Amid a growing shortage of access to affordable financial services, investors should be pushing mainstream financial firms to improve financial inclusion, argues a new report from the Vancouver-based Shareholder Association for Research and Education (SHARE).
In a report released Wednesday, the investor advocacy group says that investors in financial firms are facing increased risks due to growing financial exclusion in Canada. It says that an increasing number of Canadians “are underserved by the financial mainstream, leaving them unable to build savings, access affordable credit or obtain appropriate financial advice.”
For example, the report notes that approximately 13% of Canadians have no bank account, or have an account with a zero balance; and, just 24% of Canadians that are eligible to receive free government education savings contributions through the Canada Learning Bond have taken advantage of the program.
As a result, these underserved groups — which includes low-income people, new immigrants, and aboriginal Canadians — are more likely to turn to the alternative industry, such as payday lenders, and end up using high-fee products as a result, it notes.
“For investors, financial exclusion carries significant risks. Principally, it contributes to the negative economic trends we are seeing in Canada: low savings rates, low asset-holding, high levels of debt and growing inequality,” says Shannon Rohan, author of the report and SHARE’s director of responsible investment. “Investors are not immune to the negative impacts of these trends and should be seeking opportunities to promote deeper financial intermediation and greater financial inclusion.”
The report recommends that Canada’s banks innovate in order to devise products, services, and delivery methods, to help address the issue, achieve higher volumes and greater efficiency. “There are important business-based arguments for banks to improve financial service provision to underserved market segments including building new client bases, improving brand image and maintaining a favourable regulatory environment,” it says.
“We believe that the case for investors to support these processes, as shareholders in Canada’s banks and as long-term investors that are highly sensitive to the risks associated with financial exclusion, is strong,” it adds.
Colette Murphy, executive director of the Atkinson Charitable Foundation, which sponsored the report, said, “As an institutional investor, the Atkinson Charitable Foundation believes that the investor case for improving financial service provision for low-income and other financially underserved groups is strong. It warrants a conversation and we look forward to constructive discussions with the banks, and other investors and stakeholders on this issue.”