Indigenous financial exclusion and the Banking Royal Commission

‘He that dies pays all debts’

Tempest, Act 3, scene 2

It is a while since I wrote anything on financial literacy (link here and here)

Last week the Banking Royal Commission, or to give it its full name, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (link here) published a Background Paper titled ‘Some Features of Financial Services in Regional and Remote Communities’ (link here).

This was a welcome development and at first blush suggests that the Commission is being proactive in seeking to identify areas of potential concern. The focus of the paper is on the access to financial services of the 6.9m people (or 28 percent of the Australian population) who reside in regional or remote locations. The paper provides a good overview of the issues involved, including the footprint of and interactions with financial services, and the extent and consequences of financial exclusion in regional and remote Australia.

Necessarily in a brief overview, the paper is written at a high level, and makes few references to issues around Indigenous access to financial services. There is a passing acknowledgment that Indigenous citizens are overrepresented in the severely or fully financially excluded group (page 14). There is a brief discussion about limited ATM access and high fees and transaction costs, which while it doesn’t mention Indigenous citizens in the text, relies for its source on a Treasury report from 2011 which examined Indigenous ATM issues (page 19; link here). There is mention of the links between financial exclusion and high cost lenders, but again without mentioning the particular issues associated with remote communities.

The experience in the APY Lands in this regard has had publicity in recent years (link here and here), but it is a widespread and longstanding issue across Indigenous Australia. The Commission paper references a 2003 paper by Siobhan McDonnell (link here) which provides a more academic insight into the issues facing remote Indigenous communities, and references a number of other useful publications and reports from the early 2000s including by my co-collaborator Neil Westbury.

The Commission’s paper prompts a number of observations.

First, the financial literacy issues facing Indigenous Australians and the impact of financial exclusion appears to have gone off the policy agenda in recent years. I haven’t conducted a comprehensive search of the literature recently, but my intuition is that the past ten years have seen a loss of focus on these issues. So for example, a look at the Department of Prime Minster and Cabinet (PMC) website finds no specific mention of financial literacy under its list of current initiatives, and within the focus area of economic development and the most recent Closing the Gap report no focus on financial literacy either.

Of course, there are exceptions; see this 2016 article by Marcia Langton and Josephine Cashman (link here) calling for the Community Development Program to be oriented much more explicitly to financial literacy. Their proposal does not appear to have been taken up by the Government in any wholehearted way.

Second, the Commission’s paper is welcome in focussing attention on financial literacy issues in regional and remote areas, but its focus on a ‘mainstream’ as opposed to an Indigenous–specific lens raises the prospect that the Commission itself is potentially vulnerable to reinforcing Indigenous financial exclusion.

Third, a search of the Commission’s website using the search term indigenous throws up scores of passing references, but very little that is substantive. The most salient reference was to the Australian Bankers’ Association commissioned review of their Code of Banking Practice by Phil Khoury (the Khoury Review). In a chapter on customers with special needs, Mr Khoury recommends that clause 8 of the Code should be rewritten to remove a series of heavy qualifications, to expand the obligation on banks framed by the Principle of financial inclusion, and to apply to all Indigenous Australians and not just those in remote and regional Australia. The Australian Banking Association has a revised draft Code on its website (link here and here) which appears to have taken into account the Khoury Review recommendations (refer to Chapter 13 of the revised Code). Of course, the Code is only the first step, and it depends entirely on the commitment of banks to implement it for its efficacy. There is thus a case for ongoing monitoring of bank actions in relation to their Indigenous customers.

Fourth, and flowing on from the last point, there is clearly a need for a more high profile and active advocacy peak body for the Indigenous financial literacy sector. This could be the National Congress or some other body. It is clearly a gap which needs to be closed!

Fifth, by definition, those excluded from the financial services sector will not be adversely affected by sins of commission (to use a term from my third grade catechism), but rather will be subject to sins of omission. A question for the Indigenous interests and the Royal Commission is how to ensure that sins of omission come onto the Royal Commission’s agenda. One obvious solution would be if affected individuals and organisations which service them were to make submissions. While over 6000 submissions have already been made to the Royal Commission, its website has not published them and accordingly, it is not clear whether there are any Indigenous related submissions. My intuition tells me that it is likely there have been very few. Perhaps the Prime Minister’s Indigenous Advisory Council might consider developing a detailed and comprehensive submission to the Royal Commission.

Finally, there appears to be strong case for a renewed academic focus on Indigenous financial literacy and financial exclusion. Over the past decade, there has been a huge change in digital access and technology, which potentially is a game changer, and cries out for detailed assessment. In particular, there do not appear to be many ‘on the ground’ analyses of the impacts of financial exclusion on Indigenous citizens, their families and communities.

Hopefully the nation’s policymakers will refocus on the issue of Indigenous financial exclusion in the near and medium term. For as Keynes said in his Tract on Monetary Reform: ‘in the long run we are all dead’.

Declaration of Interest: in 2007, along with Neil Westbury, I undertook a consultancy for the NAB focussed on options for improving NAB’s services for Indigenous Australians.