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Newsroom & speeches
09 February 2010
Thank you for the invitation to speak here today.
And thank you Gareth for that very encouraging reminder of the importance of remittances to the global economy and to developing countries.
I’d like to draw your attention to the contribution that financial services can make to fairness, equality and social cohesion in the UK.
Financial Inclusion
Financial inclusion is about ensuring that everyone has the opportunity to access the financial services and products needed to participate fully in modern-day society and the economy.
Research in the UK has shown that those living on low incomes, and experiencing multiple forms of disadvantage, are most likely to be affected by financial exclusion.
Improving financial inclusion is also a matter of economic efficiency, as many of the barriers preventing access to financial services are examples of market failure.
These failures mean that the economy is operating beneath its potential; the costs of which are borne by individuals, their communities and society as a whole.
Migrants as a group can be especially susceptible to financial exclusion in the UK.
Now that we are in a position to identify some of the specific issues that can put migrants at greater risk of financial exclusion, we can also identify some real opportunities for policy makers and service providers to reduce exclusion among migrants.
Widening access to banking is the cornerstone of improving financial inclusion in the UK.
A bank account allows individuals to hold and manage their money securely, to receive employment income or benefits and to access cheaper deals for utilities and other services through direct payments.
A bank account is vital to an individual’s ability to play a full role in society.
A number of factors may lead to greater exclusion from banking among migrants. Where migrants to the UK struggle with English, or with a low level of literacy, this can exclude them from both financial and non-financial services.
Migrants may arrive in the UK with very different expectations of financial services.
They can also have lower levels of financial capability, preferring cash budgeting and placing less trust in financial institutions, particularly where UK retail banks have no presence or brand profile in their home countries.
Migrants may also give a low priority to opening a bank account where they are unsure how long they will stay in the UK.
Already, some banks use their international networks to offer migrants the opportunity to open UK bank accounts in their home country, before arriving in the UK.
Others have designed services specifically for migrants, catering for their particular needs.
However, it is important to note that these services may be targeted only at the more financially attractive migrant groups from countries with an established banking infrastructure. Efforts by banks to attract migrant customers from largely un-banked countries are often more limited.
Paradoxically, we may see new developments in financial services technology flourish among migrants in the UK, who have distinct trans-national needs, before they are adopted more widely.
For example pre-pay cards can now be used in the UK to receive direct payments from employers and others, and to make direct debit payments.
Providing these cards are appropriately regulated and do not impose extra costs on poorer consumers, they could emerge as a secure, convenient alternative to a banking relationship that attracts working migrants.
To combat self-exclusion, we must also consider what new or alternative services can be offered to encourage migrants to engage in legitimate financial practices that protect their savings and income.
As Gareth touched upon earlier, the ability to transfer money through the use of mobile phones is revolutionising the banking landscape in Africa.
In Ethiopia, there is only one bank account for every 100,000 people; in Tanzania only 5% of the population have bank accounts.
And it is estimated that around the world there are in excess of 1 billion people who possess a mobile phone ,but no bank account.
We should consider that those migrating from countries in which banks are simply not prepared to make the huge investment required to establish a network of branches may find the opportunity to make payments using mobile phones much more intuitive than existing direct payment methods.
Emerging technologies are allowing low-income individuals – or those unaccustomed or excluded from conventional banking practices – access to safe and effective financial services.
And, we must consider the possible ways that these technologies can be built upon and incorporated into the UK’s financial industry, as a means to broadening access to financial services.
And this leads me on to my next point. Many people, particularly those living on low incomes, need access to credit to help them manage short-term changes in income and expenditure.
Affordable sources of credit are important to help people cope with financial challenges. There is no reason to suppose that the demand for affordable credit is any less among migrants than among other groups on comparable incomes.
Without access to regulated sources of affordable credit, migrants, like anyone else, may be forced to rely on informal or illegal sources, thus raising the risks of over-indebtedness and exploitation.
There is some evidence of specialist financial service providers in the UK developing and offering products such as pre-paid cards, cheque cashing and loans, which are tailored and targeted to attract a migrant customer base.
These providers could potentially play a useful role in responding to the unique needs of migrant communities. However, appropriate levels of transparency and consumer awareness of these options are necessary to protect migrants from undue pressure to use unsuitable products.
Research also suggests that some migrant communities have established alternative, informal financial products such as savings and loan clubs.
These are inherently attractive because they are founded on trust, which may exist within migrant communities, where it may be absent between migrants and the high street banks.
However, some of these informal arrangements present greater risks for consumers, especially compared with regulated products that offer a higher level of security and protection.
Credit unions can offer some of the appeal of a community-based saving scheme through their common bond, as well as offering the security of regulation by the UK Financial Services Authority.
The credit union and community finance sector still has the potential for significant growth in the UK and currently benefits from significant government support.
As it grows, it will have the opportunity to expand the range of services available to local migrant communities.
Finally, how do remittances fit into this picture? As we’ve heard from Gareth, one of the most widely used financial services by migrants in the UK is international remittances.
Sending money back to their country of origin can be a key reason for migrants to seek work in the UK.
High levels of regular saving by migrants are often driven by a desire to remit, and some migrants also use remittance services to build up savings in their home countries.
The UK’s Remittances Task Force have shown that the most popular remittance products are also easy to access, do not require a bank account and are reliable, with recommendations usually coming through good word of mouth.
By contrast, remittance products that operate between bank accounts are often more expensive and can raise problems at receiving countries where bank accounts have not achieved universal penetration.
Some remittance providers offer customers additional financial services, such as pre-pay cards and loans.
However, so far banks and remittance providers have been reluctant to develop partnerships, possibly due to a lack of understanding of each other’s businesses.
We firmly believe that there is scope in the UK to improve links between remittance services and other financial products. Remittance providers could play a greater role in promoting awareness among migrants of the availability of basic banking services and their attractions.
Banks may be able, through joint ventures, to tie in cash-based remittance services with basic bank accounts and wider services that could benefit migrants.
These kinds of links could improve the functioning of both the remittance and the financial services market, while also improving the services available to migrants and their readiness to benefit from them.
In speaking here today, I have focused on highlighting key issues that underpin the risk to migrants of financial exclusion:
With these issues in mind, I hope that you use today as an opportunity to propose new ways in which we can bring vital and life-changing services within reach of our migrant communities.
Thank you very much.
