Watchdog’s Report Fails Excluded Businesses
This week, the Competition and Markets Authority (CMA) released a report on the UK retail banking market’s future, its intention, allegedly: to ‘shake up’ the sector. The report has received mixed reception, described by SME Insider as ranging from ‘enthusiastic endorsement of the mooted reforms to disappointment over a lack of substantive change to chronic problems’. My sentiment, shared by Responsible Finance sector colleagues, goes beyond disappointment to disbelief: disbelief that those responsible for the sector’s governance have failed to even recognise the plight of the thousands of excluded businesses we help each year, let alone serve them...
Indeed, as Larry Elliott points out in The Guardian:
“The people who really need help from the CMA are the less well off; those who struggle to make ends meet and slide into the red.”
It is such people, and increasingly others who simply do not have a long enough trading history or enough personal assets to secure a business loan from mainstream finance that this report fails.
In fact, as Gary, who we recently helped set up his own business as a trade plate driver, points out:
“People with no capital or security to offer a bank are just as likely to have great business ideas as those who have. Without organisations like Foundation East, who have the experience and expertise to know whether a business owner’s ideas are realistic, and are prepared to back them based on the strength of that idea, many potential entrepreneurs may never have the opportunity to realise their dreams. Responsible Finance Providers, like Foundation East, truly enable equal opportunity.”
Did you know that, in the past 10 years, responsible finance providers like us have lent a total of £1.6 billion to 55,000 businesses, charities and social enterprises, creating 68,000 jobs and helping to protect a further 41,000 jobs at risk?
Did you know that in the last year responsible finance providers added £0.595bn to the UK economy from responsible lending to businesses that were turned away from mainstream finance?
Did you know that demand for responsible finance is growing; in fact, research suggests that there is a potential annual demand of £6.75 billion this year?
No? Neither, it would seem, did the experts who researched and wrote this report. Perhaps if they did, they would have succeeded in introducing enough measures to create a truly competitive customer focused banking sector. Perhaps they would have succeeded in ramping up enough support of access to finance for SMEs by implementing the measures requested by the Community Investment Coalition (CIC) in their response to the report. Perhaps we’d have seen measures that include:
- Scaling up the responsible finance sector targeted at underserviced businesses by injecting significant and much needed capital
- Counteracting socio-demographic imbalances in access to finance by mandating that banks release anonymised data re loans they are agreeing (or turning away) at the postcode level, enabling pinpointing of underserved areas
- Encouraging stronger referral schemes from the main high street banks to responsible finance providers, enabling fairer delivery of finance to people with sound business plans who are being excluded
As Jennifer Tankard, Director of the Community Investment Coalition (CIC), summarised in Politics Home:
“While there has been some good progress in increasing competition in the retail banking market since the 2008 banking crisis, whole groups of customers such as those on low incomes and small and micro businesses are either under-served by the main retail banks or have no access to affordable and appropriate financial products. While some of the recommendations of the CMA are welcomed, such as better information for customers and alerts to help people more effectively manage their money, these are tinkering around the edges. Portable bank accounts, scaling up the alternative finance sector, such as community development finance institutions and better sign posting to alternatives for customers and businesses who the banks cannot serve would have real impact on creating a truly consumer focused banking sector in the UK.”
If you, like us, are passionate about creating a fairer banking system where people with good business ideas who don’t tick the boxes of mainstream providers are able to gain support and loans, why not join our Mutual Society?
Know someone with a good business idea who has been turned away by the banks? Tell them to get in touch. If we can help, we will…