NEW RESEARCH CALLS FOR BANKS TO SHOW AND TELL ON LENDING IN POOR POSTCODES

Banks should fully disclose what and where they are lending to improve access to finance in disadvantaged communities, says a new report released by nef and supported by Barclays PLC. 

The Power of Information is the result of the first programme of empirical research to explore the usefulness of disclosing bank data, which could prompt a real shift in the way banks view, act in and invest in some of the UK's most disadvantaged areas.

The report marks a new development in the field of corporate responsibility, and looks at how responsible corporate action can produce practical benefit.  It shows that improving disclosure by banks can:

• increase transparency and demonstrate corporate accountability,
• track levels of investment as an incentive to fairer lending
• improve access to finance in deprived areas

While some banks question the relevance of disclosure, by helping to develop a better understanding of the economics in deprived areas, it actually has the potential to significantly move the financial inclusion agenda ahead.

In the United States, since legislation on bank disclosure was introduced in the late 1970s over $1 trillion has been levered into deprived neighbourhoods.  Although the bank industry is very different in the USA there is little doubt that the effectiveness of the disclosure legislation has been driven by increasing bank transparency and effective partnerships between banks, CDFIs (community development finance institutions) and communities.

The report includes recommendations for a voluntary bank reporting structure, based on three key demands: 

• disclosure of investment levels by individual banks in disadvantaged areas

• production of additional information useful at a local level such as number of startup businesses  and business survival rates

• other actions to improve access to finance in disadvantaged areas - for example developing links with local CDFIs or new product development.

The report has been welcomed by HM Treasury, which has been monitoring progress on bank disclosure since the Social Investment Task Force recommended increased disclosure in 2000. 

John Healey, Economic Secretary to the Treasury, said: "The government urges all banks to be as transparent as possible about their activities in order to increase our understanding of underinvested communities. More transparency by banks should increase awareness of the financial needs of underinvested communities. Small changes of behaviour by large institutions could have a big impact on the access to finance for businesses in the most deprived areas of the UK ".

Barclays, the first UK high-street bank to disclose its data as part of its social and environmental reporting welcomed the findings.  Peter Kelly, Head of Financial Inclusion said: "Banks are major investors in UK communities and have an important role to play in economic regeneration.  We hope that this report will stimulate further debate and enable all those interested to develop a deeper appreciation of the data disclosure issue. In the recommendations the authors suggest three key tests which could serve to promote effective disclosure in the UK. At Barclays we have been disclosing our activity for the last three years and we now look forward to reporting our progress on all three of the test areas in our next CSR Report."

Sarah McGeehan, author of the report and Information Director at the Community Development Finance Association, said: “When I was working at nef, we wanted to find out what could be done to help combat financial exclusion in local areas and transparency of financial data is crucial to understanding what is happening.  Our work shows that the agenda has moved since the Social Investment Task Force report in 2000.  Banks are not part of the problem, they are part of the solution to improving access to finance in communities that most need it”.

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