'How ADI’s can contribute to improved financial inclusion in Australia' Gen Advisory
Financial exclusion is a worldwide problem. Even in Australia, the Centre for Social Impact (CSI) has found that financial exclusion has not improved significantly in recent years. CSI research shows that between 2016 and 2017, “... people’s levels of access to external resources – including financial products and services and social capital – decreased significantly . And while savings behaviours were up, the amount of savings people have to rely upon has gone down”. Only 36 percent of the population consider themselves to be "financially secure", while 2.4 million Australian adults are considered "financially vulnerable".
Around three million people are financially excluded in Australia. Many have been denied service from mainstream financial institutions, some more than once. These people may be forced into expensive credit schemes, payday loans or rental purchases. The repayments may cause a spiral of debt and repeat loans. In Australia most people have a bank account, yet 24 per cent of women and 14 per cent of men are in financial stress.
Definition of Financial Inclusion
According to the US-based Consultative Group to Assist the Poor (CGAP), financial inclusion is defined as:
“…a state where both individuals and businesses have opportunities to access, and the ability to use, a diverse range of appropriate financial services that are responsibly and sustainably provided by formal financial institutions”.
Financial inclusion allows individuals to smooth variations in consumption, manage risk, be more resilient, invest in education and health, and start or expand a business (World Bank Global Findex Database).
Factors contributing to financial exclusion in Australia
The biggest contributor to financial exclusion in Australia is low income, which itself can be triggered by unemployment or a discontinuous or casual work history. The consequences of low income include: nil or low savings; lack of assets; and lack of security for acquiring loans or credit. These impacts are exacerbated by factors such as financial illiteracy, poor financial habits, and financial service providers' policies which further exclude the lowly paid.
Other, less common drivers of financial exclusion include: psychological and disability-related issues; membership of indigenous and other ethnic communities; geographic remoteness, lack of time; lack of PC/internet access; and the availability of alternative/fringe financial products and suppliers. (ANZ, 2004).
Interestingly, Roy Morgan Research (2013) found that neither employment, education nor gender are in themselves strong determinants of access to financial services.
A high proportion (44%) of individuals who were employed were still either “fully” or “severely excluded from financial services” . Having work is not always a path to financial inclusion, as other barriers may be preventing this group from accessing basic financial products.
Within the “severely or fully excluded” segment of the population, there was a fairly-even spread in terms of education status - which indicates that even highly-educated individuals could become financially excluded.
This was despite the fact that education has been linked closely to income, which is a key factor in determining access to both credit and insurance.
Gender fared no better as a determinant of exclusion within the severely excluded group. There were slightly more women in the “fully” and “severely excluded” categories than men. Clearly, in the case of severely excluded people, other factors are at play.
While employment, education and gender may not, in themselves be powerful determinants of financial exclusion, for Australia’s indigenous aboriginal population, ethnicity certainly is.
Note that the concept of the ‘unbanked’, which is generally not applicable to the broader Australian population, Is unfortunately relevant to the Aboriginal and Torres Strait Islander segment.
More Indigenous Australians are financially excluded and lack financial knowledge and literacy compared to the national average (Arun & Kamath, 2015).
According to Roy Morgan Research (2013), indigenous Australian's main barriers to accessing financial services include:
- Cost of service;
- Long wait time or appointment not available at the right time;
- Poor customer service;
- Lack of trust In financial services; and
- Distance to or an overall lack of services in their area.
Strategies for improving financial inclusion
In 2015, Australia committed to the G20 Financial Inclusion Action Plan and the United Nation’s Sustainable Development Goals. As part of this commitment, the Australian Government appointed Good Shepherd Microfinance to develop a Financial Inclusion Action Plan (FIAP) program (Good Shepherd Microfinance, 2018).
A Financial Inclusion Action Plan (FIAP) is an agreed strategy of practical actions that an organisation will undertake to improve financial inclusion in Australia. The FIAP program provides an opportunity for organisations to take real action to enable financial inclusion and resilience – especially for women (Good Shepherd Microfinance, 2018).
To date, 40 organisations – 6 of which are ADIs – have joined the FIAP. These organisations represent a diverse group, comprising financial services companies, utilities, not-for-profits, universities, and others. Collectively, these 40 organisations have committed to over 630 actions, aimed at achieving greater inclusion and resilience for vulnerable groups in their respective spheres of influence. At time of writing, 87% of actions have either been completed or are underway, according to evaluations by EY Australia.
Strategies that ADIs have implemented in Australia
- Enabled low income Australians to build financial skills through “MoneyMinded”.
- Researched financial literacy, how banks can address family violence and economic abuse.
- Developed a ‘Reconciliation Action Plan’ outlining commitments that support the financial inclusion of Aboriginal and Torres Strait Islander peoples.
- Implemented an Accessibility & Inclusion Plan outlining
- commitments supporting the financial inclusion of people with
- Promoted economic participation and financial equality of women.
- Continued encouraging gender equality in the workplace.
- Invested in programs, through the Bank Australia Impact Fund, that address educational disadvantage and support young people from disadvantaged backgrounds to obtain an education.
- Offered their Pension Access Account to customers on an aged, disability or veteran’s pension.
- Increased focus on financial inclusion in development of the bank’s next Reconciliation Action Plan (RAP).
- Trained financial advisers on financial issues that impact women.
- Continued to pay superannuation to eligible staff on paid and
- unpaid parental leave
- Supported customers experiencing financial hardship through a hardship assistance program.
- Continued making NAB’s products, services and buildings accessible for all.
- Supported Australians with access to fair and affordable microfinance products and services.
- Improved customer experience through digital solutions
- Delivered banker sensitivity training in order to enhance Westpac’s services for a broad range of customers.
- Explored the financial wellbeing of women over 40 through a survey to understand how to support their personal financial management.
- Provided financial support for refugee-owned small businesses.
- Continued to back the expansion of “Many Rivers Microfinance” programs including employee secondments and mentoring opportunities with Many Rivers
Benefits of improved financial inclusion in Australia
Increasing financial inclusion can improve levels of savings and credit. At a macro level, increasing financial inclusion will create growth in jobs, wages and overall economic activity. Conversely, financial exclusion increases costs for businesses, governments and the community.
Economic modelling by Good Shepherd Microfinance (2018) shows that as FIAP actions are embedded into business-as-usual practices, the FIAP could contribute towards:
- Increase in GDP of $2.9 billion p.a.;
- Increase in household wealth of $11.8 billion p.a.; and
- Reduction in Australian government spending of $583 million p.a.
Recommended actions for ADIs to improve financial inclusion
Extrapolating from the Good Shepherd Microfinance's 2018 Report, there are many actions that ADIs can take to improve financial inclusion in Australia. These include the following:
- Join Good Shepherd Microfinance’s “Financial Inclusion Action Plan (FIAP)”.
- Learn from the strategies as well as experiences of existing FIAP members.
- Provide access to fair and affordable products and services (such as microfinance) to financially excluded Australians, which include:
- Indigenous Australians:
- The unemployed and under-employed.
- Those with limited education.
- People with disabilities.
- Invest in financial literacy programs which address educational disadvantage.
- Provide a hardship assistance program.
- Make ADI products, services and buildings accessible for all.
- Deliver banker-sensitivity training to enhance ADI services for customers.
- Train financial advisers on financial issues that impact women.
- Pay superannuation to eligible staff on paid and unpaid parental leave.
- Facilitate people’s ability to establish a credit history for themselves and their businesses through utility and retail payments.
- Provide savings products that encourage people on low incomes to save.
- Offer insurance products (micro-insurance) to enable people to manage risk.
- Offer ‘no interest’ and ‘low interest’ loans to new small businesses.
- Disaggregate the ADI's data to identify the various factors causing financial exclusion and offer tailored value propositions.
- Formally recognise women as a distinct sector (approximately 90 banks globally have women-specific banking offerings, including Westpac).
- Develop specific products that address the risk appetites of women.
- Develop information-based credit scoring and fixed asset-based lending practices from data such as phone bills, utility payments, invoice payments, regularity in economic activities etc.
- Commission strategic research to address the financial inclusion of groups such as new arrivals, gender, ethnically or linguistically excluded men and women.
- Build capability through high quality learning experiences for ADI employees and support ADI teams in delivering improved financial inclusion.
- Make key persons within the ADI accountable for actions and outcomes.
Financial exclusion remains an issue in Australia. The Financial Inclusion Action Plan (FIAP) Program provides an opportunity for ADIs to make a positive impact on the financial wellbeing of the 3.3 million Australians experiencing financial hardship. This can be achieved by:
- Addressing the broad range of issues that are impairing financial inclusion;
- Closing the exclusion gap by enabling the inclusion of the financially excluded; and
- Providing new businesses with access to, and use of, financial services.
Progress has been made, but there is still a way to go to eradicate financial exclusion.
Gen Advisory’s goal is to help ADIs contribute to improved financial inclusion and equality in Australia.
 Percentages are based on a proportion of the combined fully and severely excluded population (3,040,000 people), not the national adult population.