The research question addressed in this thesis is: how can we effectively regulate to facilitate access to safe and affordable small amount credit for low income Australians? The lack of access to safe and affordable small amount credit for low income Australians is one aspect of financial exclusion in Australia. While the problem of financial exclusion in Australia has been recognised in the literature, the regulatory and academic focus has been very much on avoiding or reducing the harms of exploitative forms of small amount credit available to low income Australians. This thesis is significant in that it proposes a regulatory model which will facilitate access to non-exploitative forms of such credit. This thesis will consider the roles currently played, and that could be played, by banks, credit unions, not for profits and fringe lenders in providing safe and affordable small amount credit for low income Australians. The roles played by and regulatory environments affecting such entities in the U.S. and U.K. will be explored for comparative purposes. The role of government is explored throughout. Government will be required to put in place an appropriate and effective regulatory regime, and to provide appropriate government funding to support a community development finance institution industry in Australia, comprised of social enterprises existing for the sole purpose of addressing financial exclusion. Currently, two of the major four Australian banks have engaged in partnership arrangements with community sector organisations to deliver no interest or low interest loan programs to low income Australians, although on a relatively small scale. The thesis argues that relying on such voluntary initiatives alone will not achieve the scale of safe and affordable small amount lending required to address financial exclusion. Recognition of the corporate social responsibilities owed by Australian banks justifies regulatory intervention to require or encourage banks to contribute more significantly to a solution to the current lack of access to safe and affordable small amount credit experienced by low income Australians. While traditional, mutual, small community based credit unions may have a particular role to play in addressing financial exclusion, these credit unions are rare. ‘One size fits all’ regulation pursuant to which credit unions are treated in the same way as other authorised deposit-taking institutions, including banks, has led to credit union mergers and demutualisation, so that many credit unions are now more or less quasi-banks. I argue for some recognition of difference between types of credit unions and the roles that they might play in addressing financial exclusion. A regulatory regime that supports rather than destroys small community based credit unions will be essential in regulating to facilitate access to safe and affordable small amount credit for low income Australians. Community sector organisations and community development finance institutions have a key role to play in achieving financial inclusion in Australia. Such organisations currently lack regulatory recognition, support and funding. Fringe lenders provide loans at substantially higher rates of interest than rates at which mainstream institutions lend, and often lend to people excluded from access to mainstream credit. In one sense they are filling a gap left by mainstream lenders, but fringe credit is a potentially harmful and exploitative product, and I argue that this should not be the best form of access to credit that we can offer low income Australians. The regulatory model proposed in this thesis is informed by theories of responsive regulation and the nature and benefits of performance based regulation. The model is then evaluated for its likely effectiveness using systems theory and the principles of ‘reflexive regulation’. The proposed regulatory model incorporates:

1. Regulatory exemptions from onerous regulation that inhibits start-up and growth of Community Development Credit Unions (‘CDCUs’) and Community Development Finance Institutions (‘CDFIs’), acknowledging their particular social purpose;
2. Government funding to support CDCUs, CDFIs and community sector organisations engaging in microfinance activities;
3. Tax incentives to encourage investment in CDCUs, CDFIs and community sector organisations engaging in microfinance activities, to enable them to lend to people on low incomes;
4. A Community Reinvestment Act-like ratings system to encourage investment by banks in the CDCU, CDFI and community sectors; and
5. A legislated requirement for responsible lending to minimise the potential for harmful lending, such as is currently proposed under new national credit regulation in Australia, but which must be well-monitored and enforced and which must at the same time be clear that the assessment of a low income borrower’s capacity to repay a loan needs to be undertaken on an individual basis and not subject to an arbitrary formula which automatically excludes that borrower on the ground of income.