Financial system reform can lift economic wellbeing of all

Financial system reform can lift economic wellbeing of all, delivering shared prosperity and community connectedness.

Australia’s largest community finance organisation, Good Shepherd Microfinance, has this week welcomed a root and branch inquiry into Australia’s financial system.

Adam Mooney, Chief Executive of Good Shepherd Microfinance, said ‘It’s time to find new ways for all Australians to participate in and benefit from our financial system.’

‘In global markets our financial system is much admired, yet 3.1 million adults – or one in six – are financially excluded and unable to access a bank account, small credit or insurance. At a human level, we know that this exclusion directly creates feelings of isolation, reduced hope and confidence and of not being connected to, or included by, other people and society itself. In short, people are not able to realise the fullness of life.’ Mooney said.

At an economic level, there are profound opportunities for economic mobility – people moving away from financial crisis and hardship towards resilience and self-sufficiency – to make our communities more prosperous, inclusive and to drive economic growth. Good Shepherd Microfinance modelling shows that GDP would increase by 2 per cent even if only a quarter of those financially excluded made one small progression from hardship to stability. Well developed and implemented financial system reform, along with employment and enterprise policy improvements, will enable this.

Draft terms of reference for the Financial System Inquiry, chaired by former Commonwealth Bank Chief Executive David Murray, were released last night. They included the consideration of cost, quality, safety and availability of financial services.

Mooney said that ‘Focus on these factors is essential. What is missing is an examination of the role financial services play in directly enabling economic mobility for people on low incomes and, in the role this plays in driving economic growth and fair and inclusive communities. We will be making that and other recommendations on these terms of reference over the next fortnight.’

Good Shepherd Microfinance’s provider network includes 246 community organisations across 650 locations in Australia to offer safe, fair, and affordable loans, savings, energy inclusion and other programs. We have already reached over 125,000 people and will be encouraging our network to have a strong voice to represent those marginalised and vulnerable people on low incomes during this inquiry.

Post-GFC conservatism and inefficient selective client targeting by the banks has led to many people who can actually afford bank credit missing out. Banks use automatic scoring models, based on income as the sole indicator to predict whether a family has sufficient capacity to service a loan. This short sightedness has seen a ten-fold increase in the predatory and exploitative payday loan and rent to buy market in ten years.

Mooney said ‘There exists a rich and capable national network of community finance organisations that have earned the trust of people on low incomes. We see considerable opportunity for large scale investment in this network and in other innovative initiatives to enable economic mobility and overall economic growth.’