Examination of Witnesses (Questions 320-327)
MS BERNIE
MORGAN, MS
SARAH MCGEEHAN,
MR ANDREW
BAKER AND
MR SIMON
FROST
28 FEBRUARY 2006
Q320 Chairman: When we started this
inquiry we wrote to the banks asking how many had basic bank accounts,
and they wrote back, and in many ways that was their way of saying
they were including people in the financial community, but as
we have heard more evidence and had more site visits, it does
appear we are looking at the wrong target here with the basic
bank accounts. What is the alternative? I do not think anyone
at the moment has an idea what that alternative is going to be.
What advice do you have for us in that area?
Ms Morgan: It is looking at the
use of the basic bank accounts. I am a member of the Financial
Inclusion Taskforce as well and we have been given the remit to
monitor how many basic bank accounts there are, but it is the
use of them that needs to be looked at, and the design. At the
moment we get the feedback that they are not flexible, they are
not really usable by the sorts of people we are aiming them at
in a way. Whether there is a way of working with the banks to
design a better product or a way that CDFI's could provide a front
office that is a more flexible approach to this market, provide
a front office for the banks, etc, there is room for us to explore.
We need to look at it and get a real hold of the market and a
real understanding of what is needed.
Mr Frost: There are some pilot
projects going on in Birmingham and about to begin in South Hampshire
to develop community banking partnerships. In South Coast Money
Line we very much see partnership with credit unions, mainstream
banks, housing associations and a wide variety of organisations
as fundamental to what we do. We do not offer a savings product,
and have no intention of developing a savings product, and part
of what we see is trying to help and work with a number of smaller
credit unions within the area we serve to capacity build so that
they can complement the services we are offering. We are providing
the instant crisis personal loans, and then in turn offering repeat
loans to the credit unions and also, obviously, savings accounts.
That is very much closer—and obviously the Committee has
been to the States—to the community development credit unions,
and I think there is an opportunity for us to do more work as
well as in terms of working in a more integrated way with the
mainstream banks.
Q321 Angela Eagle: There is one question
I want to ask Mr Baker on financial literacy. You gave a vivid
example of someone who did not even know what they were paying
in mobile phone top-ups. Clearly, some people are very financially
illiterate, but do you think we also have an industry that almost
prides itself on developing a series of costs and small print
that you virtually have to have a degree in financial literacy
to work out? A lot of the charging and the pricing in the UK is
very opaque at the moment. Utilities, yes, but certainly mobile
phone operators and phone bills and various other people can cause
enormous costs and people do not realise they are paying them.
Mr Baker: I think that is probably
true. The mainstream financial services industry goes out of its
way to make things appear more confusing than they are. Coming
down on the train this morning, I saw a big poster from an insurance
company saying "I know one thing about pensions; it is really
confusing," and that is an advert for a pension provider,
as though it is really complicated: "You have to have a degree
in this, that and the other to understand it. You do not, and
therefore you are stupid, therefore come to us and we will tell
you what you need." I think there is that slightly patronising
attitude. It is not that complicated. A basic budget is not that
difficult a thing to work out, but many of our customers, when
we go through that process with them, have never done it, and
they will admit they have never done it, they do not know where
the money goes. "Where does the other £300 go that you
have not told me about?" "I do not know. It just goes."
People have been conditioned to believe that a budget is something
really complicated that is beyond them, whereas it is not really.
Q322 Angela Eagle: Is there a responsibility
on the financial services industry to be more up-front and open
about their charges and prices as well as on individuals to become
more financially literate?
Mr Baker: I think it is to everybody's
advantage for more people to understand more about personal finance.
Q323 Chairman: It would appear that
your organisations perhaps need long-term funding for sustainability.
Is that correct?
Ms Morgan: Absolutely. Currently
funding is in place and has been confirmed until 2008 for many
of our members, but not all, but we need longer visibility than
that because, as investment vehicles, we are attracting investment,
and we need our investors to be reassured we will be here for
the longer term.
Q324 Chairman: When will you be able
to stand on your own two feet?
Ms Morgan: It will not be for
quite some time. We are a new sector. If you look at the States,
it has taken quite some time for CDFI members to stand on their
own two feet, and some still have a level of public funding. I
think it is a case of understanding that it will take some time
but recognising that during that time we will be working for efficiencies
and sustainability, we are working to understand the market better,
to get products that are absolutely right for the market, which
takes some time to develop.
Q325 Chairman: Are you doing any
cross-benefit analysis?
Ms McGeehan: We monitor what we
call operational self-sustainability, which is a ratio of how
much of your costs you are covering from generated from income,
and generated income is, of course, mainly from the portfolio.
There are other income-generating sources. At the moment, we have
members of different ages and self-sustainability ratios, from
10% and there are a couple of our members that are self-sustainable.
It is very likely that for some of the smaller members, those
that are doing the riskiest lending, because often the largest
expense is going to be write-offs, delinquencies, there will always
be some level of grant support needed if we want our CDFIs to
enter the hardest, riskiest markets with the higher transaction
costs. As Andrew says, there is always going to be a compensating
effort to make their operations as efficient as possible and as
effective as possible, to cross-subsidise. You have heard from
the credit unions how they have been using different strategies
to cross-subsidise products. We are encouraging all of those,
so it is a focus, if you like, but we would be misrepresenting
the future if we said that all CDFIs are going to be self-sustainable
because I do not think they will.
Ms Morgan: There is a social benefit
that comes from that, so that is a payback.
Mr Frost: On the big picture,
we do not exist purely to lend money, although that is what we
do, but it is to make people financially inclusive, to get people
into mainstream banking, to get people joining credit unions for
savings accounts. That is really the vision. It is not that we
want to necessarily do ourselves out of a job but that is what
we are here to do. I feel that very passionately.
Q326 Chairman: To do that, £40,000
from the mainstream sector is a drop in the ocean.
Ms Morgan: That is us as the CDFA,
the representative body. As Sarah was saying earlier, particularly
Barclays and NatWest have relationships with a number of our members
and are supporting them.
Susan Kramer: We were struck very much
in the United States talking on this issue that government money
that came in basically said, "Are you a creditable organisation
that is properly run with a history of working towards your goals?
If so, here is the money," and yet what I have heard described
as money coming from Government to you, it is very much for a
project, there are a lot of strings attached, it is very time-constrained,
rather than simply saying, "You qualify, here is the money,
we are supporting you, you make the decisions on how you spend
it." Would it make a big difference to you if this came without
all of the strings the monitoring, the time constraints, the narrow
purpose?
Q327 Chairman: On the back of that,
what could the Government do to assist you best?
Ms Morgan: I think there are a
number of things. There is an issue around support, having a more
flexible funding regime, a longer-term funding regime. I think
there are things around expanding CITR, incentivising the banks
and corporates to get involved with what we are doing, to raise
the profile of what we are doing. That would be incredibly helpful.
To actually raise the profile of CITR among the public and investors
as well would help us enormously. So there is a whole range of
things which we could put forward to you.
Chairman: Thank you very much. That was
a fascinating morning and very helpful to us. Thank you.
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