Access to banking services and credit for UK ethnic minorities, refugees and asylum seekers
This article reports on a European Union funded project in collaboration with academics and the voluntary sector in Belgium, Finland, Italy and Spain. The objectives of the project include investigating discrimination by banks and researching access to credit and other financial services by migrants.
What do we mean by 'migrants'? The terminology of immigration and race relations is a major cause of misunderstanding between British and other European commentators. The author was offered partnership in the project but declined partly on the grounds that the 'immigrant' terminology was inappropriate for the United Kingdom but almost unavoidable in a European project. The majority of British people of Asian and Afro-Caribbean origin are not, or are not regarded as, 'immigrants' in the UK. Yet they are often referred to as such in continental Europe, where being Black is widely treated as a mark of immigrant status. The UK has enacted legislation that largely prevents any further non-white immigration so the majority of current immigrants to the UK are White. There is very little clandestine immigration into the UK because of our island status. We do however have undocumented workers in the form of persons who came as tourists or students and who now work and some refugees and asylum seekers. The Sunday Times reported that the banks (one of the subjects of the project's research) themselves employ workers illegally in the City of London. The UK closed the door on refugees and asylum seekers on April 1st 2000, probably in breach of its international obligations. In the UK we refer, therefore, to ethnic or racial minorities and to refugees and asylum seekers, but not to 'immigrants'.
The terminological problem is not unique to the UK. In Italy it was thought that 'everyone knew' what an immigrant was, and there was no problem. In Spain, however, and notably in Barcelona, where one of the case studies was conducted, 'immigrants' refers to all the people who comprised the heavy migration to Catalonia (and Barcelona in particular) over recent decades. By 1996 nearly half the population of Barcelona was immigrant by this definition, but less than 4 per cent were born outside Spain. If the returned children of Spanish emigrants are excluded this falls to just under 2 per cent. All participants in the study also recognised that they had migrants who included high status workers from the USA and Japan, who were not initially seen as the subject of the study, but which must be included unless a suitable definition could be found that excluded them. It was agreed therefore that the study should encompass Non-EU nationals, but excluding nationals of the G7, moving into the EU and subsequently within the EU, including legal and illegal immigrants and their dependants, refugees and asylum seekers.
What sort of financial services might migrants need? The services fall into two categories, personal and business - but with many migrants working in informal sectors of the economy this distinction can not always be sustained in practice. Personal services include opening a bank account, acquiring a cheque book and cash card, arranging an overdraft, personal loan or mortgage. In addition migrants are likely to want to send sums of money to their home country, thus creating a need for international money transfer services. They may also be more likely to deal in cash from informal economic activity, including casual or undocumented employment. Therefore, they are more likely than native account-holders to need cash-handling services. Finally, some migrants may need the services of an interpreter when accessing banking services. Particular groups may have specific banking and credit needs arising from features of their culture; there are, for example, debates amongst Muslims over the prohibition on lending money for interest; the United Bank of Kuwait offers Muslims in the UK Islamic Investment Banking.
Business services include the establishment of a bank account or accounts, loans for start up capital and expansion, and overdraft facilities to provide cash flow support. Facilities for currency exchange and the repatriation of funds may also be needed.
It is important to note that none of the personal or business services required need necessarily be provided by banks. Supermarkets may cash cheques, building or friendly societies may provide loans, others (such as 'loan sharks') may specialise in lending money to marginal groups at high interest rates. Furthermore there is a long tradition of working class people and migrants making their own arrangements for financial services; credit unions1, trade union based agencies, kin or ethnic-group based savings and loan societies. The less formal sector is also augmented and supported by the formal voluntary sector, agencies (including the churches) aiding the poor and excluded. If a migrant group is sufficiently concentrated in a particular area they might also be served by banks from their home country, by travel agents who change money or by loan sharks who can treat kin in the home country as hostages against repayment. So we may define three sectors for credit and financial services; (i) the formal commercial sector (ii) a formal or informal voluntary sector (iii) an informal (and almost certainly unregulated) commercial sector.
Because the UK has nearly one quarter of a century of race relations legislation it has well documented cases entailing the discriminatory provision of employment and services, or allegations of discrimination. The banking and financial services systems are highly regulated and there are relatively few indigenous banks in the UK. Institutions individually and collectively bring together large quantities of data both to satisfy regulators and to promote their own commercial interests. The library of the British Banking Association is an important source of data, ranging from legislation and regulations to annual reports, codes of practice and press cuttings.2
Providers of financial services of the kind with headquarters in the City of London have not traditionally been interested in poor people, migrants or otherwise. But lack of access to financial services has become part of the UK social exclusion agenda and the focus of official attention. Recent debates about bank mergers and branch closures have heightened interest in the issues. Thus, for example, the OFT (Office of Fair Trading) reported that:
In Birmingham in the early 1990s five of the 39 electoral wards had no bank or building society branches, while a further six wards each had only one. But 28 per cent of the city's population lived in the relevant areas - including some of it poorest inhabitants (OFT, 1999: 22-23).
The importance of having access to a bank account can not be underestimated; only 12 per cent of employed people were paid in cash in 1998 (compared with 58 per cent in 1978), "having a bank account is, therefore, increasingly a condition of employment" (OFT, 1999: 20). The decline in the use of cash for payments means that persons without bank accounts need alternative means to cash a cheque. Cheque cashing agencies have been increasing in number and may charge 7 to 9 per cent of the value of the cheque plus a £2 fee for the transaction. Thus a person using this service loses money. The bank account is also a gateway to other financial services and it also ensures better value when paying for utilities. For example, the cost of gas paid by direct debit is 12 per cent less than the cost of a pre-payment meter, and seven per cent less than quarterly cash payments. The main reason for denying a bank account to those who apply for them (about 13 - 14 per cent of applicants) is the risk of unauthorised access to credit through the use of debit cards and cheques backed by a cheque card (ibid.: 25). The Office of Fair Trading suggests that an income of £12,000 is needed to secure a current account. Banks either exclude people with lower incomes or an account is not worthwhile for a person with such a low income. Banks are increasingly less willing to provide loans to poorer people and the objective scoring systems (including age, occupation and postcode) now used to decide whether or not to provide a loan makes it very difficult indeed for such people to get credit from a bank. Hence the need for the less regulated services of loan companies.
The OFT's Research Paper 15, Vulnerable Consumer Groups: Quantification and Analysis (1998), studied seven categories of the population which might be considered in some situations to be vulnerable. In addition to those on low income, it identified a further six non-mutually exclusive categories: the unemployed; those suffering from a long-term illness or disability; those with a low level of educational attainment; members of ethnic minorities; older people; and the young.
Using data from the Family Expenditure Survey and other sources, the extent of these groups and the overlap between them was explored. The findings of Chapter 6 of this report 'Financial Services and Ethnic Minorities' include the observation that minorities, on average, earn less than the white majority (a finding since confirmed in some detail by Berthoud, 1998). Forty seven per cent had no home contents insurance (18 per cent of whole population), 43 per cent had no savings account (20 per cent). Kempson and Whyley (1999) were reported as discovering that whereas 6 per cent of Whites had no financial products, 16 per cent of Blacks and 14 per cent of Indians and Pakistanis had none.
Some minorities are also at a disadvantage because of their poor English and a lack of familiarity with financial institutions and jargon. They also felt they were discriminated against, by, for example, having to pay higher premiums for household contents insurance. They felt they were not trusted. This was one field in which they were less often targeted, receiving fewer sales approaches from companies offering credit and other financial services.
The OFT did not collect data of a type that would enable these opinions to be tested, but nevertheless offered some explanations of the situations described. Most obviously ethnic minorities are (or have been) on the whole poorer than the majority non-ethnic population and they have been residentially concentrated in poorer inner city areas. Financial services are more geared to higher income groups and inner city areas are perceived by insurers to be higher risk areas. The use of routine, automated methods of sending out mail-shots, assessing insurance risks and credit worthiness all mean that inner city dwellers with low incomes are likely to be treated in the same way as the ethnic minorities. In other words it is the actual or perceived economic status of ethnic minorities that explains their experiences of the financial services sector, not their skin colour. The OFT suggests (OFT, 1999: para. 612) that the routinisation of the processes of assessing risk makes it unlikely that ethnic origin could be a factor. In other words, market rationality is built into the computer programs and the exclusion of candidates for financial services on the grounds of 'race' or ethnic origin would be contrary to the profit-maximising strategies of capitalist corporations. This is an hypothesis that could, with some difficulty, be tested. The fact that Indian households are more likely to have financial products than any others suggests there may be some evidence to support it.
In a report commissioned by the Bank of England and published in 1998 it was observed that:
Non-white businesses tended to be younger and smaller but more profitable and likely to export. .... pay significantly higher interest rates and have to yield higher levels of collateral .... and are .... significantly more constrained by interest rates and in terms of credit available (Binks and Ennew, 1998: 30-31).
The 1998 report contained only a small sub-sample of ethnic minority businesses and so in 1999 the Bank of England, as a result of more systematic enquiries published a report The Financing of Ethnic Minority Firms in the United Kingdom (Bank of England, 1999). The available data suggests a number of reasons why minority businesses experience greater difficulty in acquiring funds and pay higher interest. Minority businesses are concentrated in activities with high failure rates (catering for Bangladeshis and Chinese) taxi driving (especially Pakistanis) and construction work (self employed West Indians). Secondly, minorities really do lack collateral; West Indians, for example, are more likely to live in council housing and therefore have no real property to pledge. Minority owner-occupiers may live in areas where property commands a low price.
Thirdly, discrimination was a possibility. This could be both direct - deriving from prejudice against a particular group - and indirect. Indirect discrimination would be the outcome of making assumptions about members of certain groups (for example, about their activity and collateral). Thus, lenders make assumptions about loan risk, using 'race' "as a proxy for the unobservable characteristics that cause the difference in loan risks" (Bank of England, 1999: 26). Both direct and indirect discrimination are thought to occur, but not on a wide scale. Banks are taking action across the board against this (see above). Minorities did not, according to the Bank of England, feel especially discriminated against.
Two points might be made in response to the comments on discrimination. From an economic point of view discrimination is irrational when it leads to loss of profit. Such discrimination as there is is explained in 'rational' economic terms - a calculation of risk, correct or mistaken. This is not a well-founded assertion to make without very substantial supporting evidence. Institutions as diverse as schools, hospitals and universities can adopt employment policies or adopt professional practices that are prejudicial to minorities and wholly at odds with the stated professional standards and ethics of the practitioners. Colour blind policies were at one time thought to be the epitome of a liberal stance; resulting in the devaluation of minority culture, failures to diagnose (for example) sickle cell anaemia and substantial underemployment of minority staff, respectively. Universities, in addition, pay their female employees less than men and promote them less. So the interests and professional culture of organisations are no protection against discrimination.
All small businesses have problems with start up. All groups use non-bank sources, but West Indians more so. Nearly 40 per cent of all small businesses raise more than 75 per cent of their start up resources from non-banking sources. Savings are important for all start ups, especially for West Indians, but bank loans are especially important for Bangladeshis. However, this observation is based on small samples. Voluntary and self-help sources of support are also available for business, including 'partnering' for West Indian businesses. There is a problem with credit unions in the restrictions placed upon the level of loans that may be made. The problems continue with finance for expansion. In this respect overseas banks (although London-based) can be important for trade services and exporting. The Bank of England study discovered that minority businesses are more likely to be 'multi-banked'.
Almost by definition refugees and asylum seekers have no record of their financial status or economic activities in the UK. They therefore encounter particular problems in, for example, opening a bank account. Whilst some of their problems will arise from the general hostility generated by the press and the government, specific problems arise from the Drug Trafficking Act 1994. In its Money Laundering: Guidance Notes for the Financial Sector the British Banking Association stresses 'know your customer'. Customers are expected to identify themselves and failure to provide appropriate evidence of identity may lead to a suspicion that the investor in engaged in money laundering (BBA, n.d.: 4.05, 4.08). Banks and other institutions face heavy penalties for not reporting any suspicion to the authorities. It is certainly no longer possible to open a bank account in the UK by walking into a bank with a suitcase of money. But few refugees and asylum seekers will have arrived with a suitcase full of cash.
Resident UK personal bank customers must provide a name and address (including postcode). Date of birth is also important to enable checks to be made for stolen documents3. The British Business Association advises its members that they can check electoral registers, recent utility bills, and the telephone directory or ask for an introduction from a respected customer (ibid. 4.56 to 4.61). The bank is not required to check any of these, but in the climate of suspicion that now exists in the UK it is not surprising that refugees report difficulties. The UK Refugee Council report that refugees and asylum seekers have problems in opening bank accounts because they are asked to produce evidence of a permanent address, bills for telephones or gas for the previous three months and then bring with them a friend who has an account with the bank. But the applicants are often housed in hostels or other temporary accommodation, where gas and electricity are included in the charges. Furthermore, in the unlikely event of having close friends around immediately after their arrival it is less than likely that the friends will already be established bank account holders.
My preliminary review of the data suggests that had it been necessary to undertake research in the UK for the purposes of the project it would have been relatively easy to do so. Excellent work has already been published and more is in progress (see, for example, Berthoud and Kempson, 1992; Binks and Ennew, 1998; Kempson, 1995; Kempson and Whyley, 1999; Rowlingson and Kempson, 1994). The opportunities in most mainland European countries would be far fewer. The agenda would not be understood by the financial sectors, lack of legislation on discrimination leads to a lack of relevant data and the colour blindness and economic rationale of the banks and others services means no data are generated internally to the institutions.
In Spain few banks were willing to co-operate in the enquiry. None of those interviewed had any employees speaking Arabic (the main immigrant language) and three had leaflets in English and French. One, however, specialised in foreign transfers for the migrant population and another reported that it was about to focus on migrants, as it had done on Spanish 'immigrants' during the 1960s. The major Belgium banks were rather indifferent to the enquiry, adopting a very market-oriented approach. In Brussels they have no material in languages other than the official Belgian languages and English. Reluctance to produce materials in other languages is partly explained by the fact that most documents relating to banking have a legal status and must be in one of the official languages. The Italian banking system is highly fragmented, although less so than in the past. In 1989 there were 1176 banks but today 877, comprising 27,132 branches. There are still many small and regional banks within the system but the system as a whole is plainly undergoing extensive reorganisation.
Laws regulating banks in Italy contain some anti-discrimination rules and rules requiring banks to give clear information to clients. The main finding of the study was that Italian banks do not yet regard immigrants as worthwhile customers. In Finland social security benefits are paid through banks and therefore the very poorest acquire accounts and cards when slightly less impoverished people may fail to obtain either.
In a recent paper Roger Jowell (2000) drew attention to the problem of defining God in cross national social surveys. Defining a piece of laminated plastic 85 by 55 mm offers similar problems. Cards can be used to obtain credit, cash through an ATM, to make a direct payment (Switch in the UK) or to guarantee a cheque. These functions may be performed by separate cards or any combination of different cards, and there is no standard nomenclature. Furthermore, there are Bank-O-Mat cards which enable cash to be withdrawn from a special network of ATMs which are not the property of any one bank. There are also Diners' and American Express cards for which special charges are made. In making international comparisons, therefore, the cards can not be referred to by name, but only by their function. Opportunities for misunderstanding amongst researchers abound nonetheless.
The project is not yet complete but problems relating to researching financial institutions on a European cross-national basis are clear. The legal frameworks within which financial transactions take place vary considerably. All official banking and approved financial services are subject to regulation. Law and regulation generates data. The data may be relatively freely available in the UK or treated as closed and private as in Belgium. Regulation in the field of race relations also generates data and 'cases'. Europe at present operates largely colour-blind policies with the consequence that data on minorities are not generated.
With social exclusion firmly on the European agenda (even if unclearly defined, see Levitas, 1999) and new requirements to legislate against ethnic discrimination we may expect a very slow accumulation of data which will enable us to study the behaviour of financial institutions directly. However comprehensive and public the data may become there will remain ample scope for misinterpretation as evidenced by the apparently simple case of plastic cards.
The policies of the financial institutions are likely to be written in terms of the law, official regulations and codes of practice regulating their activity. Economic rationality will prevail, if only because decisions relating to, for example, personal credit, will increasingly be automated. Migrants will be excluded because they are over-represented amongst the poorest. Indirect discrimination will be practised rather than direct discrimination. Rich migrants and footloose capital will be treated like all rich people and available capital. Direct discrimination is much more likely to be seen in local branches of banks in the face to face relations between staff and those members of minority communities who are not obviously wealthy. Until companies adopt codes of practice on discrimination that generate monitoring data, research in this field will have to use the field work techniques of sociology, anthropology and social policy. The data will not be found in company files or in any convenient library in mainland Europe.
Bank of England (1999) The Financing of Ethnic Minority Firms in the United Kingdom, London: Bank of England
Bank of England (1998) Private Businesses and Their Banks, September, London: Bank of England
Berthoud, R (1998) Incomes of Ethnic Minorities, ISER: Colchester
Berthoud, R. and Kempson, E. (1992) Credit and Debt, the PSI Report, London: PSI
Binks, M. and Ennew, C. (1998) Private Businesses and Their Banks, Nottingham: Univ. of Nottingham Business School
British Banking Association (n.d.) Money Laundering: Guidance Notes for the Financial Sector London:BBA
Jowell, R (2000) Making comparative research more comparable, paper at Regard Conference, Bristol, September.
Kempson, E. (1995) Money Advice and Counselling. London :PSI
Office of Fair Trading (1999) Vulnerable Consumers and Financial Services: The report of the Director General's Inquiry, OFT 255, London
Kempson, E and Whyley C (1999) Kept Out or Opted Out, Bristol: Policy Press
Rowlingson, K and Kempson, E (1994) Paying with Plastic: A Study of Credit Card Debt, London: PSI
Moore, R(1998) Positive Action in Action: equal opportunities and declining opportunities in Merseyside, Basingstoke: Ashgate
Steel, J. (1992)'The ethnic minorities - an unrecognised resource?', Banking World, December, p.60