The recommendation is part of a series of measures contained within Scotland’s first collaborative Financial Inclusion Strategy, aimed at enhancing the financial wellbeing of Scotland’s most vulnerable populations and enabling access to mainstream financial services in the absence of traditional credit scores.

The two-year strategy underlines the transformative potential of dormant assets, the collective term for financial products which have not been touched for a long time, proposing that funds in Scotland be directed to create a more inclusive financial system that supports fair access to credit and banking services. The Dormant Assets Scheme (DAS) was expanded last year to include other financial sectors including pensions and insurance.

At present, dormant assets funding in Scotland is used to fund youth projects. The expansion of the scheme presents an opportunity to direct a proportion of these assets towards financial inclusion initiatives. Central to this proposal is the establishment of a £20 million ‘First Loss Fund’ which would be instrumental in bolstering community lenders and expanding the availability of affordable credit.

With evidence suggesting a significant proportion of Scots are either unaware of cheaper credit options or are unable to access them, FIFS is also pressing for accelerated digital transformation in the credit sector. The organisation has committed to funding, developing and promoting a new digital loan finder tool to connect individuals directly with affordable credit options.

Stephen Pearson, chair of Financial Inclusion for Scotland, commented: “Directing dormant assets towards financial inclusion is not merely a funding issue; it’s about laying the foundation for a fairer financial future for all Scots.

“With the expansion of the Dormant Assets Scheme potentially releasing a further £880 million for good causes, we have a unique opportunity to support financial inclusion in Scotland and drive significant change.”

An urgent need to address the issue of financial exclusion in Scotland is starkly illustrated by findings from the FCA’s Financial Lives Survey, which revealed that over 1 million people in Scotland live in poverty, with many lacking sufficient savings to cover even a month’s basic living expenses without falling into poverty. Additionally, 34% of adults in Scotland report struggling financially, highlighting the critical need for enhanced financial support systems.

Looking ahead over the next two years, the strategy emphasises the importance of collaboration between government, financial institutions, charities, housing associations, community organisations and those with lived experience to develop and implement effective and sustainable financial inclusion solutions.

To this end, FIFS is also calling for the introduction of a Fair Banking Act for the UK, mirroring legislation like the US Community Reinvestment Act, to ensure that financial institutions serve the diverse needs of all communities, particularly those who are financially excluded. Such legislation would require banks and building societies to disclose the extent to which they are meeting the needs of everyone in the diverse communities they service, focusing particularly on those who are financially excluded.

Mr Pearson added: “This strategy is not just about alleviating immediate financial stress but about building a resilient financial ecosystem that supports all Scots, particularly the most vulnerable.

“Our vision is for easy access to fair loans, savings, insurance products and financial wellbeing tools for everyone – and the ability to acquire help when needed. However, we can’t do it by ourselves.

“At our launch event, then Deputy First Minister John Swinney said he ‘would leave no stone unturned to help financial inclusion in Scotland’. To achieve success, we need everyone from policymakers and banks to CDFIs and community groups to be aligned with this ambition.”

Financial Inclusion for Scotland was formed in 2022 with members including Scottish Financial Enterprise, Fintech Scotland, the Money and Pensions Service, The Poverty Alliance, Money Advice Scotland, Step Change Debt Charity, Fair4all Finance, Salary Finance and Social Investment Scotland acting as lead member. Representatives of credit unions also contribute to the group and the Scottish Government and the Financial Conduct Authority act as observers.