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The Australian National University

What’s in it for Koories? Barwon Darling Alliance Credit Union and the delivery of financial and banking services in north-west New South Wales

Working Paper 7 / 2000

Abstract

Indigenous people’s ability to manage and budget their income, arrange to pay third parties, purchase food, goods and services, and maintain a level of financial and economic independence and planning, are all reliant on maintaining informed access to appropriate banking and financial services. Issues relating to Indigenous people’s access to, and understanding of banking and other financial services are critical to their ability to participate in the economy, thereby improving their general quality of life and in the longer term, assisting in the reduction of welfare dependence.

There have been a number of inquiries and some research undertaken that have examined factors that impact on demand for, and access to, banking and financial services in regional Australia. However these not only often overlook the significant proportion of the population that is Indigenous, they also fail to recognise Indigenous people’s contribution to the economic life of regional and remote communities.

Indigenous people represent a steadily increasing proportion of the outback population and economy. Between 1981 and 1996 this Indigenous share increased from 13 per cent to 18 per cent. Over the same period the non-Indigenous population has been in decline. This same trend is reflected in the towns of Brewarrina, Walgett and Bourke within ATSIC’s Murdi Paaki region. Between the 1991 and 1996 Censuses the Indigenous population increased as a proportion of the total population from 42 per cent to 55 per cent in Brewarrina, from 38 per cent to 45 per cent in Walgett and from 28 per cent to 31 per cent in Bourke.

Whilst these figures largely reflect a decline in the non-Indigenous population, the Indigenous population is growing at a more rapid rate. It is also important to note that the median age of Indigenous people is 20 years as compared to 34 years for the non-Indigenous population. This younger demographic profile has important implications for the growth of the working age population and the more rapid formation of younger families.

Census data for these towns report Indigenous people’s personal income ranging from between 40 to 78 per cent of non-Indigenous personal income. Furthermore, Indigenous people obtain almost 50 per cent of their income from non-employment sources, predominantly welfare payments. Even where Indigenous individuals are employed, they earn less than three-quarters of the income of non-Indigenous workers.

Even more significant are census data on the comparative childhood burden ratios. This ratio measures the burden of care placed on employed members of the community by those under 15 years of age. The average Indigenous childhood burden for the three towns was 2.2 persons per employed person compared to the non-Indigenous burden of 0.5 persons per employed person.

Indigenous people’s comparatively low incomes and reliance on welfare payments have contributed to a limited interaction with banking and financial services, focusing primarily on accessing Centrelink benefits or Community Development Employment Projects wages that have been electronically transferred into their accounts. Monies paid into these accounts are invariably exhausted each fortnight or pay period. This cycle has been compounded by the introduction of account keeping fees, steady increases in transaction fees and the imposition of various state government taxes that have a disproportionate impact on low-income earners.

This research confirms that for many Indigenous people, apart from accessing savings accounts and utilising EFTPOS facilities, access to affordable loan finance is currently viewed as either impossible to achieve because of bank eligibility criteria, or simply impossible because of low income levels. Most Indigenous people lack budgeting and financial literacy skills and resultant familiarity with other financial services. This in turn limits people’s understanding of how to access the available options for minimising bank fees, successfully negotiate loan facilities, and manage repayments or access other relevant banking and financial services. The research found that this is contributing to Indigenous organisations moving to provide a range of de facto banking services to their employees. This includes responding to significant demands for small-scale loans, payroll deductions to meet rental payments and the operation of Christmas Club accounts to accumulate savings.

The demand for such loan facilities is further demonstrated in the region-wide take up of Centrelink’s advance facility. This provides an interest-free advance of up to $500 per annum for individual Centrelink benefit recipients, who can apply for it once every 12 months. The advance is repaid via deductions from subsequent welfare payments. This facility is reportedly utilised by up to 90 per cent of Indigenous welfare clients. There is anecdotal evidence of Indigenous people on secure incomes concluding they have little choice other than to seek access to necessary loan finance from private finance companies who charge very high interest rates.

The Federal Government has embarked on an active agenda of welfare reform that includes incentives to assist people to reduce welfare dependence. Local and international evidence confirms that informed access to appropriate banking and financial services forms a crucial first step in enhancing people’s ability to accumulate savings and assets. Against this background, the deregulation of Australia’s financial system and the rapid adoption of new electronic technology are having significant and disproportionate impacts on the delivery of banking and financial services in the region to all its resident population.

Apart from the removal of cross-subsidisation of bank services and the associated increases in fees, these impacts have resulted in the wholesale closures of many regional branches. Such closures are currently occurring at a rate of five branches per month in regional and rural New South Wales alone (totalling 137 in New South Wales over the last two years). This continuing trend highlights the momentum towards the possible eventual replacement of face-to-face banking by the wholesale adoption of electronic services. As it currently stands, Australia’s major banks can close branches on commercial grounds alone and thereby reduce 100 per cent of their local overheads. By authorising alternate local agency arrangements, experience gained elsewhere in rural New South Wales suggests that the banks can still retain both a high value customer base and high total value of their local business. This effectively means that banks still gain the rewards from retail savings, investment and loan business without maintaining a branch structure with locally employed staff that produces regional economic multipliers.

Conversely, these changes also offer opportunities for partnerships, such as that currently proposed between Murdi Paaki Regional Council and other members of the Barwon Darling Alliance, to sponsor the development of alternative banking and financial services. Experience in Australia and internationally demonstrates that through the establishment of credit unions, services can be designed that are responsive to the needs of local people, but also help ensure monies banked and mutual profits made are reinvested in the local region.

However the successful establishment of commercially sustainable credit unions, particularly in regional and remote areas, are not simple and straightforward propositions. They require long-term financial commitments with associated commercial risks, and concerted collaboration and cooperation, not only across differing organisations, but whole communities. They also require an acceptance that the perceived benefits of establishing a locally owned credit union will take time to flow on and will initially centre largely around its ability to:

  • raise sufficient capital to provide the foundation for its investment in the region;
  • provide loans to raise revenue; and
  • raise deposits to support its loan activities.

Similarly, the policy approach of the Federal Government to supporting the establishment of Rural Transactions Centres under its existing program arrangements, will form a key determinant of how quickly a credit union will be able to extend its services into those communities who are the most disadvantaged under current arrangements.

As a potential co-sponsor, along with the other six shire members of the Barwon Darling Alliance, Aboriginal and Torres Strait Islander Commission’s Murdi Paaki Regional Council is arguably well placed to leverage both short, but principally, longer-term strategic benefits for its constituents from the establishment of a credit union in its region.

However, if Murdi Paaki chooses to commit financially to the proposal, its involvement could easily draw criticism unless it is able to gain significant support through both a realistic understanding and acceptance by its own key stakeholders of the potential benefits of involvement, and the securing of beneficial services to Indigenous customers.

At present there is little general awareness of the Barwon Darling Alliance Credit Union (BDA) proposal amongst individual Indigenous people and their organisations across the region. This lack of awareness is not confined to Indigenous communities, particularly in terms of understanding the commercial realities of establishing a successful credit union and the role individuals, organisations and businesses will need to play for success to be assured. Conversely there has, as yet, been no detailed consideration given to the specific banking and financial service needs of Indigenous people and how these are consistent with, or may vary from, those of the wider population.

Nevertheless, Murdi Paaki Regional Council has a significant opportunity to secure an important foothold in a cooperative institution which, if it proceeds, may play a key role in contributing to the long-term economic life and social cohesion of the region. Dependent on the outcomes from the development of the current business plan for the BDA Credit Union, Murdi Paaki Regional Council needs to develop a strategic negotiating position that critically evaluates its own possible involvement in the venture. Such a position should be, in turn, informed by the concerns and priorities of its own constituents and their level of understanding and potential support for the proposal. Considerations should include identifying possible combinations of the various identified options, their short and longer-term benefits to Indigenous people, in return for provision of subordinated debt.

Dependent on the level of investment these may include:

  • nominating the location of full-time and part-time service centres and an administrative centre;
  • targeted employment and training policies and positions;
  • product range;
  • fee free transaction services; and
  • financial counselling services.

Similarly, the Regional Council needs to consider how the above benefits might translate into positive incentives that encourage its own constituents and funded organisations to fully utilise Credit Union services in ways that are mutually beneficial.

In the context of the forthcoming ‘Walgett’ summit with Deputy Prime Minister John Anderson, Murdi Paaki Regional Council in conjunction with the Barwon Darling Alliance, should consider seeking in-principle support from the Deputy Prime Minister for a regional allocation of funds under the Rural Transactions Program. These funds would meet capital and establishment costs in extending BDA credit union services to remote rural communities, with a view to benefiting all inhabitants of the region.

ISSN: 
1442 3871
ISBN: 
0 7315 4906 6

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