
not consumer orientated and the premises are frequently poor and … off-
putting.’ Many of the independent services are under-resourced and have no
long-term funding commitments from their backers (also usually local
authorities) on which they can rely.314

The Strategy Team therefore recommended more consistent provision of

financial advice services and improved financial education within schools as ‘a
key element of any local anti-poverty strategy’. For example, many uninsured
households remain unaware of local authority Insure With Rent schemes, and
there is little point increasing the number of these if take-up remains low
because potential customers have not been informed.

The Executive’s response to these and similar recommendations has been to

pilot a programme to establish a national telephone debtline in partnership with
Money Advice Scotland.315

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11.4. Reform of credit unions in Scotland

Scottish Executive policy in the reform and promotion of credit unions also
resembles the strategy adopted by the British government. The principal steps
which are to be taken are outlined in the report of the National Credit Union
Strategy Working Group published late in 2000. The Action Plan outlined in this
report commits £1.5 million over three years to expand and widen credit union
membership in Scotland and achieve economic sustainability316. The National
Development Strategy for Credit Unions expresses the Executive’s commitment
to ‘see credit unions operating as financial businesses, promoting the image of
being a serious and credible outfit, and successfully challenging the image of
being a poor person’s bank’317.

The Executive has set a target of half a million credit union members in
Scotland (5% of the population) by 2005. Other action plan objectives include:

 Doubling the number of staff and volunteers involved in unions from 1600
to 3200.

 Increase the skills and training of volunteers.

 Creating a central support system for credit unions

 Changing public perceptions of credit unions.

 Ensuring that all credit unions are solvent and self-sustainable by means
of a ‘health check’ programme and access to a central loan fund to serve
as a debt recovery service or fund the purchase of premises.

 Assisting all credit unions to meet a new regulatory framework which will
be established by the Financial Services Authority.318

This a action plan will be overseen by a new Scottish Credit Union Partnership

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Although generally well received, it has been observed that the Scottish
Executive’s action plan on credit union development contradicts other features
of the social inclusion and social justice programme in Scotland. For example,
while credit unions are encouraged to become more business-like and self-
sustainable, the ‘provision of area-based funding for Social Inclusion
Partnerships (which tend to be relatively small and deprived areas) results in
the common bonds of credit unions being restricted, thus constraining the
development potential of community based credit unions established in these
areas.’319

11.5. Community finance investment

Two significant measures have been by the Scottish Executive in the area of
social and community investment. The first is the creation of a Social
Investment Fund which is designed to ‘provide commercial rate loans and
technical assistance to not-for-profit organisations… and stimulate the social
economy’320. The second is the forthcoming (summer 2001) launch of Social
Investment Scotland - which is intended to shift the emphasis in community
regeneration from the provision of public grants to encourage more commercial
and entrepreneurial initiatives by means of investment and business support to
social enterprises321. This innovation corresponds to the recommendation of the
Social Investment Task Force and the most recent policy statements from the
UK Treasury. It is an aspect of anti-exclusion policy which will be discussed in
another component in this literature review series.

92
12. Community Action On Financial Exclusion: Initiatives In
Wester Hailes

There are several reasons why some of the measures to tackle financial
exclusion in Wester Hailes deserve specific attention. Firstly, as a result of the
research commissioned by the local Representative Council (WHRC), there is
level of detailed knowledge about financial exclusion in this community which is
matched in few comparable areas. Secondly, Wester Hailes has been an area of
policy innovation in urban regeneration and community development for over a
decade: it was designated as a Partnership area in 1988 under the New Life for
Urban Scotland programme, and subsequently became part of a Working for
Communities Pathfinder Project area in 1998. This has allowed community
organisations to mature and devise imaginative responses to social and
financial exclusion, such as the first Community Banking Agreement in Britain
and the initial stages of the first Individual Development Accounts (IDAs) in
Europe.

As a report to the SSIN on the development of the Wester Hailes Community

Banking Agreement points out, ‘the lack of banking facilities became a major
concern in Wester Hailes even before its completion in the early 1970's’ 322.
Initiatives such as the formation of a community credit union, the Wester Hailes
Business Development Fund and the New Life for Urban Scotland Partnership
had not satisfactorily resolved this problem by the time that the area was
accorded Pathfinder status in the summer of 1998. The function of the
Pathfinder initiative is to ‘explore new ways of delivering public and private
services in the area.’ Consequently, in December 1999 the WHRC secured
£6,000 from the Bank of Scotland and £7,300 from the Scottish Executive to
investigating local banking needs as a first step to reducing financial exclusion.
The results if this research are reported in Sect. 6.7.2 above. The research

93
indicated a level of untapped demand in the community which offered the
possibility of a partnership between commercial and social interests, which is
the intention of the Community Banking Agreement formally launched on 19th
March 2001.

The Community Banking Agreement has been described as the first of its kind
in Europe, as unlike other local banking arrangements, the Wester Hailes
agreement incorporates responses to a range of local financial needs. These
include:

 access to basic bank accounts

 accessible insurance provision

 a small consumption loan scheme

 micro finance and support for local people who would like to set up their
own businesses

 an employment and enterprise programme for young local people

 money advice and education programmes which include lessons in local

schools323

The Wester Hailes Community Banking Agreement has been described by the
Scottish Social Justice Minister as an approach to financial exclusion which
should be replicated throughout Scotland324. It is, of course, still at a very early
stage of development, but it offers an interesting model, the lessons of which
should be carefully monitored.

Another area of innovation being explored in Wester Hailes is the possibility of

Individual Development Accounts (IDAs). These already exist in America, where
they are often used to encourage lower income people to save for a specific
purpose, such as education or training courses, or buying a home. Under the
provisions of such a development account, a private sector partner agrees to

94
administer a savings account in which every contribution by the individual
holder receives matched funding from public funds. According to research
carried out by the Institute of Public Policy Research, IDAs in over 30 American
states have successfully provided incentives for financially excluded groups to
save, and have proven more effective than tax credits in raising incomes325.

This option remains in the very earliest stages of development, but it more
advanced in Wester Hailes than in any other part of Scotland or Britain. It
represents another innovative response to financial exclusion and further
possible lessons for developing effective strategies to tackle the social divisions
and other problems which have been shown to result from such deprivation.

95
13. Conclusions

As this literature review has shown, financial exclusion is an expanding area of

commentary, research, and policy discussion. Much is known already, if not
always precisely about this problem: its scale, who suffers from it and why, and
the success or otherwise of various attempts to deal with it. Nevertheless,
much remains to be analysed, and the following points are intended merely to
indicate a few of the remaining issues which merit future attention.

The first and most obvious need for future research will be to monitor and
evaluate the results of policy developments currently underway. These include
the various initiatives which have been introduced as part of the National
Strategy for Neighbourhood Renewal, the proposals for the reform of credit
unions, Individual Development Accounts, and local schemes such as the
Wester Hailes Community Banking Agreement326.

There is also a need for measures and evidence which are more sensitive to
local areas and conditions. For example, the preparatory research for the
Wester Hailes Community Banking Agreement demonstrated that the local
economy (including the assets of local community organisations) was quite
considerable: local community organisations had a collective annual turn-over
of £4.8 million, £2 million deposited in local banks and collective tangible assets
of over £8 million. The same study also found a much higher level of interest in
business start-up among local people than was initially expected327. This is
potentially a promising market for private financial interests if the right kind of
partnership arrangements can be devised to access it in a way which also
benefits the community. However, this opportunity would not be a apparent by
extrapolating from national-level data.

96
Some commentators have also argued that practical solutions to problems of
local financial exclusion must be based on a better understanding of social
relations. For example, Ford and Rowlingson argue that we should not always
think of the financially excluded as having been expelled from services, as this
ignores individual judgements and actions and can lead to inappropriate policy
recommendations. As one illustration of this, there are rational reasons behind
the greater than average use of money-lenders and retail credit among low
income households, and effective strategies of inclusion should be aware of and
seek to incorporate the perceived advantages of these financial services328. A
more refined knowledge of micro-budgeting processes and decisions would
assist in developing sensitive policy responses to financial exclusion

At the other extreme, it must be recognised that local financial services and
community-based initiatives operate in the context of national and global
economic structures. Localised responses alone cannot deal with problems
generated at national and international levels, although they may be able to
ameliorate their worst features and overcome specific disadvantages329.
Continued investigation of the macro-structural causes of social and financial
exclusion must therefore be continued.

97
References & Notes.

1
. The Guardian. 5 Dec. 1998. p. 2; Financial Services Authority, 2000: 5.
2
. Sheldon, et al. 2000: 6.
3
. Davies, Nutley & Smith, 2000.
4
. Sheldon, et al. 2000.
5
. Sheldon, et al. 2000.
6
. Wilkinson, 1998: 3.
7
. Barataria UK (nd).
8
. The Guardian. 5 Dec. 1998. p. 2-3; Dayson & Paterson, 1999.
9
. Scottish Executive, 2001a.
10
. Scottish Executive, 2001a.
11
. Howarth et al, 1999: 7.
12
. Levitas, 1998: 39.
13
. The Guardian. 5 Dec. 1998.
14
. Dayson & Paterson, 1999.
15
. Leyshon & Thrift, 1996: 1151.
16
. Bank of England, 2000: 2.
17
. Levitas, 1998: 39.
18
. Quoted in SCVO (nd); SCVO, 2000: 2.
19
. The Scottish Parliament Information Centre, 2000b.
20
. Bradshaw, et al, 1998.
21
. Joseph Rowntree Foundation, 2000.
22
. Scottish Executive Poverty And Inclusion Task Force, 1999: 24.
23
. Financial Services Authority, 2000: 8.
24
. O’Connor & Lewis, 1999.
25
. Harman, 1997.
26
. Rogaly & Fisher, 1999: 3.
27
. Choitz, 1998: 5; Financial Services Authority, 2000: 9.

98
28
. Rogaly & Fisher, 1999: 3.
29
. The Guardian. November 17. 1999.
30
. Barataria UK (nd).
31
. Fisher, Mayo & Rogaly, 1999: 131.
32
. Fisher, Mayo & Rogaly, 1999: 132.
33
. Fisher, Mayo & Rogaly, 1999: 144.
34
. Titmuss, 1958.
35
. Joseph Rowntree Foundation, 2000; Kempson & Whyley, 1999: 12.
36
. Social Investment Task Force. 2000: 31.
37
. Rogaly & Fisher, 1999: 3; Social Investment Task Force. 2000: 31.
38
. Rogaly & Fisher, 1999: 1.
39
. Fisher, 2000.
40
. Fisher, 2000.
41
. Social Investment Task Force, 2000: 3.
42
. Fisher, 2000.
43
. New Economics Foundation, 2001.
44
. Fisher, 2000; Fisher, Mayo & Rogaly, 1999: 139.
45
. Fisher, 2000. 45.
46
. Social Investment Task Force, 2000: 27; Bank of England, 2000.
47
. Rogaly & Fisher, 1999: 3.
48
. Social Investment Task Force, 2000: 30.
49
. New Economics Foundation, 2001.
50
. Hayton, 2000.
51
. Hayton, 2000.
52
. Bank of England, 2000; Social Investment Task Force, 2000.
53
. Hayton, 2000.
54
. New Economics Foundation, 2001.
55
. For further details see the website of Barataria UK.
56
. New Economics Foundation, 2001.
57
. Leyshon & Thrift, 1996: 1151.

99
58
. Barry, 1998 iv.
59
. Speak & Graham, 1999: 1985.
60
. Barataria UK (nd).
61
. Speak & Graham, 1999: 1985.
62
. New Economics Foundation, 2001.
63
. Rogaly & Fisher, 1999: 3.
‘Citizenship’ is a term common in political theory and increasingly familiar in discussions of
social policy to describe the terms and conditions associated with full membership of society.
The most influential discussion of the concept is that of TH Marshall, 1992.

64
. Howarth et al, 1999: 72.
65
. Social Exclusion Unit. 2000.
66
. Joseph Rowntree Foundation, 1999.
67
. NACAB (nd(a)).
68
. The Guardian. 5 Dec. 1998: 2.
69
. The Guardian. 28 Sept. 1998: 6.
70
The Guardian. Nov. 20. 1999.
71
. SSIN Strategy Action Team, 1999; The Guardian. April. 19. 2000.
72
. The Guardian. Nov. 20. 1999.
73
. The Guardian. Dec. 18. 2000.
74
. The Guardian. Nov. 20. 1999.
75
. Joseph Rowntree Foundation, 1999.
76
. NACAB (nd(b)); The Guardian. Dec. 18. 2000.
77
. The Guardian. Nov. 20. 1999.
78
. Kempson & Whyley, 2000.
79
. Barataria UK (nd).
80
. SSIN Strategy Action Team, 1999.
81
. Quoted in Cohen et al, 1992: 24.
82
. The Guardian. Dec. 5. 1998.
83
. The Guardian. Dec. 5. 1998.
84
. The Guardian. Nov. 20. 1999.

100
85
. Boléat, 1998: 26.
86
. Boléat, 1998: 26.
87
. The Guardian. Dec. 5. 1998.
88
. National Consumer Council (2001b).
89
. Barataria UK (nd).
90
. The Guardian. Jan. 24. 2001.
91
. The Guardian. Jan. 24. 2001.
92
. Howarth et al, 1999: 7.
93
. The NPI indicator #50 shows the number of households in the UK which were a year or more
in arrears with their mortgage repayments, based on figures from the Council of Mortgage
Lenders, 1999.

94
. Scottish Executive, 1999b: 23.
95
. Scottish Executive Poverty And Inclusion Task Force, 1999.
96
. Fisher, Mayo & Rogaly, 1999: 131.
97
. The Guardian. Dec. 5. 1998.
98
. Financial Services Authority, 2000: 7; Joseph Rowntree Foundation, 1999; Social Exclusion
Unit, 2000.
99
. The Herald. March. 22. 1999; The Guardian. March. 27. 1999.
100
. Lothian Anti Poverty Alliance website:
http://www.lapa.org.uk/Poverty/Statistics/UK%20statistics.htm

101
. Joseph Rowntree Foundation, 2000.
102
. Lothian Anti Poverty Alliance website.
According to the Financial Services Authority (2000: 21), the figure was between 31-37%.

103
. Scottish Executive, 1999c: 123.
104
. The Guardian. Sept. 11. 2000; The Joseph Rowntree Foundation gives a figure of 25%
(Joseph Rowntree Foundation, 2000), and the 1999 Scottish Household Survey says that
‘slightly more than half of all households have some form of savings or investments.’ (Scottish
Executive, 1999c: 122).

105
. The Guardian. March. 12. 2001; Lothian Anti Poverty Alliance website.
106
. Lothian Anti Poverty Alliance website; The Guardian. March. 12. 2001; see also The
Guardian. May. 11. 2000.

101
107
. Financial Services Authority, 2000: 11; Scottish Executive, 1999c: 123.
108
. The Guardian. Dec. 6. 2000.
109
. Rogaly, 1999: 25; Financial Services Authority, 2000: 21.
110
. Social Exclusion Unit, 2000; The Guardian. Sept. 28. 1997.
The New Policy Institute gives a household figure of 9% (Howarth et al, 1999: 73).

111
. Rogaly, 1999: 27.
112
. Howarth et al, 1999: 73.
113
. The Guardian. Sept. 28. 1997;Rogaly, 1999: 25; Financial Services Authority, 2000: 21.
114
. The Guardian. Sept. 11. 2000.
115
. Financial Services Authority, 2000: 21.
116
. Boléat, 1998: 26.
117
. Oppenheim & Harker, 1996: 76. Rogaly, 1999: 26
118
. ‘Multiple debt’ was defined as problem meeting three or more household or consumer
expenses.

119
. Howarth et al, 1999: 86.
120
. Howarth et al, 1999: 8.
121
. NACAB (nd(b)). GDP in the UK rose from £229. billion in cash terms in 1980 to £888.9
billion in 1999 (or £504.8 to £788.8 at 1995 prices).

122
. NACAB (nd(a)).
123
. NACAB (nd(a)).
124
. The Guardian. Dec. 18. 2000.
125
. Poverty. 107. Autumn 2000. p. 5; Financial Services Authority, 2000: 21 gives a figure of
27%.
126
. Ginn & Arber, 2000: 211.
It should be noted that being excluded from an occupational pension is not the same as not
being a member of such a scheme, as many non-members may voluntarily choose to opt out of
an employers scheme, e.g. remain in SERPS or take out an approved personal pension.

127
. ONS, 1998: B.32.8.
128
. Poverty. 107. Autumn 2000. p. 5.
129
. Walker, 1997: 9; Le Grand and Agulnik, 1998: iii.

102
130
. CASE, 1998: 5; Sinfield, 1999a: 3.
131
. Sinfield, 1989.
132
. Sinfield, 2000.
133
. NACAB (nd(a)); Rogaly, 1999: 25; Joseph Rowntree Foundation, 1999.
134
. According to the DSS Family Resource Survey, 1995/96, one fifth of the poorest households
do not have any bank or building society account, compared with one sixteenth of households
on average income. DSS, 1996. See also Howarth et al, 1999: 79.

135
. The Guardian. March. 22. 1999.
136
. Joseph Rowntree Foundation, 1999.
137
. Howarth et al, 1998.
138
. Howarth et al, 1999: 81.
139
. ONS, 1998: B.32.8; Le Grand & Agulnik, 1998: 6.
140
. Socio-economic categories :
1. Professionals/managers in organisations with 25 or more employees.
2. Intermediate non-manual /managers, in organisations with under 25 employees.
3. Junior non-manual.
4. Skilled manual, including supervisory.
5. Semi-skilled manual / personal service.
6. Unskilled manual.
141
. See note 126 above about the difference between exclusion and non-membership of an
occupational pension.

142
. Joseph Rowntree Foundation, 1999.
143
. The Guardian. Dec. 5. 1998.
144
. Social Exclusion Unit, 2000.
145
. The Guardian. April. 5. 2000.
146
. Joseph Rowntree Foundation, 1999; Kempson & Whyley, 1999: 5 (Table 2.1).
147
. Barataria UK (nd).
148
. Shucksmith & Arkleton. 2000; Phillips, 1999.
149
. Taylor, 1998: 820.
150
. Wilcox, 2000: 103 (Table 17b). The comparable figures for England were - 58.2% in 1981 to
68% in 1998. See also Financial Services Authority, 2000: 14.

151
. Currie & Murie, 1996: 60.
152
. Lothian Anti Poverty Alliance website.

103
153
. Howarth et al, 1999: 7.
154
. The Guardian. Dec. 13. 2000. This figure is confirmed in the 1999 NPI survey - Howarth et
al: 1999: 77.

155
. The Guardian. Dec. 5. 1998.
156
. The Guardian. Dec. 5. 1998.
157
. Howarth et al, 1999: 73; Scottish Executive, 1999c: 123.
158
. Scottish Executive, 1999c: 122.
159
. Scottish Executive, 2001.
160
. The Guardian. Dec. 5. 1998; Howarth et al, 1999: 79.
161
. Howarth et al, 1999: 73.
162
. The Guardian. March. 29. 1999.
163
. Rogaly, 1999: 26.
164
. The Guardian. Dec. 5. 1998.
165
. Financial Services Authority, 2000: 12.
166
. The Guardian. Dec. 5. 1998. Part-time, self-employment and temporary work grew from
15% of total male employment in 1986 to 25% in 1996; for women it grew from 50% to 53%
(Dex, 1999: 22.)

167
. The Guardian. Dec. 5. 1998.
168
. Financial Services Authority, 2000: 12.
169
. Joseph Rowntree Foundation, 1999.
170
. Joseph Rowntree Foundation, 1999.
171
. The Herald. March. 22. 1999. See also note 146.
172
. Kenway & Rahman, 2000: 20.
173
. Scottish Executive, 1999c: 122.
174
. Kenway & Rahman, 2000: 20; Scottish Executive. 2001: 67.
175
. Scottish Executive, 1999c: 122.
The MOSIAC categories are a means of classifying areas and neighbourhoods by the socio-
economic characteristics of the households within them.

176
. IDK Consult. 2000: 6.
177
. Kenway & Rahman, 2000: 20.

104
178
. Barataria UK (nd).
179
. Scottish Executive, 1999c: 123.
180
. Kenway & Rahman, 2000: 16-18.
181
. Kenway & Rahman, 2000.
182
. SSIN/Howard, 2000.
183
. IDK Consult. 2000: 5.
184
. IDK Consult. 2000.
185
. IDK Consult. 2000: 12.
186
. IDK Consult. 2000.
187
. SSIN/Howard, 2000.
188
. Joseph Rowntree Foundation, 1999; Social Exclusion Unit, 2000.
189
. Social Exclusion Unit, 2000; The Herald. March. 22. 1999.
190
. The Guardian. Dec. 5. 1998.
191
. Financial Services Authority, 2000: 13-14.
192
. Joseph Rowntree Foundation, 1999.
193
. The Guardian. March. 22. 1999; Joseph Rowntree Foundation, 1999.
194
. Leyshon & Thrift, 1996: 1152; Rogaly, 1999: 27.
195
. Financial Services Authority, 2000: 15.
196
. Rogaly, 1999: 27; Leyshon & Thrift, 1996: 1150.
197
. Marshall, et al, (nd); Rogaly, 1999: 28; Financial Services Authority, 2000; The Guardian.
April. 19. 2000.

198
. Financial Services Authority, 2000; Leyshon & Thrift, 1996: 1151; Rogaly, 1999: 25.
199
. Leyshon & Thrift, 1996: 1151; Rogaly & Fisher, 1999: 4.
200
. Rogaly, 1999: 28.
201
. Rogaly, 1999: 28. Of course, there are other factors which contribute to changes in people’s
travel and shopping behaviour and the spatial distribution of retail outlets.

202
. The Guardian. April. 19. 2000.
203
. Financial Services Authority, 2000: 16-17; Rogaly & Fisher, 1999: 4.
204
. Financial Services Authority, 2000: 12; The Guardian. Sept. 28. 1997; Rogaly, 1999: 27.

105
205
. Rogaly, 1999: 27; Leyshon & Thrift, 1996: 1150.
206
. Financial Services Authority, 2000: 18; Rogaly, 1999: 26.
207
. SSIN Strategy Action Team, 1999; Rogaly, 1999: 27; Financial Services Authority, 2000: 18.
208
. Financial Services Authority, 2000.
209
. Rogaly, 1999: 28; Financial Services Authority, 2000: 18; The Guardian. Dec. 5. 1998.
210
. Rogaly, 1999: 28; Financial Services Authority, 2000.
211
. MacDonald, 1996: 1185.
212
. The Guardian. Sept. 28. 1997.
213
. Fisher, Mayo & Rogaly, 1999: 134; Rogaly, 1999: 28; Taylor, 1998: 821.
214
. The Guardian. Sept. 28. 1997.
215
. Fisher, Mayo & Rogaly, 1999: 133 - italics in the original.
216
. Social Exclusion Unit, 2000; Financial Services Authority, 2000: 16.
217
. Burrows, 1999, cited by Rice, 2001.
218
. Rogaly, 1999: 25.
219
. Joseph Rowntree Foundation, 1999.
220
. Financial Services Authority, 2000: 18.
221
. Joseph Rowntree Foundation, 1999.
222
. The Guardian. Sept. 28. 1997.
223
. Joseph Rowntree Foundation, 1999; The Guardian. March. 27. 1999; The Herald. March.
22. 1999; Financial Services Authority, 2000: 13.

224
. The Guardian. March. 27. 1999.
225
. The Guardian. March. 12. 2001.
226
. Rogaly, 1999: 26; Cohen et al, 1992: 42ff.
227
. Fisher, Mayo & Rogaly, 1999: 132; Rogaly, 1999: 28; The Observer. Aug. 22. 1999.
228
. Rogaly, 1999: 2.
229
. Fisher, Mayo & Rogaly, 1999: 140.
230
. Quoted in The Scottish Parliament Information Centre, 2000a: 1.
231
. Redmond, 2001.
232
. The Scottish Parliament Information Centre, 2000a.
233
. The Guardian. Feb. 20. 2001; The Scottish Parliament Information Centre, 2000a.

106
234
. The Guardian. Nov. 17. 1999; The Scottish Parliament Information Centre, 2000a.
235
. The Scottish Parliament Information Centre, 2000a; The Guardian. Nov. 17. 1999.
236
. Social Exclusion Unit, 2000; The Scottish Parliament Information Centre, 2000a.
237
. Scottish Executive National Credit Union Strategy Working Group, 2000: 3.
238
. Redmond, 2001; The Guardian. Feb. 20. 2001; The Guardian. Dec. 6. 2000; HM Treasury,
1999a.

239
. The Scottish Executive National Credit Union Strategy Working Group, gives a figure of
credit union membership in Scotland in 2000 of 119,595.

240
. The Sunday Herald. 11 March. 2001; Centre for Economic Development and Area
Regeneration /The Planning Exchange, 2000.

241
. Centre for Economic Development and Area Regeneration /The Planning Exchange, 2000.
242
. SSIN Strategy Action Team, 1999; Rahman, 1999.
243
. Fisher, Mayo & Rogaly, 1999: 134; Centre for Economic Development and Area
Regeneration /The Planning Exchange, 2000; HM Treasury, 1999a.

244
. HM Treasury, 1999a.
245
. The Guardian. Feb. 20. 2001; Centre for Economic Development and Area Regeneration
/The Planning Exchange, 2000.

246
. The Scottish Parliament Information Centre, 2000a: 4.
247
. Dayson & Paterson, 1999; Centre for Economic Development and Area Regeneration /The
Planning Exchange, 2000; The Guardian. 8 February 1999.

248
. Centre for Economic Development and Area Regeneration /The Planning Exchange, 2000.
249
. Rogaly & Fisher, 1999: 5; Rogaly, 1999: 29.
250
. Joseph Rowntree Foundation, 1999.
251
. The Guardian. 22 March. 1999.
252
. Fisher, Mayo & Rogaly, 1999: 133; NACAB. (nd(b): 1.
253
. Rogaly, 1999: 29.
254
. The Guardian. 18 Dec. 2000.
255
. NACAB. (nd(b): 1; The Guardian. 20 Nov. 1999.
256
. NACAB. (nd(b): 1; NACAB. (nd(a).

107
257
. Leyshon & Thrift, 1996: 1151; Social Investment Task Force, 2000.
258
. SSIN Secretariat, 2000.
259
. Social Investment Task Force, 2000: 6.
260
. Scottish Executive, 1999d.
261
. Dayson & Paterson, 1999.
262
. Palmer & Donovan, 1999.
263
. Joseph Rowntree Foundation, 1999.
264
. Dayson & Paterson, 1999.
265
. Rice, 2001; The Observer. Aug. 22. 1999.
266
. Social Exclusion Unit, 2000; Rogaly, 1999: 25; SSIN Strategy Action Team, 1999.
267
. Quoted in GOSSIP (the newsletter for Social Inclusion Partnerships). Summer 2000. p. 5.
268
. The Guardian. Dec. 6. 2000; Fisher, Mayo & Rogaly, 1999: 134.
269
. Cited in Centre for Economic Development and Area Regeneration /The Planning
Exchange, 2000.

270
. The Scottish Parliament Information Centre, 2000a.
271
. The Guardian. Feb. 20. 2001; The Guardian. Nov. 17. 1999; SSIN Strategy Action Team,
1999.

272
. Centre for Economic Development and Area Regeneration /The Planning Exchange, 2000;
Redmond, 2001.

273
. The Scottish Parliament Information Centre, 2000a; Redmond, 2001; The Guardian. Feb.
20. 2001.

274
. Centre for Economic Development and Area Regeneration /The Planning Exchange, 2000.
275
. Joseph Rowntree Foundation, 1999; SSIN Strategy Action Team, 1999; Rogaly, 1999: 29;
Fisher, Mayo & Rogaly, 1999: 139.

276
. Fimister, 2001.
277
. McCormick & Leicester, 1998.
278
. The Guardian. Dec. 18. 2000.
279
. The Guardian. April. 19. 2000; The Guardian. Nov. 20. 1999; Policy Action Team 3, 1999;
The Guardian. Jan. 24. 2001.

280
. DSS, 2001.

108
281
. The Guardian. Jan. 24. 2001.
282
. Dayson & Paterson, 1999.
283
. HM Treasury, 1999a.
284
. HM Treasury, 1999b; Social Exclusion Unit, 2000.
285
. The Guardian. Oct. 25. 1999; HM Treasury, 1999b; Financial Services Authority, 2000.
286
. HM Treasury, 1999b; Social Exclusion Unit, 2001.
287
. Policy Action Team 3. 1999: 3.
288
. Social Investment Task Force, 2000.
289
. The Guardian. March. 7. 2001; Social Exclusion Unit, 2001.
290
. National Consumer Council, 2001b; The Guardian. April. 8. 2000.
291
. The Guardian. Oct. 25. 1999.
Lloyds TSB, Barclays, Nat West, the Co-operative Bank, Yorkshire Bank, Halifax, Abbey
National, Woolwich and all of the principal Scottish banks have introduced basic money
transmission accounts.

292
. The Guardian. April. 8. 2000; The Guardian. Nov. 20. 1999; The Guardian. Dec. 6. 2000.
293
. National Consumer Council, 2001b; The Guardian. April. 8. 2000.
294
. The Guardian. April. 8. 2000.
295
. The Observer. Aug. 22. 1999; The Guardian. April. 8. 2000.
296
. The Guardian. April. 8. 2000; The Guardian. March. 7. 2001; The Guardian. March. 17.
297
. Social Exclusion Unit, 2000.
298
. National Consumer Council, 2001a.
299
. National Consumer Council, 2001a; National Consumer Council, 2001b.
300
. National Consumer Council, 2001b.
301
. Centre for Economic Development and Area Regeneration /The Planning Exchange, 2000;
H M Treasury, 1999a.

302
. Scottish Executive National Credit Union Strategy Working Group, 2000; The Guardian. Feb.
20. 2001.
303
. The Herald. Nov. 17. 2000; The Guardian. Nov. 17. 1999.
304
. The Guardian. March. 12. 2001.
305
. The Guardian. Nov. 17. 1999; The Guardian. Feb. 20. 2001; The Guardian. Dec. 6. 2000.

109
306
. Centre for Economic Development and Area Regeneration /The Planning Exchange, 2000.
307
. The Herald. March. 22. 1999.
308
. The Guardian. Feb. 28. 2000.
309
. Social Investment Task Force, 2000; Bank of England, 2000.
310
. The Guardian. Nov. 27. 2000; Alcock, 2001.
311
. Scottish Executive 1999d.
312
. Scottish Executive, 2000; GOSSIP, Summer 2000.
313
. SSIN Strategy Action Team, 1999; Scottish Executive, 1999a.
314
. SSIN Strategy Action Team, 1999.
315
. Scottish Executive, 2001a; GOSSIP, Summer 2000; Scottish Executive, 2000.
316
. Scottish Executive, 2001a; Scottish Executive National Credit Union Strategy Working
Group, 2000.

317
. GOSSIP, Summer 2000.
318
. The Sunday Herald. March. 11. 2001; Scottish Executive, 2001a; Scottish Executive
National Credit Union Strategy Working Group, 2000: 4.

319
. Centre for Economic Development and Area Regeneration /The Planning Exchange, 2000.
320
. GOSSIP, Summer 2000.
321
. Skinner, 2001; Social Investment Task Force, 2000: 4.
322
. Unless otherwise stated, all the information and quotations in this section are taken from
SSIN/Howard, 2000.

323
. Scottish Executive, 2001c; GOSSIP. Winter, 1999; Scottish Executive, 1999d.
324
. Scottish Executive, 2001c.
325
. The Guardian. March. 10. 2001.
326
. The last two are priority research areas for the Centre for Research into Socially Inclusive
Services.

327
. IDK Consult, 2000: 26.
328
. Ford and Rowlingson, 1996.
329
. Fisher, Mayo & Rogaly, 1999: 132.

110
Appendix: Key Texts & Studies

1. Data on Financial Exclusion

1.i. UK-wide
Financial Services Authority. (2000). In Or Out? Financial Exclusion -
A Literature And Research Review. (Consumer research 3).
London: Financial Services Authority.
This is a useful starting point to the analysis of financial exclusion. It offers an
overview of the current state of research in the UK and summarises the results
of the numerous discussions which have been published between 1995-2000.
Separate chapters are devoted to the social, economic and business context of
financial exclusion; the groups and areas which lack access to bank accounts,
savings, insurance, pensions and credit; the ‘barriers’ to inclusion which such
groups face in terms of access problems, inappropriate products, affordability
and literacy; the consequences of exclusion; financial exclusion in America; and
measures to overcome financial exclusion.

Ford, J. & Rowlingson, K. (1996). ‘Low-Income Households And

Credit: Exclusion, Preference, And Inclusion.’ Environment and
Planning. 28 (8) Aug.
An article which considers the extent of financial exclusion in the UK and
argues that greater attention should be given to issues of agency; i.e. ‘self-
exclusion’ instead of exclusion by institutions and service providers. The
authors argue that there is an element of choice in the use of retail credit and
moneylending services among the ‘excluded’, despite their higher costs. The
social and policy implications of the credit choices made in low income
communities are discussed.

111
Kempson, E. & Whyley, C. (1999). Kept Out Or Opted Out?:
Understanding And Combating Financial Exclusion. Bristol: Policy
Press.
A research study which examines whether the lack of use of financial services is
attributable to denial of access by service providers or self exclusion. It is based
on secondary analysis of the Family Resources Survey, in-depth interviews with
87 households characterised by limited use of mainstream financial services
and focus groups which examined preferences and financial service needs in
contemporary Britain. The study examines the composition, background and
experiences of the excluded. Separate chapters are devoted to the extent of
financial exclusion, the causal processes which underlie it, the consequences of
exclusion in terms of unmet needs and social exclusion more generally, and the
need for services which are more appropriately designed and delivered.

Rogaly, B, Fisher, T, & Mayo, E. (1999). Poverty, Social Exclusion And

Microfinance In Britain. Oxford: Oxfam Publishing,.
An in-depth introduction to and discussion of the nature and extent of financial
exclusion in the UK and its relationship to social exclusion more generally. It
puts these issues into an international context and draws lessons from the
experience of projects aimed at tackling financial exclusion in other countries,
particularly in the developing world. Separate chapters and sections are
devoted to introducing the main issues and defining the principal concepts used
in this field, documenting changes in the financial services industry which have
heightened problems of financial exclusion in Britain, discussing responses to
financial exclusion by governments, the private sector and the ‘third sector’ of
community and non-governmental organisations. Two chapters are devoted to
micro-financial initiatives and institutions, at the British level, and international
examples.

112
Whyley, C, Collard, S. and Kempson, E. (2000). Saving and Borrowing:
Use of the Social Fund Budgeting Loans and Community Credit
Unions. London: DSS Research Report No.125.
http://www.dss.gov.uk/asd/asd5/rport125.html.
A research report based on in-depth interviews which compares the
experiences and perceptions of a small sample of applicants for Social Fund
Budgeting Loans with Community Credit Union members. Little overlap in the
composition of these two groups was found, and their experiences were
significantly different. Those who applied for Budgeting Loans were more
disadvantaged and financially vulnerable than Credit Union members.
Experience of Credit Union borrowing was more positive than borrowing from
the Social Fund, but there were indications that recent reforms to the
Budgeting Loan scheme had been received favourably.

Additional Sources
Burchardt, T. & Hills, J. (1998). ‘Financial Services And Social Exclusion.’
Insurance Trends. 18.
Burrows, B. (1999). Living In A Homeless Hostel: You Wouldn't Credit It!
Glasgow: Money Advice Scotland.
DSS. (200). Opportunity For All, One Year On: Making A Difference. (Cmnd
4865). The Stationery Office.
Herbert, A. & Kempson, E. (1996). Credit Use And Ethnic Minorities. London:
Policy Studies Institute.
Kempson, E. (1994). Outside The Banking System. Social Security Advisory
Committee Report No’ 6. London: HMSO.
Kempson, E. (1999). ‘Insured With Rent Schemes’. Insurance Trends. 22.
Kempson, E. & Whyley, C. (1998). Access To Current Accounts. London: British
Bankers Association.
Kempson, E. & Whyley, C. (2000). Extortionate Credit In The UK. London: DTI.

113
Leyshon, A. & Thrift, N. (1994). ‘Access To Financial Services And Financial
Infrastructure Withdrawal: Problems And Policies.’ Area. 26 ( 3). Sept.
Ludgate Public Affairs. (1999). Tackling Social Exclusion In Financial Services.
London: Ludgate Public Affairs.
McCormick, J. & Newcombe, R. (1999). ‘Strategies For Financial Inclusion’.
Local Work. No’ 13 (May).
Marshall, J et al. (2000). The Contribution Of Building Societies To Financial
Inclusion. London: Building Societies Association.
National Consumer Council. (1995). Financial Services And Low-Income
Consumers. London: NCC.
Office of Fair Trading. (1999). Qualitative Research Into Ethnic Minorities And
Financial Services. Rep No. 255e. London: OFT.
Wardle, B. (1999). ‘You Can't Bank On Us (Financial Exclusion).’ London
Housing News. No 80. Sep/Oct.

1.ii. Scotland
Kenway, P. & Rahman, M. (2000). Indicators Of Poverty In Scotland. London:
New Policy Institute/ Joseph Rowntree Foundation.
Phillip, L. (1999). Scottish Poverty Information Unit: Briefing Sheet. Number 10,
July.
Scottish Affairs Committee. (2000). Scottish Affairs Committee First Report:
Poverty In Scotland, Vol. 1. (HC 59-1 1999-2000). London: The Stationery
Office.
Scottish Council Foundation. (1998). Three Nations: Social Exclusion In
Scotland. Edinburgh: Scottish Council Foundation.
Scottish Executive. (2000). Scotland’s People: Results From The Scottish
Household Survey. Edinburgh: Scottish Executive
Scottish Executive. (2001). Scottish Social Statistics, 2001. Edinburgh: Scottish
Executive National Statistics

114
The Scottish Parliament Information Centre. (1999). Poverty In Scotland.
Research Note 99/7 4 (June).

1.iii. Edinburgh
Lord Provost’s Commission On Social Exclusion. (2000). One City: Final Report -
Edinburgh Statistics On Deprivation. Edinburgh: Lord Provost’s
Commission

115
2. Policy On Financial Exclusion

2.i. UK-wide
HM Treasury Taskforce Report. (1999). Credit Unions And The Future:
Final Report. London: HM Treasury. (November).
http://www.treasury-gov.uk/docs/1999/creditunion.html
The report of the Taskforce set up in July 1998 to examine the functioning and
effectiveness of credit unions and investigate how banks and building societies
could collaborate more closely with them in order to expand the range of
services which unions offer. It provides information on the scale and
composition of credit union members in the UK up to mid-1999. It recommends
a growth strategy for credit unions which would include: encouraging the
development of larger individual unions; encouraging more professional
management of unions, improving the regulatory framework of credit unions,
facilitating the capacity of credit unions to offer a wider range of services and
matching credit union development to areas of need.

Palmer, G. & Donovan, N. (1999). Meaningful Choices: The Policy

Options For Financial Exclusion. London: New Policy Institute.
An analysis of the problems of financial exclusion and access to basic banking
services. It discusses the difficulties of those outside mainstream banking and
the options available to government to widen the choices of those excluded. It
recommends universal access to basic money transmission services, for banks
and the post office to collaborate in extending service access and delivery
channels, and reform of the Social Fund so that it operates as a source of
affordable credit for low income borrowers.

Policy Action Team 14. (1999). Access To Financial Services: The

Report Of Policy Action Team 14. London: HM Treasury.

116
 Summary available at - http://www.cabinet-
office.gov.uk/seu/2000/Compendium/14.htm
The report of the findings of one of 18 working groups set up by the Social
Exclusion Unit as part of the preparation of the National Strategy For
Neighbourhood Renewal. It estimates that about 1.5 million low income
households (over two million adults) in Britain use no financial services at all.
While outright refusal of services by banks and other institutions is relatively
rare, there is a persistent problem of mismatch between customers’ needs and
the financial products currently available. Those most likely to be financially
excluded are unemployed, dependent on social security benefits, and social
housing tenants. Particular geographic and area-based factors heighten the risk
of financial exclusion and social isolation more generally. The Team makes over
40 recommendations, the most important of which are: encouraging the
development of credit unions, promoting ‘insurance with rent’ schemes,
requiring banks and building societies to develop basic money transmission
services, relaxation of requirements for identity documents for prospective
customers, reform and extension of the Social Fund, and wider access to debt
counselling. Targets to be achieved in these reforms are set out for the end of
2000, 2003 and 2005.

Additional sources
Edwards, P.(2000). Access to Financial Services. London: National Institute of
Economic and Social Research/ Britannia Building Society.

2.ii. Scotland
The Scottish Office. (1999). Social Inclusion - Opening The Door To A
Better Scotland. Edinburgh: The Scottish Office.
A report which outlines the government programme of action to promote
inclusion in Scotland. Sets out the five principles which underpin the ‘vision’ of a

117
socially-inclusive society: prevention, empowerment, inclusiveness, integration,
and understanding. Four strands of action are outlined to achieve these
outcomes- promoting opportunities; tackling barriers to inclusion; promoting
inclusion among children and young people; and building stronger
communities. The relationship between this programme and the strategy
developed by the Scottish Social Inclusion Network is described (see the
Appendix to the CRSIS Review Social Exclusion, Social Inclusion, Social Justice:
An Introduction).

Additional sources
Scottish Executive (1999). Social Justice: Milestones. Edinburgh: Scottish
Executive.
The Scottish Parliament Information Centre. (2000). The Policy Framework For
Tackling Poverty And Social Exclusion In Scotland. Edinburgh Scottish
Parliament Research Paper 00/15 30. August.

2.iii. Edinburgh
Capital City Partnership. (2000). The Edinburgh Milestones: Social
Justice Report And Action Plan: Edinburgh, 2000-2003.
Edinburgh: Capital City Partnership.
A report from the Partnership which documents the scale of social and financial
exclusion in the capital. It outlines a strategy to improve opportunities in
employment, education, quality of life and the environment. It sets out
performance targets for tackling social exclusion in these areas.

118
City Of Edinburgh Council. (2000). One City. Edinburgh: Lord Provosts
Commission On Social Exclusion.
http://www.edinburgh.gov.uk/CEC/Corporate_Services/Strategic_Support_
Services/Social_Exclusion/lpcbrief.html
Evidence from a commission appointed in 1998 to find out about the extent of
social exclusion in the City and what can be done about it. It reports on levels
of poverty and income exclusion among households and children. It provides
evidence on the level of homelessness and ill health and the position of
minority ethnic groups. 87 recommendations for action are made, organised
into six themes: achieving civil rights and social justice; tackling income
inequality; improving communication and information; developing innovative
services to prevent exclusion; joint working across sectors; and improving
resources to tackle exclusion .

Additional sources
Capital City Partnership. (1999). Closing the Gap: Creating Sustainable
Regeneration in Edinburgh. Edinburgh: CEC
SCVO. (2000). ‘Promoting Social Inclusion In The Capital.’ Regenerate. 2 May.
http://www.scvo.org.uk.

119
3. Credit Unions

Centre for Economic Development & Area Regeneration

(CEDAR)/Planning Exchange. (2000). Credit Union Development
Activity In Scotland. Edinburgh: Scottish Executive Central
Research Unit.
http://www.scotland.gov.uk/cru/kd01/red/credit-00.htm
A report produced as part of the preparation by the Scottish Executive of a
national strategy for credit union development. It compares the credit union
movement in Scotland to that in England and Wales in terms of the size and
composition of membership, revenue and assets. It concludes that although
larger and relatively more healthy than elsewhere in mainland Britain, there are
very many credit unions in Scotland which are potentially unsustainable in the
longer term (especially among community-based unions) unless they expand
their membership and improve their organisation and service delivery. To
contribute to social inclusion, credit unions should aspire to self-sufficiency,
including setting agreed business plans and targets, and adopting a more
professional management system. The report recognises that it may appear
difficult to reconcile these measures with the traditional strength of credit
unions as voluntary and community-based movements, but that there are
examples of good practice which achieve this balance.

Scottish Executive National Credit Union Strategy Working Group.

(2000). Unlocking The Potential - An Action Plan For The Credit
Union Movement In Scotland. Edinburgh: Scottish Executive.

http://www.scotland.gov.uk/library3/society/cuap-00.asp
The results of the activities of the Working Group on a National Development
Strategy for Credit Unions established by the Scottish Executive in March 2000.
It outlines an ‘action plan’ to expand the credit union movement in Scotland

120
supported by £1.5 million invested by the Executive. Several of the objectives
and actions correspond to those outlined in the Treasury Report Credit Unions
And The Future and the recommendations of the Social Exclusion Unit’s Policy
Action Team 3 on Enterprise And Social Exclusion. Objectives to be achieved by
2005 include: increasing credit union membership in Scotland to 5% of the
population, increasing the numbers and skills of credit union volunteers,
changing public perceptions of credit unions, and assisting credit unions to
meet the requirements of the new regulatory framework created by the
Financial Services Authority.

Additional sources
Conaty, P. & Mayo, E. (nd). A Commitment To People And Place: The Case For
Community Development Credit Unions. London: New Economics
Foundation.
Donnelly, R. & Kahn, H. (1999). A Report Into The Rapid Growth Of Credit
Unions In Scotland. Edinburgh: Royal Bank of Scotland / Heriot Watt
University.
Donelly, R. & Haggett A. (1997). Credit Unions in Britain. Plunkett Foundation
Feloy, M. & Payne, D. (1999). People, Communities And Credit Unions.
Birmingham: Birmingham Credit Union Development Agency Ltd.
Fuller, D. (1998). ‘Credit Union Development: Financial Inclusion And
Exclusion’. Geoforum. 29 (2).
John Moores University/ABCUL. (and). Sustainable Credit Unions: Guidance
Notes For Local Authorities. Manchester: Association of British Credit
Unions Ltd.
Jones, P.A. (1998). Towards Sustainable Credit Union Development: A Research
Report. Manchester: Association of British Credit Unions Ltd.
McKillop, D, Ferguson, C. & Nesbitt, D. (1995). ‘The Competitive Position Of
Credit Unions In The United Kingdom: A Sectoral Analysis.’ Local
Economy. 10.

121
People for Action. (1999). Housing Associations And Credit Unions: Issues And
Options. Digbeth: People for Action National Credit Union & Savings And
Loans Initiative.
The Scottish Parliament Information Centre. (2000). Credit Unions. Research
Note. 00/50. 29 June.
Turner, W.J. (1996). ‘Credit Unions And Banks: Turning Problems Into
Opportunities In Personal Banking. ‘ International Journal of Bank
Marketing. 14.
Watson, A.. (1998). ‘Debt Where Credit's Due (Social Banking).’ Third Sector.
No’ 149. 26 Nov.

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