Supporting the Indigenous Groups by the National Banks of Australia - Case Study Example

Introduction Financial inclusion is a development vision which refers to the provision of a broad range of financial services at a reasonable cost to low income and disadvantaged women and men who reside throughout a country.  Financial services include amenities such as deposits, loans, payment services, remittance services, and insurance and pension products’. The Indigenous Australians are the original inhabitants of the Australia and the nearby islands. They are generally two types of such groups and they are called Aboriginal Australians and Torres Straits Islanders. They together make around 3% of Australian population. The Australian banks are concerned about the growth and development of these groups and thus they are working to support them. The banks have to face credit risk because of such schemes and thus they need to find remedies for the same. Various measures that have been taken by the Australian banks for financial inclusion of Indigenous Australians and other disadvantaged groups National Australian Bank dedicated completely to support and aid the Indigenous Australians and other disadvantaged groups. They have various programs to that are focused on indigenous Australian that opens various opportunities for them. (NAB) National Australian Bank or NAB gives the opportunity to the Traditional Credit Union Limited (TCU) of loans up till $1 million that are interest free without any fees or charges. This is to help the Union open branches in the Remote locations all over the Northern Territory. This will help in growth of around 40% in the network of TCU. The aim through this scheme is to offer affordable financial services to disadvantaged groups all over the Australia with fair practices. NAB has also declared a fund of $200,000 for the Traditional Credit Union Limited so that they can fund their activities for opening their new branches, such as legal prices, advertisements, etc. These TCU customers will also have the benefits of NAB Micro-enterprise Loan program, NAB microfinance programs and No Interest Loan Schemes capital. NAB has developed plans and policies for TCU to help them with funds of various operations and processes. NAB is also considering volunteering prospects and secondments for staff of both TCU and NAB. NAB in partnership with Indigenous Business Incubator created a Darebin Enterprise Centre Limited (DECL) in Northern Territory. The Indigenous Business Incubator offers support for starting and growing enterprises while monitoring, mentoring performance and also provides various crucial business resources and services. (Australian Government) The Northern Territory centers expect to assist over 100 entrepreneurs in next three years. National Bank Microenterprise Loans are unsecured business loans of between $500 and $20,000 for disadvantaged groups having low incomes that have no or few opportunities to contact reasonable business credit. The loans assist small business operatives with the acquisition of various equipments to carry out their work, for example, small machinery, work vehicles, computing hardware and other tools. Indigenous coordinators supervise the Indigenous Business Hubs in Alice Springs, Darwin and Katherine and Australian Banks support finances a part time manager for such offices. NAB is in partnership with YALP or Yachad Accelerated Learning Project since 2005, for helping the young people of remote and rural areas. YALP is basically a scholarship program devised by Hebrew University of Jerusalem for the people of remote and rural areas of Australia, mainly targeting Indigenous groups. This YALP organization operates in five locations in Australia, namely north Adelaide (SA), halls Creek (WA), Alice Springs (NT), Shepparton (VIC) and Aurukun (QLD). Banks of Australia with Aboriginal Employment Strategy (AES) offers project based trainings to the students of disadvantaged groups of Australia. Through this, education and training for tenure of 2 years is given. There is also an Indigenous Graduate Strategy in collaboration with AES. It is one financial aid project of its kinds that offers direction and support with different career opportunities on the basis of merit. (Australian Bankers’ association Inc) Australian banks also offer scholarship from the Melbourne Business School with students having track records in various fields like entrepreneurial, business, community, sports, arts, and other activities. The scholarship includes funds for books, living expenses and tuition fees. Charles Darwin University in Collaboration with the banks also offers scholarship for business related excellence. National banks have accelerated a 12 months program in partnership with Tangentyere Council in the Alice Springs involving senior leaders of the NAB. In this program, the seniors spend a day as Tangentyere Council managers to understand the insight of their world. The Tangentyere Council, established around 1970, aimed to assist Aboriginal people who are living in Alice Springs and areas around it in order to have legal control of the land they live on and to obtain vital services like housing. The Tangentyere Council includes around 2,000 residents. There are various town camps by NAB where each town camp includes a district of the Indigenous Community divided on basis of kinship and language. The key groups are the ones in Alice Springs that involves Arrente residents. The Tangentyere Council provides and facilitates the town camp residents so that services and aids. The support is also offered for various youth activities, remote areas patrols at night and inhalant substance. Being a part of Indigenous Banking References Group the banks has assisted them in establishing an expert network in the retail banking and financial literacy sectors. The network has also put light on the issues by National Indigenous Money Management Agenda (NIMMA) project. The aim through this network is to involve the financial and government sectors to help and support to improve the lives and status of Indigenous groups and disadvantaged groups of Australia. There are also various other schemes and programs that have been designed by the banks to support the growth and development of these Indigenous groups of Australia. While lending money to such groups and introducing various schemes, from a credit risk perspective there are many issues that arise, however, there are many possible remedies available for it. Credit risk is faced because of the uncertainty in an obligor’s or counterparty’s capability to meet the obligation. There are different obligors that might range from individual to social groups. There also various kinds of obligations like auto loans, derivative transactions, etc. Thus, there can be many forms of credit risks. Different financial institutions manage the credit risks in different ways. (Zang, 2006) There are three main issues of credit risk and these are: Default Probability, i.e. to answer what are the chances that the obligor will evade on his or her obligation through his or her life of contract or over some prefixed period of time, like a year? The calculation of the credit over one year horizon is termed as expected default frequency. Credit Exposure, i.e. to find the solution In cases when there is default, what is the time period for which there will be outstanding obligation? Recovery Rate, i.e. In case there is default, what part of the exposed credit will recovered through the proceeding of the bank like bankruptcy proceeding or through some different method of settlement? The credit quality is analyzed, that is the ability of the obligor to perform on the obligation. (Gregory, 2010) There are few things that the banks have to define for calculating issues with the credit risk, like Obligation of borrowers, Obligation of lender, the dates for the interest and for the principle payment and the date of maturity. There are three main scenarios that these banks have to face. Firstly, the credit risk examination happening at the instant the loan is being made. Second, the estimation of the credit risk report in the terms of the loan. Last, the credit risks report must the loan become a problem. There are various tools that can be used for the purpose of analyzing and evaluating the credit risks. There are different methods of credit scoring. Here are the remedies for the credit risk issues: Understanding the credit risk issues from the regulator’s perspective, Relate the credit risk consideration and credit risk adequacy, Express the problems with the big or huge exposures, Identify various securitization problems that the regulators face, Analyze the credit derivative issues from regulator’s point of view, Detailed description of the process of credit rating, and Discuss the guidelines for new capital adequacy. For purpose of Securitization there are many things the Australian banks can do. (Sathye, 2003) Firstly, there should be no advantageous interest in the sold capital and completely no obligation on financial institution Next, there should be no alternative (including costs) to the banks of Australia and no obligation to re-buy loan capital. Then, the liquidity deficits for the bank share must not exceed the interest receivable. The various aforesaid assets having an ongoing credit association for example credit cards and also the home loans rights, together with the information of cash flows and the responsibility related to every party should be visibly specified. As per the standard securitisation, organization cannot provide additional assets to the concerned pool. The bank retains right to cancel amounts that are not drawn. Lastly, the banks must have no obligation to repurchase. There are various norms and accords for the purposes of tackling credit risk. The Basel I and Basel II Accords have been defined to tackle credit risk specifically. There should be very good credit risk management to avoid bankruptcy or failure of the bank. The credit risk management helps in maintaining a constant balance among the risks to the bans and return so that the optimum level pf profitability and efficiency can be achieved. Conclusion: The National banks of Australia are working hard to support the Indigenous groups of Australia and they aid them financially so that they can expand themselves. Education and employment issues are also taken care off. There have been different schemes for Indigenous Australians and other disadvantaged groups. There are credit risks with the schemes offered by banks. To avoid such situations, credit risk management is must. There are also various norms to overcome such issues that the financial institutions can implement. The effective credit Risk management is essential. References Australian Bankers’ association Inc., Available at: http://www.bankers.asn.au/Financial-literacy-initiatives-for-Indigenous-Australians-Banks-and-Credit-Unions-work-together-with-the-community-to-deliver/default.aspx Accessed on: September 14, 2010 Australian Welfare, Available at: http://www.aihw.gov.au/indigenous Accessed on: September 14, 2010 Gregory J. (2010), Counterparty Credit Risk, NY: John Willey & Sons Inc. How is NAB supporting Indigenous Group? Available on: http://www.nab.com.au/vgnmedia/downld/Final_online_version_Indigenous_Australians.pdf Accessed on: September 14, 2010 Sathye M, et al (2003), Credit analysis and Lending Management, NJ: John Willey & Sons Inc. Zang M. (2006), Credit Risk Assessment, NJ: John Willey & Sons Inc. Read More