Poor, working class locked out of the banking system

Saturday, September 06, 2014

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THE popular saying goes "It is what it is". But are we forever condemned to exclude the vast majority of the population — the poor — from the business economy?


About 35 per cent of our adult population is "unbanked", a severe form of financial exclusion, and 80 per cent of those who have access to banks do not have chequing accounts, debit cards or credit cards.


In the main, commercial banks collect money from all customers but lend it only to better-off people who can pledge collateral based on their assets. Poor and low-income people do not have acceptable collateral and therefore cannot borrow from commercial banks, some of which make super-profits.


The poor people and the working class are usually forced to turn to building societies for mortgages and credit unions for short-term personal financing. Small businesses suffer from this system because they cannot get money to borrow to start or operate a business and the few that do qualify to get a loan cannot afford to pay interest rates which are charged.


Effectively, poor people and small businesses are excluded from the financial intermediation which commercial banks provide.


The financial exclusion of the poor, working class and small businesses goes even further because they often cannot meet the excessive requirements for opening and operating an account in a commercial bank.


An additional disadvantage is that the poor and the working class in the rural areas do not have convenient access to commercial banks, indeed do not have access to any kind of financial institution. It usually requires several hours of costly travel to get to a financial institution.


In the old days the poor and the working class could deposit and withdraw money through the post office in their districts. This rudimentary banking by the post offices was operated through what was the Government Savings Bank. One of the late Prime Minister Michael Manley's most valuable ideas was the conversion of the Government Savings Bank into the Workers Savings and Loan Bank (WSLB) in 1973.


The Workers Bank was 51 per cent state-owned and the other 49 per cent of the shares was held by private citizens, credit unions and trade unions. The four largest trade unions had permanent seats on the board of the bank. The Workers Bank which provided banking services through 270 post offices operated successfully. It suffered when certain state-owned enterprises were closed down in the 1980s.


The WSLB was privatised to a group led by Mr Delroy Lindsay in 1991. It subsequently went bankrupt.


The WSLB was an important mechanism for the financial inclusion of the poor, working class and small businesses. While the private owners may be culpable in its final demise the real cause, some believe, is that it should never have been privatised when it needed only a few million dollars in new capital. Privatisation was then an idea ahead of its time.


The trade unions were also much to blame because they never banked with the WSLB beyond a token.


The poor, the working class and small businesses still need much greater financial inclusion. It doesn't have to be what it is.



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