As more Australians slip below the poverty line, with a growing number excluded from affordable basic financial services, experts are turning their attention to a new British banking model, which is paving the way for a fresh batch of “ethical” credit unions.
The first of its kind to get the green light by the British regulator is Your Credit Union, which will offer membership to residents of a London borough, where some of the city’s wealthiest citizens live alongside some of the city’s most disadvantaged.
The idea is that the more affluent residents of Chelsea and Kensington put money aside to help neighbours that are in hardship, unlocking affordable financial services for people who may otherwise be unable to access mainstream banking and borrowing.
It has been pioneered by a feasibility study from the Octavia Foundation, a charity set up by British housing association Octavia Housing.
Reena Mukherji, director of the Octavia Foundation said that, unlike financial institutions, it will “focus on investing in the local community, so money stays local and in the pockets of members, rather than just private shareholders”.
It differs from “bonded” Australian credit unions in that it will pay interest through an annual dividend, which is based on the performance of the credit union during the year, rather than a return determined by a fixed or variable interest rate that is typical in Australia.
Jonathon Read, chairman of Your Credit Union, said: “Savers will receive a competitive financial return on deposits, as well as the social return of knowing money is being invested locally.”
Meanwhile, a recent study found that more than half a million Australians do not have a bank account, with escalating fees putting them out of reach.
Cameron Clyne, chief executive of nab, said the Australian banking industry needed to provide more affordable products.
“In a country with a banking system and economy as strong as ours, it is simply unacceptable that nearly three million Australians are financially excluded from affordable basic financial services,” he said.
Clyne said the level of documentation required to establish an account could often be a hurdle, and many banks do not lend less than $5000 as a personal loan.
He said there was an obligation for banks, governments, the corporate sector and community groups to improve financial inclusion.
Nab works in partnership with the federal government and charity organisation Good Shepherd to reduce economic inequality and assist marginalised and disadvantaged Australians. Good Shepherd Microfinance provides financial services, such as no-interest loans, to people on low and limited incomes who may not otherwise have access to mainstream financial services, to help them become financially independent. For more information, or to apply for a loan through the loan scheme, visit goodshepherdmicrofinance.org.au.