The cyclical downturn in the banking sector, following five years of personal and corporate loan growth, comes at a different time for mainstream banks as they seek to increase their involvement in initiatives designed to tackle financial exclusion.

The onset of rising bad loans, as charges from credit cards and other unsecured lending increases, in tandem with the deteriorating economic outlook, provides a hostile environment to tackle the most difficult area of exclusion: access to credit.

Research into financial exclusion has branded the problem as a meeting of unwilling sellers and unwilling buyers. As a result small-scale unsecured loans remain the preserve of the expanding network of mutually-owned credit unions and the expanding band of so-called "doorstep lenders" such as Provident Financial, the UK-based company which has rolled out its products in central Europe.

To date, the response of the mainstream banks to credit exclusion has been driven by a mix of regulatory imperative and genuine social motives.

US banks face the most direct regulatory challenge in the shape of the Community Reinvestment Act (CRA), which requires banks to set aside a portion of their lending for so-called "moderate income" clients. The Home Mortgage Disclosure Act and the Equal Opportunities Act secure the regulatory oversight.

The scale of the US requirements was reflected in a recent announcement by Washington Mutual, the Seattle-based bank that has established a coast-to-coast presence through acquisitions.

It revealed the largest-ever commitment under the CRA - some $375bn earmarked for community lending. The European Union is currently examining whether to ask for a CRA-style commitment from the region's banks, alongside a strengthening of consumer protection measures to improve oversight of door-step and related lending.

The fierce debate over financial exclusion in the UK, where an estimated 1.5m adults lack a current account, has focused not on credit but on providing basic banking services such as for savings, bill payment and benefits transfer.

The controversial plan to create a Post Office-run universal bank, supported by the government and the mainstream banks, does not include overdraft facilities.

While savings remain the top priority, however, the expansion of mutually-owned credit unions and the increasing shift by mainstream banks into the so-called sub-prime lending sector have highlighted the demand for credit services.

The sub-prime sector focuses on those with poor credit histories because of bankruptcy, divorce and other changed social circumstances. The credit unions remain the focus for the small, short-term unsecured lending which the banks find unattractive because of the risk of non-payment.

However, mainstream banks in the UK have been active supporters of the movement, providing both direct financial aid to fund a national money-advice network focused on Citizens’ Advice Bureaux and logistical support to the unions themselves.

The development of credit unions in the UK has lagged other markets such as the US, Ireland and Australia, though the number passed 700 in August. Membership climbed 14 per cent to 256,000 last year and assets rose 20 per cent to 4256m.

Credit unions benefit from the common bond of ownership and community, with lenders and savers in close proximity, a factor that distinguishes them from the high-street banks and has kept bad loan levels below 1 per cent, according to UK Treasury research.

However, while costs are kept down by the reliance on volunteers to staff unions, efficiency is limited by their small scale: the average UK union has just 200 members and 35 loans.

One solution lies in plans to create a Central Services Organisation for the unions -which the mainstream banks are committed to - support - to provide the risk-management skills and transaction services.