An instant access deal earning interest
Regeneration & Renewal magazine
Edinburgh’s Wester Hailes estate was seen by banks as a bad risk with no potential. But cooperative working with a bank ready to give it the best community deal has resulted in an innovative agreement that is leading by example. By Matt Ross
The regeneration sector takes a broad view of poverty. Deprivation, it is argued, must be measured through standards of health and housing, education and employment, access to services -even confidence and social behaviour. But, fundamentally, there is a simple truth here: poverty means a lack of money.
Over recent years, a broad-based movement has developed to combat ‘financial exclusion’ -the denial of banking, credit and financial services to a significant chunk of the UK’s populace. Credit unions, community development finance institutions and social enterprise investment agencies all tackle financial exclusion in order to create new opportunities and remove obstacles to struggling individuals’ self-improvement: freeing: families from dependence on extortionate ‘loan shark’ interest rates, for example, or providing pump-priming credit for small traders keen to move out of the black economy. By enabling poor communities to change the way they handle money, such services make people less: vulnerable to financial shocks and better able to progress.
Most community finance initiatives, by definition, work at ground level; their impact is felt locally, and few receive national recognition. One scheme, however, has attracted intense interest for its unique and innovative approach to financial exclusion: in 2001, UK secretary of state for Scotland Helen Liddell lauded this private-voluntary sector partnership as ‘the first community banking agreement in the UK’.
Since then, the Wester Hailes Community Banking Agreement (WHCBA) has continued to provide what Margaret Curran, the Scottish Executive’s minister for communities, calls ‘an example of how we can progress’. Last year the scheme prompted Edinburgh City Council to form its own financial exclusion steering group (see end piece, below), and national regeneration agency Communities Scotland has received a positive report on the project from consultancy SQW. Indeed, Scotland’s politicians are eager to claim credit for the agreement: Des McNulty, deputy minister for social justice, is keen to point out that it was ‘originally supported with a Pathfinder grant from the Scottish Executive’. The truth is, however, that the agreement’s success rests almost entirely on two factors: a national bank’s willingness to think laterally, and a community organisation’s hardheaded, bloody-minded tenacity.
The WHCBA is the brainchild of the Wester Hailes Representative Council (WHRC), a community ‘hub’ operating since 1981 as an advocate, coordinator and regeneration partnership in this deprived estate on Edinburgh’s western fringes. As a £100 million regeneration programme wound down in 1997, ‘physical regeneration was more or less complete, but the gap between employment figures in Edinburgh and on the estate hadn’t declined,’ says Eoghan Howard, then convener of the council’s economic development committee. ‘We were looking at ways to maximise the assets that the community groups had.’
The WHRC knew that the banks viewed Wester Hailes as a bad risk with little potential, leaving local people with poor access to bank accounts, affordable loans, cashpoints, debit cards and business finance. But how could it attract a bank’s interest? The answer, it decided, was twofold: to demonstrate the need for banking services, and to sweeten the offer. Using a grant from the Bank of Scotland – a trailblazer in community banking – and the Scottish Executive, the WHRC conducted a survey which found that 17 per cent of Wester Hailes’ population had no bank account, just 21 per cent had a current account (compared with 78 per cent nationally), and 16 per cent borrowed from ‘home credit agencies’.
The WHRC’s key success, though, was to tot up the assets of nine community organisations -representing an annual turnover of £4.8 million, deposits of more than £2 million, and borrowings of £6 million -and offer their combined business to the bank prepared to offer the best community banking deal. The WHRC, says SQW’s report, ‘was astute enough to recognise that it had ‘assets’ to offer, not just in terms of access to individuals, but also local organisations’. Having sponsored the research, the Bank of Scotland was ‘very surprised when we put the work out to tender,’ says Howard. ‘But that’s business! We didn’t want to be seen to be dancing to any one bank’s tune.’
At the time, says SQW, the Bank of Scotland had a ‘desire to move away from a ‘corporate philanthropy’ approach to a more sustainable model of community finance’; it also wished to demonstrate its support for community banking, in order to head off the threat of government legislation forcing transparency on banks’ activities in deprived areas. But the bank’s main motivator was self-interest, says its director of community banking, Morag Fenwick: ‘To provide services we wouldn’t normally provide to groups who we wouldn’t normally target, we were dealing with organisations like housing associations, which would look to bank with us as a result of the work we were doing with community groups.’
‘The principle was that if any bank wanted all this business, they’d also have to provide marginal services’, says Howard. In return, ‘the community organisations agree that the Bank of Scotland is the bank of first resort. So the bank gets their grubby paws on the [community organisations’] regeneration money’. Clearly, Howard is no diehard capitalist – but he is a diehard pragmatist. The banks are ‘conservative; very risk-averse. If it was down to me I’d nationalise them,’ he says. ‘But who wants to bang their head on a brick wall?’
When the agreement was drawn up, says Fenwick, it drew on the WHRC’s research into people’s banking needs: ‘access to basic bank accounts, access to business bank accounts, access to savings schemes and loans, and financial education,’ were the priorities. The scheme’s most important element has been the provision of an ‘Easycash’ current account offering a debit card: with outreach work conducted by the WHRC, and the Bank of Scotland placing dedicated advisers in each local branch), the account has proved very attractive to local people. In the last two years, more than 1,000 new accounts have been opened, representing nearly one in ten of the local population, and the ratio of new accounts opened per head of population is 25 per cent higher than in comparable estates to the north of Edinburgh.
Other elements of the agreement are taking longer to come to fruition. A plan to provide business advice for aspirational local people has had few measurable results, though SQW praises the WHRC’s attempts to improve financial literacy. Meanwhile, ail attempt to provide savings accounts and loans through Prospect Housing Association, which owns 900 properties in the area, has been held back by strict new Financial Services Authority rules on account holders’ identification documents.
Currently, says Prospect’s money advice officer Pete Mowat, local people are dependent on ‘doorstep credit agencies’ charging 50-200 per cent interest rates. ‘There hasn’t been any alternative until now for getting access to affordable credit,’ he says. Through Prospect’s year-old scheme, tenants can access loans at 7.9 per cent interest rates directly through the housing association: the cash is the Bank of Scotland’s, but loans are guaranteed by Prospect and it’s Mowat who makes lending decisions. To date, identification rules have made lending difficult, but Mowat says that through head office ‘the bank are getting agreement that they can allow me to act as the sole witness for identification’.
With the Scottish Executive promising’ a response to SQW’s report soon, and growing national interest in the agreement, the Wester Hailes model seems set to be reproduced elsewhere -and there are clear lessons for other partnerships to learn. ‘Quantifying and understanding local needs’ through a baseline survey was valuable, says SQW, whilst Fenwick credits ‘the group we were dealing with. Few communities are led by a group such as Wester Hailes Representative Council, who really are proactive’. For his part, Howard stresses ‘the willingness of community organisations to work together. Some are well off; others don’t have much money. If communities collectively negotiate, the banks are going to have to become much more entrepreneurial to get their share of the regeneration spoils.’
Indeed, Howard would like to see local authorities building financial inclusion requirements into their own banking decisions, and different communities linking up to increase their bargaining power: ‘Then, rather than negotiating your £10 million locally, you’re negotiating £250 million,’ he says.
In the meantime, Howard hopes to ‘work much more closely with support agencies that don’t necessarily see financial exclusion as one of their roles. We need to hard-wire financial exclusion activity into a wider range of services and organisations, to increase take-up amongst ethnic groups, the young, the disabled’. And, indeed, the old: does Howard, a Wester Hailes pensioner and council tenant, have a bank account? ‘Umm, I’ve got a post office account,’ he mutters, ‘Kind of.’
The Wester Hailes Community Banking Agreement has made dramatic strides in tackling financial exclusion – but there is, it seems, a long way still to go.
Edinburgh’s Financial Inclusion Project
Late last year, Edinburgh’s Capital City Partnership, which researches, runs and monitors the city’s regeneration programmes, established a two-year Financial Inclusion Project to study and tackle community finance issues. The project is run by a steering group bringing together regeneration agency Communities Scotland, Capital Credit Union, Wester Hailes Representative Council and the Royal Bank of Scotland. Ultimately, says Marlene Shiels, chief executive of Capital Credit Union, ‘my vision is to create a model for bringing together all the parts to crack financial exclusion in the city of Edinburgh’. Compared with Wester Hailes’ Agreement, she says, ‘it’s going to be much more strategic. It’s about bringing together organisations and looking for synergies’.
‘The success of Wester Hailes prompted us to ask: ‘Can we do this across the city?’ says Mike Chapman, the partnership’s financial inclusion officer. ‘Other communities are different, but you can replicate the process. That might mean setting up a community banking agreement, or it might not: this is about putting communities in a position to answer that question. It’s about feeding innovation that comes from the bottom up.’