The issue of sustainable access to affordable credit at the European level

1. The issue of sustainable access to affordable credit at the European level October 12th 2012 – Egerton Court, Liverpool J. Moores UniversityCooperation for Affordable Personal Inclusive Credit EU project

2. What is financial inclusion‏ ? Definition “Financial exclusion refers to a process whereby people encounter difficulties accessing and/or using financial services and products in the mainstream market that are appropriate to their needs and enable them to lead a normal social life in the society in which they belong.” This definition enables to apply situational aspects regarding e.g. social life and appropriateness of financial services. www.financite.be

3. What is financial inclusion‏ ?‏ Key areas of exclusion transaction banking, savings, credit and insurance. Access and/or usage Transaction banking (levels of exclusion) – unbanked, marginally banked, fully banked Credit (levels of exclusion)excluded (NO ACCESS)inappropriately served by mainstream lenders or alternative lendersCredit not fit to the financial needCredit not adjusted to the creditworthinessCredit not adjusted to the financial capability (CREATE USE DIFFICULTIES – Overindebtedness) www.financite.be

4. Some learnings from EU SILC 2008 module on overindebebtedness and financial exclusion Household has a bank current account Household is overdrawn on one of its bank account Consumer credit and EU households www.financite.be

5. Household has a credit card/store card Household has a credit card/store card with uncleared balanced Household has credits or loans (other than mortgage for main dwelling) Consumer credit and EU households: a growing place www.financite.be

6. No statistical data at EU level but multiple expert reports Main difficulties: No choice: low-income people do not have the opportunity to choose between a large range of differentiated credit contracts Not adapted: revolving credit / credit card are largely distributed to finance "durable goods" Not adjusted: in size, standardized amounts are provided, which are often oversized High costs: rate, fees, penalties Low-income people and credit access www.financite.be

7. Low-income people and credit access Financial consequences Providers different from banks and other mainstream financial services charge higher interests and fees, apply worse terms and conditions. Extra fees are applied by subprime lending companies to extend a loan or severe penalties are issued for defaulting. Family budgets lacking the flexibility of credit are poorly managed: the delay in honouring utility bills may cause the loss of utilities and housing. Social consequences Access to informal borrowing can cause conflict with friends and family. Borrowing from illegal lenders exposes to violence and intimidation risks as well as various harsh methods to recoup payments. www.financite.be

8. Affordable personal credit... the missing one? • What purposes? • To support access to essential goods and services; • Mobility • Housing (improving quality of the dwelling) • Electrical goods • Training • Health • Social integration (IT, computer, …) • … www.financite.be

9. Affordable personal credit... the missing one? • What objectives ? • To support social inclusion • To support human dignity • To propose solution when a life accident occur • To avoid or limit the use of inadequate credit/lender • To propose a household budget check-up • To provide budget management skills • To prevent overindebtedness (affordable credit works like a vaccination) www.financite.be

10. Who benefits from these credits? • The credit users: they receive a check-up of their budget situation, and potentially a credit to face an essential need in good terms and conditions. • The Not-for-profit organisation who implements the social follow-up: they develop a new tool, complementary to the more classic “social” action, which provides objectives and effective results, with a potentially interesting impact at local, regional level... • The private company/bank: they have the opportunity to invest in "Corporate social responsibility" activities with effective and measurable results. For a financial institution, it makes even more sense to invest in such activities. Beside this first benefit, the company can learn a lot on a so far excluded public. This can have positive consequences if it leads to develop more appropriate ways to serve this public. • The public authorities: this credit is generally complementary to a more or less large range of public support and social allowances. The social impact of these credits is not yet very much assessed, but figures show it can have positive impact on public expenditures (e.g.: mobility). www.financite.be

11. Sustainable and appropriate‏ • The‏ business model will differ from a country to another, but some key issues are: • How to motivate each actor to support the action?To reach financial balance, it will be necessary to share the costs... • How to maintain an appropriate credit (which will not generate use difficulties) if the interest rate grows? How can an effective limit be fixed? • How can sustainability be reached when interest rate cap exists? • How can diversity in the mainstream credit supply (inspired by these actions?) be increased to reduce the demand of such "affordable credit", which might remain (relatively) limited?ted www.financite.be