Strengthening Financial Inclusion Through Responsible Philanthropy

For over two decades, charities have been subject to financial exclusion rooted in systemic biases in how banks and regulators perceive the sector. As charities increasingly play a vital role in supporting vulnerable communities, the importance of charitable giving becomes even more pronounced. The month of Ramadan, also known as the month of giving due to increased generosity of those observing fasts, recently concluding furthermore highlights the increasing visibility of the charitable sector. Yet this rise in generosity sits uncomfortably alongside the reality that many charities face banking challenges limiting their ability to serve communities at precisely the moment they are needed most. 

Of the most common challenges charities face with financial institutions is refusal in opening accounts, delays in payments, and the complete withdrawal of banking services, also known as debanking. Mostly with little to no reason given, a problem acknowledged by the Financial Conduct Authority. Those that have offered a reason have usually cited the charity falling outside of the bank’s risk appetite. A phenomenon known as derisking, the process where a bank withdraws or limits services to a client due to perceived risk. 

When this happens, charities cannot access funds which are critical in being deployed to crisis zones where human life is at stake. Such examples can include delays of critical payments including delaying Islamic Relief’s response to the Nepal earthquakes in 2015, and a charity serving Syrian refugee children with cancer. MCF’s reportThe Landscape of Debanking within Muslim Charities and its Impact on Charitable Activities not only eloquently presents the problem statement, highlighting regulatory environments and their impacts, but it presents many other case studies such as this one, tangible examples of how derisking has the potential to risk lives. It has the potential to damage a charity’s institutional capacity, most importantly, it could delay the delivery of life-saving aid. While the fight to combat financial crime is necessary, it cannot come at the cost of human life. There must be a better equilibrium, one which all stakeholders, charities, regulators, and financial institutions, appreciate risk and recognise that charity access to banking is seen as critical. 

MCF’s report was groundbreaking in capturing the scale of this problem starkly. 68% of Muslim charities struggle to open bank accounts, and 42% have had their banking services completely withdrawn. Nearly 2 in 5 charities have reported delays in transferring funds, not because of wrongdoing, but because of banks treating their operational capacity as risky business. The norms of having overseas trustees operating in crisis are seen as red flags, yet again no clear definition of wrongdoing can be maintained. These are natural features of humanitarian work where philanthropy is hindered under various measures of a banks risk appetite. The banking system has been designed around commercial clients rather than humanitarian organisations which has led to charities being misread, derisked, and debanked even when they are fully compliant with the law. This misunderstanding is not an administrative error but is seen as a structural failure with real consequences for human life. 

The problem of financial inclusion is not limited to the Muslim charities. Domestically, the Charity Commission has written to bank chief executives requesting urgent action due to the impacts of financial exclusion of charities. The Charity Commission’s most recent Trustees’ Survey found that nearly 2 in 5 charities continue to face banking challenges. UK’s tri-sector group, convening banks, regulators, and civil society was established precisely because derisking requires coordinated institutional action and cannot be resolved by any single actor alone. While the most recent Civil Society Finance Group survey found that 92% of survey respondents had faced one or more issues related to banking. Demonstrating that charity banking challenges are not just arbitrary, but a systemic issue impacting charities and undermining their ability to deliver crucial projects. 

What makes this situation challenging is the lack of transparency of how these decisions are made. Clare Mills of Charity Finance Group has documented countless cases of bank accounts being terminated with no apparent reason. The UK government’s new rules requiring a 90-day notice have been welcomed by the sector and due to come into force in April 2026. However, these short-term bandages do not fix the root of the problem. Banks perceive charity banking to be complex, meaning that it would cost more to bank charities, resulting in a business decision that excludes charities. Without addressing these issues, such as enshrining in law a legal right to a basic account, charities will continue hurdling through banking challenges. 

The issue of financial exclusion requires a multifaceted approach. Responsibilities lie across sectors, from charities implementing strong safeguards to bank treating customers fairly to regulators acknowledging the unintended impacts of regulation. This is where the government-hosted tri-sector group can be influential, a convening of the financial, charity and government sectors. The government’s independent reviewer of counter-terrorism legislation Jonathan Hall KC recommended that “the Chancellor, Home Secretary and Foreign Secretary should meet to discuss the balance of humanitarian aid and security in relation to terrorism legislation.” The charity sector’s representative bodies and regulators have continued to advocate on this issue, and the need to gather evidence could not be understated. Constant evidence gathering since 2022 has gone a long way in framing the discourse, from complete disregard to full acknowledgement, data and evidence continues to be a strength. In this vain, MCF is supporting a sector-wide biennial survey, led by Charity Finance Group. We call on all trustees, senior leadership and finance staff members to take the time to fill this in. The insights gathered here will be essential in tackling financial inclusion and evidence-based reforms.  Taken together, these measures would not only restore equitable access to financial services for non-profit organisations but also reinforce a more transparent and fair banking system for all.