The report, called Credit Use and Ethnic Minorities, found no evidence of institutions directly discriminating in their credit scoring, but plenty of perception among ethnic minorities that they would or did get a poor deal.
The most significant reason why banks and other financial institutions appear to be letting down black and Asian customers is perhaps also the most obvious, says the study. People from ethnic minorities are more likely to be in low-paid, insecure jobs and have higher levels of unemployment. This clearly affects their eligibility for credit.
Many are routinely denied credit and store cards. Some can't get hire purchase. Many are left with bank accounts without a cheque guarantee card. They may not suffer direct racism but these experiences have left a bad taste in many mouths. Few persevered after once being refused and those who did complained that they were "put through the microscope" because of their race.
A major barrier to high-street credit is language. The research uncovered examples of people being forced to pay go-betweens - not fully-fledged brokers but friends or acquaintances who "knew the ropes" - to act on their behalf.
One womanpaid pounds 400 to a middleman to organise a mortgage. "To this day we don't know what he did," she says. The intermediary appeared to do little more than arrange a meeting with a bank manager and act as an interpreter.
Far from making efforts to remove the language barrier, staff in some credit institutions have made matters worse by adopting a high-handed and patronising tone with anyone who has difficulty speaking English. Staff were described as rude and unhelpful. One man said of staff at a high-street bank: "Most of them look at you as if you are stupid, just because you don't match their colour."
The language barrier has also had the effect of restricting consumer choice. For example, the study found that few Muslims use mail-order catalogues to make large purchases, even though the interest-free deals offered by many catalogues would have satisfied Islamic strictures against charging or paying interest.
The situation is often no better for the self-employed, says the study. Despite their reputation as entrepreneurs, some Asian businessmen complained that high street lenders were unable to spot a good business investment. For example, one self-employed car dismantler was refused credit by two mainstream banks before a friend recommended the local branch of a Pakistani bank. He got a loan to expand his business and has been realising increasing profits over the past few years.
Unfortunately, the man's bank does not have branches in every town. So where do ethnic minorities go instead of the local high street? One solution has been community-based savings and loan schemes.
These schemes bring together groups of around 10 to 12 people in a credit association. Each member regularly deposits a fixed amount of money, typically between pounds 10 and pounds 25, into a central fund. The main organiser or "banker" then distributes the total sum to members in a pre-arranged order, for them to pay for, say, major consumer items or trips abroad to visit relatives. The order can even be adjusted to help an individual member through a sudden crisis.
There is some similarity with the credit unions which have sprung up across Britain over the past few years - many with local authority backing. The difference is that the associations, unlike credit unions, tend not to be confined to the poorest in the community and generally do not pay interest to savers, arguably making them more of an informal social service.
For example, the "bond committees" in one Pakistani community featured in the study became a powerful symbol of ethnic solidarity in a close- knit community. As a result, people remained as members even when earning higher incomes.
Not everybody can join a savings and loan scheme, however. For people on benefit, low wages or with large families who can't put money aside at the end of the week, such routes to credit are as firmly closed as the doors of the high street banks. The Policy Studies Institute report outlines the desperate choice faced by some people: to run up debts with family and friends - in one case as high as pounds 15,000 - and risk social alienation; or to fall prey to illegal money lenders who charge rates between 150 and 500 per cent and who often demand benefit books and passports as security on loans.
q 'Credit Use and Ethnic Minorities', by Alicia Herbert and Elaine Kempson, is available from the Policy Studies Institute, 100 Park Village East, London NW1 3SR, at pounds 9.95.Reuse content