Financial Inclusion: is it a figment of our imagination?


Imagine having to take a payday loan out to pay for rent, food and your utility bills.

It is not as far-fetched as you might consider; it is the reality for some 245,000 Australians today who are among the most poor and financially excluded. This is one of the sobering findings of the Measuring Financial Exclusion in Australia report released by the Centre for Social Impact for NAB* in June, 2012. 

Measuring Financial Exclusion in Australia is a litmus test on who is getting ahead and who is not.  The report sharpens our awareness on the thorny issue of financial exclusion and its impact on people’s lives today, especially those on low incomes.

Using some 50,000 people in the study, these numbers provide significant statistical evidence of the breadth of financial exclusion in Australia.  If you take the percentage of people who are severely financially excluded, it is 16.1% of the population. That figure translates into some 3.5 million people. The figure for those that are fully financially excluded is also on the rise. 67, 000 people or 0.3% of the population have become fully financially excluded in Australia between 2010 and 2011. That figure, 67,000, is just under the population of the city of Bundaberg in Queensland.

What does it mean to be financially excluded? For Measuring Financial Exclusion in Australia it means not having three things:
1. A basic transaction account
2. A moderate amount of credit through a low cost credit card
3. Basic home and car insurance.

The cost of having these three basic products is estimated as being $1,794 per annum or $34.50 a week. For people on or around the average income, this is an achievable cost and represents around 3% of their budget. For those on low incomes of, say, $200 a week, this figure amounts to 17.25% of their weekly income. The result? It’s an impossible further cost to bear after paying for food, rent and utility payments.  Clearly, the challenge for policy-makers and financial product designers is to make these three ‘basics’ more available and affordable to people on low incomes. Their alternative, without more affordable options, remains exorbitant and risky options like payday loans and other higher cost products and services in order to simply survive. 

Good Shepherd Microfinance’s No Interest Loan Scheme (NILS) is mentioned by some financially excluded people as an alternative source of credit. But in a follow up sample of 661 people, there was minimal use of community services of financial counsellors and no interest loans.

In terms of general insurance, the report points to a glaring market gap. There are no insurance products within reach of people on low incomes and those who are severely or fully financially excluded.

The report is damning, also, of the impacts of financial exclusion on our Indigenous population. Staggeringly, some 43% of our nation’s first people are either severely or fully financially excluded. This includes a number of indigenous peoples who do not even have access to a basic transaction account. Compared to the combined national average of 17%, this is grossly disproportionate and ethically unacceptable. These figures are comparable to a less developed country, not a nation that has, by international standards, weathered the global financial crisis and prides itself on the notion of a ‘fair go’.  What’s fair about these figures?

According to the report, Indigenous Australians are twice as likely to:
1. Be unable to repair or replace  essential household items
2. Be unable to pay utility bills or car insurance and registration
3. Go without meals
4. Be unable to heat their home
5. Be unable to pay to go and see a doctor.

The data in Measuring Financial Exclusion in Australia gives us the baseline we suspected was there.
Our next steps are crucial. As a start, this report helps lay the foundation for our future work in microfinance and how we work with governments, banking, insurance and business sectors.  Our job is to collectively turn the tide on this alarming and unacceptable state of affairs.

We want to give Australians a fair go.

Dr Anton Mischewski
General Manager, Public Affairs
Good Shepherd Microfinance

*Good Shepherd Microfinance works in partnership with NAB to deliver microfinance programs across Australia.

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