The Critical Role of Credit Unions in Providing Access to Low-Cost Finance | Network for public leaders
B.ritain is facing a debt and savings crisis. A study published last year by debt relief agency StepChange found that 2.6 million people in the UK had a serious debt problem (pdf) and another 8.8 million were moderately in debt.
The problem is exacerbated by an insecure job market and the increasing use of zero-hour contracts, which means that millions of people can no longer take a steady income for granted.
As a result, saving has become nearly impossible for many families who instead rely on credit to meet sudden income demands, such as an unexpected car repair. For those who don’t have access to affordable credit, it means turning to high-interest lenders or, in some cases, loan sharks.
Many politicians and charities believe that credit unions are the answer to this crisis. These not-for-profit cooperatives are usually set up by members of a specific community, such as a workplace. They are regulated by the same authorities that supervise banks and building societies; However, because they benefit members rather than shareholders, they can offer ethical austerity programs, competitive loans, and other financial products not normally available to individuals excluded from traditional financial institutions.
There are 1.2 million credit union members in the UK, according to the Association of British Credit Unions Limited (Abcul), but the size of the sector still lags behind many other countries. So what can be done to raise awareness and help the sector grow? This question was asked of a panel of experts at a recent Guardian seminar, sponsored by Lloyds Banking Group, and attended by an audience from the credit union sector.
Panel member David Haigh, director of financial literacy for the Money Advice Service, explained why credit unions are so badly needed. “About 21 million people in the UK – almost half of all adults – do not have a savings buffer of £ 500,” he said. Their ability to deal with debt was therefore limited. In addition, many more people struggle with financial literacy. “We know that around one in five people cannot calculate their account balance on an account statement.”
No access to a bank account
Chris Pond, vice chairman of the Financial Inclusion Commission, agreed that the UK was facing a specific problem. “Here we are in what we proudly call the international financial services center, and 2 million of our fellow citizens don’t even have a bank account,” he said. “We have millions who do not have access to affordable credit, millions who do not have access to savings … The problem is, a lot of people don’t trust financial services.” When mainstream financial services are not trusted, then credit unions play a real role in improving financial inclusion, he added.
However, Pond also pointed to a limit on what credit unions could achieve on their current scale. The gap in affordable credit – between supply and demand – is around £ 5 billion, according to Pond. “Unfortunately, the credit unions won’t do that in the short term unless they can expand eight to ten times,” he said. “In the meantime, people are turning to the loan sharks.”
So what can be done to increase membership, and hence capital, in the credit union sector? Abcul CEO Mark Lyonette said a lot of work had already been done to expand its appeal, but more was needed. “There’s a big job of creating awareness,” he said, pointing out that a survey conducted two years ago found that only 8% of the population suggested credit unions as a place to get a loan.
“The image of credit unions revolves around serving those on the lowest incomes. We’re doing a fantastic job but if that’s all we do it will be very, very difficult to run a successful credit union, ”said Lyonette.
The sector also needs to keep up with the quick and easy high-tech offerings from other lenders, he added. “If you can’t give people a wonga-like money-lending experience in 2016, you’re missing out on a whole section of society that lives their lives on their smartphones.”
Government investment in the credit unions expansion program is advancing this technology, Lyonette said, and also suggested that credit unions pool their resources to develop more digital products: “Successful credit unions around the world all work together.”
Such a collaboration is the key to growth in the industry, agreed Sheila Murtagh, chief executive officer of Salford Credit Union. “I don’t have a PR or marketing department so being able to work with partners who have communication skills is really a lot of leeway,” she said. Salford Credit Union is increasingly trying to work with the local city council and major housing partners to get them to use their websites to promote the credit union, she added.
But perhaps most important to Murtagh – and many others on the board – was the need to promote credit unions through working with employers. “We want credit unions to normalize to be a preferred financial institution, so we want to do more work around saving payslips and borrowing – that’s a very important area,” she said.
Robin Bulloch, managing director of Lloyds Banking Group and chairman of the Financial Inclusion External Steering Group, agreed that credit unions “can provide a mechanism for saving payslips – banks don’t. If you facilitate access to savings by saving on your paycheck, it will increase your membership. When you increase your membership, you increase awareness and awareness. “
A number of the audience agreed and suggested other benefits. David Barclay, senior network coordinator for the Church Credit Champions Network, said employees will be better employees when they stop worrying about debt.
While the topic of wage saving and employer cooperation met with broad approval at the seminar, other topics sparked more heated discussions: in particular the idea of outside capital. That is, traditional financial institutions like banks lend money to credit unions so that they can increase their loan books.
“You need to find a way for the commercial banking sector to give credit unions access to capital,” said Pond. When shouts like “No, no” could be heard from the audience, Pond urged his case. How do we fill that huge ceiling on access to affordable credit – the £ 5 billion people need? We can’t expect credit unions to do all of that. “When the verdict [from the sector] Doesn’t it make sense to access debt, where does the rest of these affordable loans come from? ”He asked. “What I hear are limited ambitions.”
Many disagreed, including Lyonette. “The ambition of the industry is not limited: the ambition is huge. It’s about growing at a sustainable pace, ”he said. “Credit unions are suspicious of outside capital because it changes their focus from just looking after members to that burden and the new needs they must meet.”
Bulloch clarified Lloyds ‘position: “It is not our intention to be a financier: we give grants, then it’s over,” he told the seminar, referring to Lloyds’ Credit Union Development Fund, which has grants of up to £ 100,000 provides credit union reserves.
Audience member Richard Priestman, president of the East Sussex Credit Union, pointed out that despite the ambitions, credit unions are bound by strict regulations that make growth difficult: “The goodwill, especially propagated by the government, is there in words, not in Action.”
Lyonette was compassionate but said he thought the overall regulatory balance was healthy. “The time and expense it takes to regulate a credit union business is a tiny fraction of what banks and small building societies have,” he said.
Other members of the audience suggested that credit unions should be more involved in the education of young people to encourage saving at an earlier age – and membership in credit unions – while also emphasizing the importance of local councils in promoting Could be credit unions because of all of the “touchpoints” they have with the local community.
Audience member Margaret Roffe, Financial Inclusion Manager for the Genesis Housing Association, summed up the passions of those working in the sector and their belief in the vital role of credit unions in improving the financial literacy of all members of British society by concluding: The unions are not just about affordable credit; it’s about creating this culture of savings – and more. “
On the panel
- Hilary Osborne (Chairman) Editor of the Money site, The Guardian
- Robin Bulloch Managing Director, Lloyds Banking Group
- Sheila Murtagh Managing Director, Salford Credit Union
- David Haigh Financial Performance Director, The Money Advice Service
- Chris Pond Vice-Chairman, Financial Inclusion Commission
- Mark Lyonette Managing Director, Abcul
- Credit unions encourage members to save regularly, provide low-interest loans, and help members in need of financial advice and assistance.
- There are approximately 350 credit unions in England, Scotland and Wales with more than 1.2 million members and total assets of £ 1.32 billion.
- While credit unions remain relatively small in the UK, there are internationally active credit unions in 103 countries with more than 208 million members and assets of $ 1.7 trillion (£ 1.2 trillion).
- To be on a par in the UK, there is a need to raise awareness of credit unions and to have more members across all income groups.
- Click here to find your local credit union.
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