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Speech by Ahmed Fahour, NAB Executive Director & CEO Australia
International Chambers of Commerce Business Forum, Melbourne, 26 April 2006
Ladies and Gentlemen,
In two years time the National Australia Bank will celebrate its 150th birthday. That's a long time for anyone, but particularly so for a financial services institution in Australia.
From our humble beginnings at the tail-end of the Victorian gold rush, the Australian historian, Geoffrey Blainey, once remarked that if a financial prophet had been asked in 1858 to name the Australian bank that was the least likely to survive a century, he or she would have named the NAB.
Looking back over those early years one is surprised that the bank survived at all - stormy meetings of shareholders, the bank closed and then re-opened by the Supreme Court, plots laid while the Chairman is out at a dance, riots in the boardroom, defeat of directors and the death of the Chairman - and this was all in the first 12 months.
I'm sure the wags amongst you might think I am referring to the events of 2004 - but this was most definitely 1858. And yet survive the bank has, moulding a tradition over time and fulfilling the early founders' promise to serve "the merchant, the trader, the settler, the storekeeper and the miner."
It is important for any institution - bank, parliament, newspaper or community group - to reflect on its origins. To look to the future with a clear eye on the past; identifying those things which have contributed to the success of the institution and which, in some more fundamental way, come to embody that particular institution's DNA.
I'm pretty sure the early founder of the bank, Alexander Gibb, never thought in terms of organizational DNA; it would be interesting to note whether he even spoke explicitly of brand or marketing.
But what we do know is that he thought in terms of the customer. Very deliberately Gibb set out to serve the engine room of the booming Victorian colony. Within two years this customer base had expanded to include the pastoralist and the farmer, largely as a consequence of being the first bank in Australia prepared to lend on the basis of land title.
This was a pioneering move; in defiance of the long held British custom which lent on the basis of deposits and traded goods.
It was this band of customers which would become the mainstay of the bank, not to mention the backbone of a rapidly growing and prosperous colonial economy - people with vision and energy, pioneers and nation builders, battlers unafraid of the obstacles of climate and distance, committed to the toil and hard work required to get on in the colonies.
The success of the customers defined the success of the bank. These same customers formed associations, built communities and looked out for each other.
Today, at NAB, that fundamental emphasis continues - the success of customers defines the success of the bank: whether it's a young family in search of their first home or a middle-aged couple thinking about their retirement; whether it's a small business wishing to take the next step or helping the devastated banana grower in the wake of Cyclone Larry.
NAB's success ultimately depends on our customers' success. Inside NAB we call it helping our customers fulfil their dreams.
We frame this simply. It means:
1. Delivering on our promises
2. Being real and open
3. Easy to do business with; and
4. Backing our customers
We believe these behaviors, supported and acknowledged, will differentiate us.
But notwithstanding a long and proud tradition, the simple fact is we are rebuilding the NAB - hacking off the hubris which saw our gaze turn inward and lose sight of the customer that the organization was formed to serve.
At times, and despite our best endeavors, we forgot the one key lesson from our earliest beginnings - that is to back people, not just bank them.
So what does it mean to back people? What does it mean for a financial services institution in the early decades of the 21st century? And if we are honest with ourselves and serious about backing people, what does this mean for those Australians who don't have the means to save but certainly have the desire: who don't have the ability to borrow money but want to get on in life; and who don't have basic financial skills but are committed to obtaining them?
In short, how does a bank back people with the aspiration but who are down on their luck?
This is a question that we have thought about at NAB. It is a question born out of being true to what we say we believe in, and a question that recognises that a bank's responsibility stretches far beyond those who feel comfortable walking into a branch or using an ATM.
Shortly I will outline a range of measures we are going to take to address this. But first some background.
A necessary condition for backing people so they can realize the most basic financial ambition is to increase their access to credit - to help them, help themselves.
The everyday reality is that people on low incomes, few personally owned assets and perhaps some unpaid debt have great difficulty in borrowing - maybe not from payday lenders or loan sharks, but certainly from mainstream financial institutions.
This is where measured access to small loans and other financial service products comes in. It is often known as microfinance.
Microfinance schemes respect the capabilities of people with low incomes. They increase dignity through modestly increasing capacity for financial control.
Whilst 2005 was formally designated by the United Nations as the International Year of Microcredit, the fact remains that microfinance is largely an "off broadway" concept, hardly registering in the public imagination.
People simply don't understand microfinance and the very important role it can play.
So let me tell a story which gives a more compelling personal voice to the idea of backing people who have the aspirations, the endeavour, but who are simply down on their luck.
This story was recently featured in a Good Shepherd research report released in June last year on the benefits to families of a NILS loan - that is, a No Interest Loan product.
This is a story about Kate - let me give you some background. Kate is a single mum with three young children. Her washing machine had exploded and she found herself having to hand wash in the bath. This had made relations difficult with her children -
"it annoyed them,their clothes building up in the basket, me saying to my daughter, can you help your brother with his homework?"
She had tried to find a loan from other sources including banks, stores and rental schemes,
but they did not believe Kate would be able to pay them back -
"they make you feel like you're a nobody."
Obtaining a NILS loan had a number of immediate impacts for Kate. Firstly, it reduced her workload dramatically and, secondly, it created a lot of excitement in the home -
"me, my daughter and my son, we were in the lounge room jumping up and down."
For Kate, successfully paying off the NILS loan gave her a sense of achievement -
"Gee, I'm proud of myself. That's exactly what it's like, I can do it…. When you start paying it, you think, I'm actually paying something that is mine forever, as long as it lasts."
The ongoing change has not only been financial…
"because I'm happier, my children are happy. You know when I'm upset, they are uptight. When I'm happy, they're happy. Such a small detail and yet it makes such a difference in someone's life."
NILS loans, which made such a difference to Kate, were developed in Australia by the Good Shepherd Sisters 25 years ago. Today Good Shepherd Youth and Family Service manages the National and Victorian NILS networks. NILS are designed to offer people on low incomes the opportunity to access credit - for a modest amount, usually between $800-$1000 - for an essential household item or service without any fees, charges or interest payments.
The loans rely on, and build, social capital created by the co-operation of a local group, typically under the auspices of a local agency and capitalised by grants from philanthropic trusts, the business sector and, in some states, state governments.
According to Good Shepherd data the default rate on NILS loans is very low, typically under 5%. The NILS program is probably the most extensive microcredit program in Australia. Recent research undertaken by Good Shepherd shows clearly why the program works.
There are five reasons for this:
1. NILs offers real solutions to essential needs - just imagine what its like to get a new washing machine after hand washing for 8 months
2. It helps people doing it tough to feel better - hope is restored
3. It helps improve the quality of people's daily lives - if you are not hand washing for three kids, you have time for other things
4. It helps strengthen money management skills - habits of saving and money management are developed and reinforced
5. And finally, NILS helps people feel more positive about the future - there is a real sense of achievement in paying off a loan.
The NAB first heard Kate's story nearly three years ago through Good Shepherd. After meeting Kate as well as talking to NILS practitioners from around the country, NAB became closely involved in the NILS work through Good Shepherd, supporting it both financially and in-kind.
Indeed, this has been the start of one of the most important relationships NAB has ever had with a community organization.
Following on from NILS, we have worked with Good Shepherd to develop a microcredit product that can act as a "bridge" between NILS and mainstream credit products.
This product is called - Step UP. Very simply, it is an unsecured personal loan up to $3000. Interest is charged, but at a significantly reduced rate - around 7%. That's about half the rate
of a normal unsecured loan and more in keeping with the variable mortgage rate. We provide this product on a not for profit basis.
The loan sits on our loan book as a type of personal loan but is differentiated in that a local community microcredit worker helps the customer work through the loan documentation and is able to support the customer throughout the life of the loan.
In this way, financial literacy is enhanced.
Step UP is being piloted in 5 locations - 3 in Victoria and 2 in NSW.
Developing Step UP took us over a year. It felt like forever. Five months were spent in discussion with Good Shepherd jointly developing the model, eight months were spent working together to actually build a product and then, as always, there were a couple of months for the lawyers.
We were breaking new ground. We had never worked with a community agency to develop a financial product. Process was slow at times. Simple things like language got in the way.
But openly discussing and working through these differences has been important. As an organization we have leant a lot, including the fact that so much more needs to be done
if we are to truly back all Australians - particularly those with ambition and energy to get on in life.
This won't come easy nor is microfinance a simple panacea to cure all of life's ills.
But every good idea requires an advocate. And as a way of seeding and propagating the fruits of microfinance, I am pleased today to announce a significant lift in NAB's contribution in this area.
The critical factor to secure the extension of microfinance in Australia, is the availability of loan capital. That's been the key issue.
Today, I am proud to announce that over the next 3 years, NAB will make available 30million in microfinance loan capital.
Let me break this down:
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$10million to secure the future of the NILs program Australia-wide
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$2million to support the extension of the Step-Up program, and,
Let me outline some of the detail.
Of our $10million commitment to NILS, our first initiative is to secure the future growth
of NILS throughout Victoria. Over the next three years we will provide over $3.3million in additional capital.
In partnership with Good Shepherd Youth & Family Services and the Victorian Government
we will ensure that NILS programs are available across the entire State.
We will look to do the same in other states.
Already we are in discussions in New South Wales with NILS providers and the State Government to provide further loan capital in that state.
Indeed, it is our strong view that access to loan funds should not be a deterrent to growing or starting a NILs program anywhere in Australia.
We will back Australians with aspiration and drive, but who are down on their luck.
Secondly, I am pleased to announce an additional $2million to further expand the StepUP low interest loans program into South Australia and three locations in WA.
We are also in a position today to announce what we believe is another first for a major bank - that is the offer of a simple and discounted insurance product for our StepUP customers.
This will be offered with our partners Allianz.
It is a recognition, that like access to credit, there are many barriers to safe and affordable insurance for people on low incomes, yet it is a basic financial service on which the barriers need to be lowered.
Thirdly, and finally, I am excited to announce the allocation of $18million in loan capital to establish a national micro-enterprise development program.
Micro-enterprise development is essentially the provision of small loans to support a basic business enterprise. It is designed for people on low incomes with little access to capital;
it is usually underpinned and supported by business mentoring.
Micro-enterprise development is widespread in developing countries, growing strongly in some areas of the first world, but largely unknown in Australia.
We, as Australia's premier bank to small and medium enterprises we believe there are thousand of Australians with the drive, with the energy and with the skills to set up small businesses but are hampered by a lack of access to capital and affordable credit.
We also believe there are thousands of Australian business-owners, not to mention hundreds of people within NAB, who would be willing to give of their time to support and mentor these budding but disadvantaged entrepreneurs.
NAB will commence a study, with the help of the Boston Consulting Group into how we establish a successful micro-enterprise development program in Australia.
In the same way that we supported small start up businesses across the Australian colonies over 150 years ago, at the NAB, we stand ready to do so again.
Ladies and gentlemen, today I purposely started with an outline of the early days of the NAB in Australia and how we backed people with aspiration and drive. But there is an obligation inherent in any company ethos that talks about backing people, and that is to back people with aspiration, but who are down on their luck.
We believe that we can help by lending greater support to breaking down the barriers
to affordable and basic financial services. Some call it microfinance, we think in terms of backing people and helping them achieve their dreams.
However, and in closing, let's hear again from Kate who I think better than I captures our joint responsibility for working towards a financially inclusive Australia:
Once you have self-esteem you can have everything - the doors are open…You can't explain it. You've gone from bad to good, overnight. You've gone from being rejected to yes, we can help, no worries. Bring in your paperwork, and we'll approve it all. Beautiful, that's the way it should be. You walk out (from banks and other places) crying. Here, at the NILS program, you walk out and you're ripper - happy.
Thank you very much.
View the Media Release - NAB backs endeavour with $30m for affordable small loans
View background information on NAB micro-finance initiatives
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