Next week Labour & Co-operative MP Gareth Thomas will introduce a 10 Minute Rule Bill on a Banks (Financial Exclusion and Access to Finance) Bill in parliament. The introduction of the new Bill – often called a British Community Reinvestment Act- could have a significant impact on supporting disadvantaged communities – empowering them to save and invest in their future. Here’s how a British Community Reinvestment Act could make a real difference to people and communities right across the country.

A British Community Reinvestment Act would establish a requirement for major financial institutions to work with purpose-driven financial institutions, such as credit unions and community development finance institutions (CDFIs), to expand lending to people who are financially excluded. Financial exclusion is a major problem in the UK, leaving many people unable to save and invest, exposing them to financial insecurity, lowering living standards and often entrenching poverty. Expanding lending to these underserved people and communities could enable people to begin saving, invest for the future or provide for their families. It would considerably reduce the number of people dealing with loan sharks and other illegal lenders.

A new British Community Reinvestment Act would increase lending to small businesses and co-operatives, which are often underserved by high street banks. Ensuring effective lending on fair terms to these SMEs and co-operative could kickstart economic growth and help to growth job opportunities across the country.

The British Community Reinvestment Act is modelled on the original, pioneering Community Reinvestment Act (CRA), introduced in the United States in 1977. Since its inception, the CRA has played a vital role in boosting lending to underserved communities in lower income areas. The CRA has led to an increase in loans, mortgage lending, and small business lending – helping people and small businesses to save and invest for the future. It has also played an important part in the continued growth and development of the credit union sector, expanding their lending volumes and encouraging the growth in membership. With the support of the CRA, the American credit union sector has grown to a significantly larger scale than the UK sector, even when accounting for population.

A British Community Reinvestment Act will boost the UK credit union and CDFI sector, expanding their liquidity pools and capacity to deliver greater lending to members. This could be transformative in scaling-up credit unions, along with the changes being introduced by the Labour Government. The Chancellor has announced a range of measures since entering Government, including a duty on regulators to ensure a growth friendly environment for credit unions, a reform of the common bond to enable greater scale and a £30m Credit Union Transformation Fund.

As a central delivery partner in the Government’s Financial Inclusion Strategy, credit unions will play a key role in delivering more inclusive financial services. A new British Community Reinvestment Act would go even further in building a fairer, more inclusive financial system with co-operative values at its heart.