It remains a worrying fact that there are currently around 1.4m individuals in the UK who do not have a bank account and that consumer debt has spiralled in the wake of the 2007/08 financial crash, reaching £158 billion in 2013.
As a result many communities have become reliant on high cost credit providers with 1.2m Britons using payday lenders each year and spending a total £900m on loan repayments. At the same time, alternative providers of financial services, such as credit unions, continue to suffer from a low level of membership and awareness.
Why is credit union membership so low in the UK?
To put this in context, credit union membership levels in the UK relative to other countries are incredibly low. In 2013 just 2 per cent of Britons belonged to their local credit union, compared to 72 per cent in the Republic of Ireland and 46 per cent in Canada.
But there is growing consensus in the UK that expansion of the credit union movement – as well as community development finance institutions (CDFIs) – can play a critical role in providing appropriate and affordable financial services to individuals and businesses, helping them to participate fully in the economy and subsequently play a role in driving sustainable economic growth.
We know that communities are themselves prioritising their local financial crises. Community First, the £80m government-funded initiative run by CDF is helping credit unions across England to scale up their activities so that they can offer services to their local communities, and prevent households becoming hostage to high cost credit providers.
What can communities do?
As an antidote to loan sharks and other high cost credit providers that have gained a significant foothold in the area North East Lincolnshire Credit Union, based in Grimsby, is using a £2,500 Community First grant to provide local people with banking information in conjunction with a customer access point to the Credit Union. Located at the heart of Grimsby’s busiest shopping streets, North East Lincolnshire Credit Union is well placed to offer support to a large proportion of the population.
Similarly, the Shiremoor Credit Union in Tyne and Wear is spending its £2,500 grant on training additional volunteers to help run the credit union so that it can effectively prepare residents for the introduction of Universal Credit, as well as provide alternative sources of credit and savings facilities.
Credit unions vary significantly in size, reach and scope. They can range from professionally-managed financial institutions with the capacity to offer a range of financial services, to traditional, community organisations often serving a smaller membership base. It is clear that there is significant scope and appetite for credit unions to expand, by enabling larger ones to become more like banks, as well as allowing smaller ones to maintain a more limited range of services to a smaller membership.
What action must the UK Goverment take?
But for this to happen, the UK Government must take action to help the sector to grow and become financially sustainable. CIC advocates that the UK Government does more to support credit unions to widen their membership to include those on higher incomes. This will allow credit unions to operate on a more sustainable basis, and subsequently enable them to encourage low income individuals to spurn the advances of high cost credit providers.
How can credit unions develop?
For instance, CIC suggests reviewing the concept of the ‘common bond’, which restricts who can join the credit union – for instance by geographical location or by employer – so that credit unions can continue to grow and develop. This will allow them to serve broader markets to ensure financial sustainability and maintain a diverse membership with community focus.
This should also be accompanied by the UK Government supporting the establishment of a central institutional infrastructure which would, for example, spread the costs of IT systems, advertising and marketing, and regulatory compliance departments over a larger number of customers, or facilitate access to better terms for lending and borrowing in financial markets. This will enable more ambitious credit unions wishing to merge to take advantage of economies of scale, as well as safeguarding the many smaller credit unions whose only ambition is to serve their local area.
Ultimately, there are many instances of communities doing great work on the ground to promote credit unions and tackle high cost credit. But we need the Government to take action now to help credit unions grow and develop so that they can provide a real alternative to high cost lenders and provide the services in poorer communities that the banks no longer want to provide.
– See more at: http://www.cdf.org.uk/giving-credit-to-communities/#sthash.jjQEuoUw.dpuf