Following elections to the European Parliament, intensive negotiations are now underway about the allocation of key portfolios and future priorities. Climate change is one issue likely to get increased attention with the rise of MEPs from Europe’s Greens, who will push for urgent climate action and social justice. It is essential that sight is not lost of other issues that are crucial to quality of life, including financial inclusion.
In the UK household financial wellbeing is at its lowest point since September 2017[1]. Insecure hours, low pay, cuts to benefits and rising housing costs have driven in work poverty to its highest point in 20 years[2]. Economic uncertainty has slowed the economy and raised the risk of job losses, and 2017 saw the number of UK business births decrease for the first time since 2010 and an increase in the number of business deaths.
Financial inclusion is a recognised enabler of the UN’s Sustainable Development Goals[3] and supports overall economic growth. The European Union recognises that a lack of access to finance is one of the main obstacles micro entrepreneurs face, and there is significant unmet demand[4]. Responsible finance providers utilise EU support for microfinance organisations to incentivise commercial investment into the sector.
Scaling up the responsible finance sector and improving awareness of it will support individuals to manage their financial difficulties and smooth out fluctuations in income and expenditure. It will enable entrepreneurs who are unable to access the conventional credit market to access credit, allowing them to grow and innovate.
We urge all MEPs to commit to helping to tackle financial exclusion and fostering inclusive growth by supporting the following key asks:
- Launch a responsible finance fund
A responsible finance fund is needed to properly address the under-capitalisation of
the responsible finance sector that is a significant constraint on growth. The
creation of a dedicated responsible finance fund of £150 million would unlock
significant private sector investment and scale the sector’s impact on excluded
and underserved communities.
- Invest in access to affordable credit
Responsible Finance is calling for a dedicated strand of funding from the
Dormant Accounts Fund to be allocated to affordable lenders, including personal
lending responsible finance providers. This will ensure the sector has the capacity
and capital to expand its reach and impact.
- Replace EU funding and instruments
It is vital that EU facilities which incentivise commercial investment into the
responsible finance sector, namely EaSI, COSME and ERDF, are replaced in full by
the UK’s Shared Prosperity Fund. The Shared Prosperity Fund should be designed to channel funding through a diverse range of innovative, local third sector and private
organisations in addition to larger players. It should not be biased to favour
delivery partners based on their capacity to deal with large administrative
burdens. Accessible, grass-roots organisations such as responsible finance
providers are most suited to deliver interventions on the ground.
- Open Community Investment Tax Relief to personal lending responsible finance providers
Community Investment Tax Relief (CITR) has proved effective at attracting
investment into enterprise lending Community Development Finance
Institutions, however personal lending responsible finance do not currently qualify for access to it. Launching a tax relief for the personal lending sector would support financial inclusion by generating investment for onward lending for responsible finance providers that are competing head-on with high cost credit providers.
- Ensure existing tax-reliefs and guarantees are fit for purpose
Tax reliefs and guarantee schemes are tools widely utilised by the responsible
finance industry to leverage commercial investment, thus increasing our impact.
These tools need to be kept competitive to maximise social and economic return.
- Introduce regulation to the business lending sector
The UK’s business finance sector is unregulated and there are a wide range of
different practices amongst lenders, with very few protections in place for
businesses. There is a risk that without regulation, similar trends could occur to those that appeared in the consumer credit market prior to 2014 when the FCA stepped in. This can ultimately have a catastrophic effect on the small business market which is the engine of the UK economy.
You can read Responsible Finance’s full 2019 manifesto here.
[1] The Times (2019) Confidence slides despite jobs boom and wage rises, https://www.thetimes.co.uk/edition/business/confidence-slides-despite-jobs-boom-and-wage-rises-h2p6rznl0
[2] The Guardian (2019) ‘You can’t really win’: 4m Britons in poverty despite having jobs, https://www.theguardian.com/money/2019/may/14/you-cant-really-win-4m-britons-in-poverty-despite-having-jobs
[3] UNCDF, Financial Inclusion and the SDGs, https://www.uncdf.org/financial-inclusion-and-the-sdgs
[4] European Commission, Employment, Social Affairs & Inclusion, https://ec.europa.eu/social/main.jsp?catId=952&intPageId=3510&langId=en