A vital part of the Association’s work is speaking to politicians of all persuasions about the importance and benefit of a strong credit union movement.
Making the case: (a) that credit unions are worth supporting; (b) that support for credit unions should be a policy priority; and (c) for the right kind of support that will genuinely help build a thriving, sustainable credit union movement, is a long term project over a number of years involving multiple meetings, conversations and events at Parliaments and Assemblies, party conferences, and politicians’ private offices.
This is some of the most important work that the Association does for its members, but by its nature, it’s always a slow, steady process which won’t generate weekly or even monthly headlines, but we hope it will embed support for our movement in the main parties’ policy development.
So with the General Election upon us – though by the time you read this the country may have voted – it has been greatly satisfying to see support for the credit union movement and its priorities referenced in the manifestos of the parties expected to form the Government and/or wield influence in the new Parliament.
I spent bank holiday Monday at the Citizens UK assembly in London, and it was heartening – and striking – to hear the Conservative Cabinet Minister Sajid Javid, Liberal Democrat Leader Nick Clegg and Labour Leader Ed Miliband all highlight their parties’ support for credit unions in their speeches.
I remember a time only a few years ago when the most obtuse passing reference to credit unions by a backbencher in Parliament would trigger a flurry of excitement that our movement had received a rare name-check! So we mustn’t be complacent or assume that support for our movement is somehow automatic or permanently ingrained.
Indeed, much of the political support for credit unions now understands that our movement needs to build itself sustainably to a scale where we can achieve our social goals by generating income from providing loans and other products to people from all walks of life.
This therefore places a duty on credit unions to show that we can diversify our offering and reach out to consumers who perhaps haven’t considered us for loans or savings previously, in order that we can sustainably provide financial services to the underserved.
And we need to recognise that if credit unions don’t meet this challenge, then there is a real risk that politicians might either lapse into less helpful models of support which in fact undermine credit unions’ sustainability, or look elsewhere for other sectors or new entrants to fulfil this purpose.
I sometimes hear people suggest that support for credit unions from politicians, Government officials and other stakeholders is somehow a coincidence or just appeared in a vacuum. If only that was true, it would have saved the team at ABCUL an awful lot of hard work!
Building awareness, understanding and cross-party support for the credit union movement is one of the most important tasks the Association undertakes on its members’ behalf – remembering that other credit unions also benefit from what our members pay for with their dues. And because of this work we can be confident that whatever Parliament and the Government looks like after Thursday’s Election, our vision of thriving, growing, sustainable credit unions for all will enjoy support across the Chamber.
As always, the ABCUL AGM last month provided an opportunity for the Association Board to report to members on our activity over the previous year – in this case from October 2013 to September 2014 – and to look forward a little to the opportunities and challenges facing the sector.
I hope this version of my speech to the AGM provides a flavour of the environment credit unions are operating in, and what we are doing as an Association to help our members navigate it.
First of all I don’t think it will do us any harm to look back at what we’ve come through as a sector in the past 5 years.
In such a short space of time we have had to adjust to a number of significant changes:
In 2002 we gained one new regulator; in 2013 we gained two new regulators.
This came on top of big changes to legislation and corresponding changes to the regulations in 2012.
Major opportunities have arisen as a result of the changes to the Credit Unions Act, but ensuring regulation remains proportionate and appropriate has become more of a challenge since the advent of the dual system.
And the wider political environment has brought its own changes and challenges. The economy is back in growth mode now, but austerity affecting local and national government continues. And the biggest overhaul of the benefits system since Beveridge is slowly changing the way people receive money and how housing providers collect rent.
But in the middle of all this austerity, we have had the largest single Government investment into the sector. And in the process the ABCUL family has grown as we’ve created a mutual service company, Cornerstone Mutual Services, to deliver services to the sector.
We have gained a new profile on the back of the Archbishop of Canterbury’s desire to create a fairer financial system. This in turn has led to further support from other organisations keen to assist him in his mission, and an expanded role for The Credit Union Foundation.
I’ll talk about some of these issues as I go into more detail now, but I thought it would be useful to see this in the context of what has been a very challenging half-decade.
The support of the Archbishop of Canterbury was certainly a theme of the year.
The Archbishop launched an Instagram account to mark the occasion and over 40 Bishops visited or joined a credit union during the month of October.
The Archbishop’s Task Group on Responsible Credit and Savings was launched and has coordinated a range of other responses to the Archbishop’s mission to create a fairer financial system, with a particular focus on the potential of credit unions.
Renewed support for the Churches Mutual Credit Union was one of these focuses and I’m delighted that they have now launched, serving employees and clergy in the Church of Scotland and Methodist Church, as well as the Church of England.
It has been heartening in the Task Group to see in action the enthusiasm of such a wide range of people. But I have been at pains to stress during my time on the Group that credit unions are not – and should not be treated as – charities. And that they can – and must – serve a wide range of people if they are to survive and thrive. See my previous blog reflecting on the Task Group for more on this.
Of course we have also promoted these messages, along with ones about the value of co-operation and the need for proportionality, to politicians and policy makers for many years.
And the support for the sector across all the main political parties remains strong.
The risk with any attention from new sources though, is that credit unions can be seen as a solution to any number of social ills.
Credit unions can and do make enormous differences in their communities, but non profit making activities must be balanced within a diverse membership and a great product offering. Diverting the sector away from sustainability is not going to help anyone in the long run.
It was great to see celebrations across the sector last year, as we marked 50 years since the first credit union was established.
And the Government embraced the anniversary with the Call for Evidence which led to a number of recommendations for how the sector should develop.
So we’ve had a busy year on top of a busy five years.
But nothing stands still, especially in financial regulation, and there are a number of issues on the horizon which look set to bring further changes and further change.
The Senior Managers’ Regime will be replacing the Authorised Persons Regime.
Inconsistencies between the approaches of the PRA and FCA have arisen in their proposals, and we have pushed for the FCA to adopt a similar approach to the PRA, which is far more proportionate. The latest consultation document gives more hope that the new regime won’t be as burdensome as we originally envisaged, but we won’t know what the final rules look like until later this year.
We will also learn more about how the Payment Services Regulator will address the difficulties credit unions face in accessing payment systems and we hope to be able to play a role in forums being established to guide its work.
Many of you will have faced issues with finding places to deposit your funds, never mind get a reasonable rate of return for it.
We are living in a low interest economy, but other important factors are contributing to this. Banks are increasingly reluctant to engage with sectors which hold money on behalf of others – they are considered high-risk for the purposes of financial crime – i.e. money laundering, fraud and terrorist financing.
We are working to address this at a number of levels, internationally through our work with the World Council of Credit Unions, at a European level with our colleagues in the European Credit Union Network and in the UK, with Government and the banking sector itself.
We are expecting a full review of CREDS which could see major changes to how credit union regulation is approached by both regulators. We are likely to see proposals for the removal of the Version 1 and Version 2 split, and an approach based more on the complexity of a credit union’s business model.
We finally saw the completion of the passage of the Depositor Guarantee Schemes Directive last year and that clears the way for further reform of the Financial Services Compensation Scheme. We await the result of a recent consultation on that in which we argued strongly against a number of points.
Although the risk of funding in advance has been removed, there is still a possibility of risk based levies.
And as ever, we remain at the behest of not only UK legislation and regulation, but rules that are set in Brussels or Basel.
I started by talking about the changes we’ve gone through during the last five years. Five years of the first peacetime coalition Government in Britain for over 70 years.
Given the current political climate, the only prediction I’ll be making about the election in May is that it will be more unpredictable than 2010.
But we are fortunate in the UK to enjoy broad political support from the main parties at Westminster, Holyrood and Cardiff.
Through the All Party Parliamentary Group and the Cross Party Group we have a wide range of supporters across the country and across the political spectrum.
But even before manifestos were launched, credit unions were on the minds of most of the main UK parties as we approach 7th May. And we have engaged with key parliamentarians and officials in the run up to this important election.
So whether it is the manifesto of one political party or another coalition agreement negotiated by two or more parties we hope to have ensured that the best interests of the sector are represented by the new Government.
And I hope to be able to report that to our members when we meet again for our AGM in March 2016.
And finally today I want to say a little bit about the two other members of the ABCUL family. The Credit Union Foundation and Cornerstone. They are both separate organisations with their own governance structures and I know both are planning their own annual conferences/ meetings. Nevertheless ABCUL has a role in supporting both and so it seems appropriate to share some of the news.
Some of you will have heard me say at ABCUL Forum meetings that we started the year realising we needed to support Cornerstone getting off the ground, to help it deliver on the Expansion Programme. During the year we realised we had to adapt quickly and beef up the Foundation so that it was capable of handling the grant making needs of the Lloyds Banking Group fund. I am delighted to say that we have made great leaps forward here ensuring the first £1m from Lloyds is invested directly in credit unions.
In terms of Cornerstone well it has been a much more challenging year but ultimately I think a very rewarding one. In fact I might go so far as to say I am excited about the current position.
I am excited for three reasons. Firstly we now have all the pieces of the jigsaw for a new operating model on the table. As late as October we didn’t have all of that. Louise Galbraith, our Cornerstone MD and her team have landed the only UK agency banking deal for credit unions. Some of you will know how important the role of a sponsor bank is to bringing efficiency and automation to the operating model. For those who have not yet met Louise she joins us from a very successful career in financial services with recent very senior experience in operations for HSBC a major global bank.
The second reason is I am excited is that not only do we have all the jigsaw pieces but we think we might have fitted them together in a way which we think makes financial sense. The credit unions are the judge of that of course, its your call not ours. So far we have more than 20 credit unions saying it makes sense and they are ready to go. And as ever the original maxim holds true: “The more that play the less you pay.”
And the final reason I am excited is that we have started the process of building the Cornerstone team itself. Some of you may not understand what I mean there. You might say we have had 30+ people working for Cornerstone for months. Well yes we did but up until a few months ago all of these people were working on designing and delivering a project. We had no ‘home team’, no one to challenge the project on behalf of the business, to ensure they designed something that credit unions and Cornerstone could both live with.
So much for the excitement what are the challenges ahead?
This is difficult, this is a really difficult thing to do. There is no IKEA instruction manual for transforming the business model of 50 British credit unions, no-one we can turn to who has done what we are all attempting to do together. And as we know there are plenty of people outside the project, may be even some in the project keen to throw stones, sadly perhaps hoping we fail.
Firstly this is difficult as a technical challenge. There are any number of ways we can trip up here. We can choose the wrong platform, the wrong suppliers. We can listen to the sales folk who tell you everything is ready now, it will do anything you want it to do etc. The credit union landscape, indeed the wider banking landscape, in the UK and around the world is littered with examples of core banking initiatives that take longer, cost more and deliver less than promised. We have a limited amount of money and time. It’s a precious gift to have the trust of £35m of tax payers money but it’s a huge responsibility for us all too. We must not waste it.
And as if the technical challenge wasn’t enough its much more difficult to do this with 40 or 50 organisations not one. There is no ‘command and control’ option that can compel us all to do the same thing. It will demand compromise from us all. Some of you will have heard me say one of the most difficult things I / we ever did was work with a dozen larger credit unions to deliver the credit union current account. Now we all know the CUCA might not be all we want it to be but without that I think there would be little chance of us having the opportunity we have in front of us now.
So that’s two pretty big reasons why this is so difficult. I would suggest that the third is as least as big. Cornerstone is a new start company. We didn’t have a team that was used to delivering complex change programmes like this. We are having to build it. And we are having to play catch up with a large project team. Its worth also reminding ourselves that when the ABCUL team built the CUCA and the prepaid we didn’t have any of the resource, the skill and the investment we have today. So bear that in mind when we judge our own track record.
Of course the pricing might not work for all. Great pricing by industry standards is not necessarily affordable for credit unions with low profitability. The CUCA is a good example of this too. We mustn’t confuse the level of costs we pay for something with our ability to afford them. Many credit unions will tell you the CUCA is too expensive for them to run. I think it is true that for many with their current lack of profitability it will be difficult to afford it. That doesn’t mean it is not a spectacularly good deal by industry standards. I can confidently tell you there is no other current account offering in the UK that got off the ground for less than £4m investment, has the transaction pricing we enjoy for less than 40k users and costs only £90k a year to have a bank provide all the back office heavy lifting for 25 CUs. There is no model even close to that. The point I am making is that just because the costs are low by anyone elses standard it doesn’t mean we are profitable enough to afford them or to absorb them.
The same challenge on costs and affordability applies to this project. We are fairly confident we have got a great deal on set up costs, running costs, transaction costs especially give the volumes we are projecting. That said it might still be that not everyone can afford to make the transformation in the short term.
You may think the project is going slowly overall. I think it all depends on what your expectations were. If you take as your reference point the tender which said it was possible to add half a million members and that many credit unions could suddenly appeal much more to Tier 1 and 2 than Tier 3 consumers without changing their proposition then yes it is slow.
However I think the tender did not match the ambition of the original DWP Feasibility Study. Arguably the timescales didn’t even allow for time to design what would be needed, source it all commercially and work our way through the business case. Let alone to then deliver that transformation and grow a profitable balance of members. I suggest we need to compare ourselves to what has actually been achieved in the last 18 months.
- We have rolled out in a systematic way, not a perfect way, automated loan decisions to 70+ credit unions. Even this scale of rollout hasn’t been done before;
- We have persuaded many of you to generously contribute your time to designing a better way of working. Thank you for that. Its already made a big difference to the design.
- And alongside all of this, at the same time, the team have actually competitively sourced all those bits of the jigsaw, costed them, fitted them together, worked with you on your business case, worked through contracts to the point where many Boards are happy to commit.Anyone who has worked on developing a major transformation programme with a core banking component will tell you that getting to this stage in 18 months is not a bad result at all. And if as I say you add to that we are not one organisation but 50, and that Cornerstone is a new organisation then I think it begins to look a lot better.
I want to share with you a number of commitments the Cornerstone Board made to its members back in November. We said;
- We, Cornerstone, will always be transparent with our prices. We will keep all costs and particularly our own costs as low as we can. There is no value to Cornerstone, indeed there is much to be lost, in boosting prices beyond the minimum needed to cover costs and build reserves.
- If we make a profit we will share it with you. Cornerstone Mutual Services is a mutual. As an aside I am often surprised how much less demanding we can be of firms when they are retaining all the profit and we have no transparency on that or indeed their pricing.
- And for the avoidance of doubt Cornerstone will not be sharing profits with ABCUL. ABCUL has lent some money to Cornerstone, and it landed the £38m opportunity in the first place but it doesn’t see Cornerstone as a cash cow. Far from it. I suggest we need to give the ABCUL Board some thanks for their leadership in seeing cooperation was key to success at a time when few others even spoke of it.
- Of course there is no free lunch for any of us. In a mutual structure the flip side of sharing our profits is sharing our risks. There is no dream solution where credit unions can take all the profit without taking the risk. Louise and her team will do their best to reduce and manage the risks. But we will have to work together to land this in an acceptable place for all of us.
- And finally you have our commitment that we will find better ways to ensure your voice is heard as customers and as owners. Learning from our own experience with the CUCA and from other credit union countries we will try to do this in a way that increases the chance of succeeding not that reduces it.
And since November as the first part of showing we are serious about this, about making sure the credit union voice is heard we have started the election process for two CUEP credit union leaders to join the Project Board.
The other change we announced that night was the further strengthening of the Cornerstone Board. When David Dickman retired as Chair of Cornerstone earlier this year that gave us another challenge. David had done a superb job of getting us off the ground and helping us find our feet. As we approached this critical stage in the CUEP Programme we had to find a new Chair with all the skills we required to help us move to the next level.
I am delighted to say that I believe that we have found that person. Lord Hunt, David Hunt. David has kindly offered his expertise and knowledge to help take Cornerstone to the next stage. I could spend a long time talking about the many achievements in Davids career but I will have time to mention only a few. David is a lawyer by profession and having become the senior partner in a national law firm, Beachcrofts, he is now Chair of their Financial Services division. He has also had a very successful political career. He became the Conservative MP for West Wirral in his 30s before rising to become a cabinet minister in two successive UK governments. He has vast experience in dealing with civil servants and politicians.
He currently chairs the Lending Standards Board, which is how I got to meet him in the first place, he also chairs the British Insurance Brokers Association. Everyone I spoke to in the financial services arena spoke highly of David. And as if all that wasn’t enough to keep him busy he has recently finished a successful stint reforming the Press Complaints Commission before handing over the reins to a new Chair for its successor body.
And of course he still sits in the House of Lords. I hope some of you heard the recent debate on International Credit Union Day where David, Lords Roy Kennedy and John McFall from Labour and Lord Dick Newby from the Liberal Democrats held a fantastic discussion jointly supporting the expansion of the sector. It is so important for us to maintain cross party support for the whole sector. I am confident that David’s reputation and the respect he is held in by many across the financial services industry will help us to do that.
We are delighted that David has chosen to join us for this part of our journey. We shall shortly be advertising for two more external Non Executive Directors for the Board. Making sure that we have the range of skills a service company like Cornerstone will need.
Thank you for your time today. I am sure you will agree it has been an incredibly busy year across the whole group. We look forward to reporting this time next year on further achievements. I would be happy to receive any questions you might have for Robert or myself.
At the ABCUL Annual Conference earlier this month, Richard Woolhouse, Chief Economist of the British Bankers’ Association and Andrew Milton, Head of Product Marketing for Barclays joined me to kick start a conversation on credit unions and lending.
Richard and Andrew provided some excellent analysis to set the scene on the broader economy and the wider lending market.
I then provided a couple of thoughts to help us kick start an important conversation about credit unions, who we are for and what lending products we may need. We are calling this our members #2020visionforcreditunions. This first blog is part of that conversation and I would very much welcome your views.
This is a problem because we are going to finder it harder and harder to be sufficiently profitable to build our reserves at a rate which will allow us to grow at a rate many would want. And to do this in a time when many of us are not only needing to maintain our capital levels but to raise them is doubly difficult.
If we have a million pounds in savings and we are lending less and less of that each year then we are earning less income to cover the costs of paying a dividend or interest to our members for the use of their savings.
As we lend proportionately less and the savings don’t decline then we have less money to cover a bigger percentage cost.
For some of us, half our assets or even more are now sitting in poorly paying cash deposits in a bank. On total this is nearly half a £billion. Of course even in a higher interest rate environment this would be a problem. As we know the best place to have most of your money in the credit union is out serving members. That’s true from the members’ perspective and true for the credit union too.
The ‘sweet spot’ globally in the World Council of Credit Unions’ PEARLS management system is for our Loans / Assets ratio to be between 70- 80%. Too much more on loan and credit unions might hit liquidity problems.
The British CU Loans to Assets ratio has been lower than 80% since about 2001 and lower than 70% since 2009. It now sits in the mid 50%s.
Lets be clear this is not something caused by the global financial crash. It was in decline before during and after that.
We would suggest this is a problem. Particularly when you compare it to other credit union systems.
In the US the largest credit union system in the world operating in a competitive modern financial services market the credit unions have maintained between 60 to 70% loans to assets for the last 20 years.
In Canada they have maintained an even higher rate of between 75 and 85% for the last twenty years. And Australia has maintained a very steady line about 80% loans to assets for that period.
So we are not following the norm here. In fact the only other large credit union system which has a downward trend like us is Ireland.
In Ireland the Loans to Assets ratio has been in steady decline for much of the last twenty years. We know that our sister body the Irish League of Credit Unions has done some good work on exploring this with its members.
In Britain, if we take the 6% of total lending which is mortgages out of the picture then we can see that credit unions in Britain are at an even lower level of unsecured lending.
So what might the problem be here? Why are many of the developed credit union countries holding up their lending and we are not?
I am going to suggest one possible reason for this is the range of lending products.
To illustrate this one of my former colleagues used to tell a story comparing us as credit unions to a shoe shop.
He would say credit unions in Britain or Ireland can be like a shoe shop that sells only one pair of shoes.
“We sell black shoes for men or black shoes for women but we sell black shoes.”
In the case of Ireland those black shoes used to be really popular with over half the population buying their black shoes at the credit union.
Credit unions got going in Ireland when there were not too many people selling black shoes to the whole population. The credit unions have done a fantastic job of providing black shoes of a high quality for a large part of the population. For over 50 years they provided shoes when members might have gone without shoes otherrwise.
But the world is changing. There are more people selling black shoes, and there are more shoe shops selling a whole range of shoes. And to make it worse young people dont seem to buy as many pairs of black shoes as older people.
“They still wear shoes its just they aren’t buying them at the credit union shoe shop so much anymore.”
In Britain we’ve never been anything like as successful as Ireland with our shoe shops. We sell black shoes but we didn’t start selling them until there were already lots of very attractive different shoes shops on the high street, all selling lots of different types of shoes and in very attractive shops. They had huge economies of scale.
We were always going to find it harder selling only black shoes when shoe shops were already booming in Britain.
Our shoe shops were small and not well known in most communities. We had a few bigger shoe shops that benefitted from working through employers but many struggled to be seen or heard. And if you did find your way to the shoe shop, sometimes we made you stand in a queue for up for 13 weeks before we would let you buy a pair. Other people were offering shoes as soon as you walked through the door. Of course in some cases they were selling shoes to people who couldn’t afford them. We were careful and responsible about who we sold too – which is good – but sometimes we took that so far that people didn’t bother with us.
Over time we have managed to make the shoe shop more visible, some times it is on the high street now, or on the web. But it still sells only one pair of shoes.
And of course on the real high street and online there are lots of shoe shops.
Not only they do sell lots of types of shoes, they are aimed at different kinds of people.
Perhaps we need to work out which kinds of people we want to visit our shoe shop and therefore what we need to stock in it. Different people might want to buy different shoes at different times in their life. And most people have more than one pair of shoes at once.
As we heard from Andrew earlier not everyone is our potential member.
The point we have to bear in mind is that there are not many successful credit union shoe shops around the world just selling black shoes.
And here we are in 2015. We have got credit unions now, maybe those in the credit union expansion project or others that are starting to sell shoes directly from your smartphone.
But we still only have black shoes. You can buy them really conveniently now, so long as you want black shoes.
So what is the moral of this story?
In all those developed countries we looked at earlier, credit unions have succeeded by selling more than one pair of shoes.
If you look at other credit union countries the simple message is that credit unions sell a range of shoes.
We’ve had a few international visitors over the last couple of years, so we can take them as examples.
Navy Federal has over 4 million members and a total loan book of over $60 billion, but just 7% of its loan book is unsecured personal loans.
A more typical example of a US credit unions is Ventura County CU. The credit union is a fraction of the size of Navy Federal; its loan book is only $500m, but there is still a wide range of lending products. And in fact just 4% of its lending is unsecured personal loans.
But even at the much smaller end of US credit unions – we tend to think of the really big credit unions but there are still over 6000 credit unions with many very small ones – the picture is still the same. They don’t just sell black shoes.
A Manchester (Conneticut) based credit union has less than 2,000 members but still only has 21% of its lending as unsecured personal loans, on a loan book of about $11 million.
You might ask yourself how does a credit union that is this small offer such a wide range of shoes?
Well the answer is they collaborate. There are a number of back office service providers that provide infrastructure, technical expertise, compliance and other support for small credit unions to offer a wide range of loan products by sharing the fixed costs.
And to show that these aren’t just random credit unions we’ve chosen, here is an overview of the whole US credit union system, where only 5% of the loan book is unsecured personal lending.
The biggest piece of pie is for first mortgages at 40%, with other lending secured on property and vehicle loans following behind.
Now we know that mortgages are sold differently in the US, we know regulation is different.
The point we are making is that credit unions in the US try to meet many of the lending needs of their members – not just their need for unsecured loans.
Their members don’t need to go elsewhere for a good rate on a car loan or for a convenient credit card.
So what about other countries?
In Australia, the sector is concentrated in terms of scale in the mortgage business. And in Canada as well, consumer loans make up just 8% of the total loan book.
So what can we learn from this?
Credit unions in developed economies where they are competing with a range of commercial providers such as banks, payday lenders, other non-bank commercial lenders have survived and thrived by offering more than one pair of shoes.
It was many, many years ago that they started offering credit cards, car loans and mortgages.
And they did this in a way which was compliant, safe, and with sufficient expertise to succeed. They had to meet the needs of the regulator every bit as much as we would here in the UK.
My colleague would go further and suggest that the only credit union systems in the world (apart from Ireland and GB) with only unsecured lending are those operating in underdeveloped countries.
We have to be careful we don’t leap to the wrong conclusions here
- We are not saying that adopting a wider range of lending products will automatically maintain loans to assets ratios. You still have to be competitive, convenient and responsible.
- We are not saying that credit unions in GB could easily broaden their offering overnight; there are many regulatory and scale barriers to entering many of these markets in Britain. These might even be too high to enter.
What we are saying is that when loans to assets are falling we can’t afford to ignore that. We must look at ways in which we can lend more of our members money responsibly.
Credit unions are putting in place more and more convenience for the member. For example the CUEP operating model contains a fully digital mobile front end that lets people buy their black shoes easily. And there are other ways of doing this, and will be more.
But this is not about the Credit Union Expansion Project, it is about all credit unions.
So what will be our 2020 Vision?
We are forming a short life working group to help us think through some of these challenges. By harnessing offers of support from a range of expertise in the industry, both here and abroad, we will examine a range of questions including:
- What should the product mix be for a 2020 credit union?
- What are the regulatory barriers and the risks involved in expanding our product range?
- What are the economies of scale needed to offer car loans, credit cards or mortgages?
- Might we be able to work together to deliver that better?
It is worth noting that in the US and other countries the credit unions didn’t start by manufacturing all these products. They often worked in partnership with banks and other agencies to enter the market slowly.
We have examples of that here. We have credit unions that can offer mortgages to their members but they don’t sit on their balance sheet and they don’t have a huge regulatory burden. In other countries as the credit unions got bigger and their members were used to being able to get more from the credit union they started to do more of it themselves.
So we may need to work in partnership with others and we dont know yet whether we would be able to expand our offering. But it is important to explore what is possible and the Association is committing to do that with our members and a number of partners and supporters.
Over the next year we will invite you our members to join that debate, to work together to define our credit union 2020 vision for credit unions. #2020visionforcreditunions
The All Party Parliamentary Group on Credit Unions held a meeting last week to update members and supporters of the group on the work carried out by the Archbishop’s Task Group on Responsible Credit and Savings.
It was good to be able to join a range of speakers including Chair of the Group, Sir Hector Sants and APPG Chair Robin Walker MP and reflect on what has been achieved since the Task Group was founded a year ago.
There has been so much achieved in such a short space of time and lots of people to thank for their enthusiasm and support. But it was important to take the opportunity to reiterate three things I have been keen to stress during my time on the Task Group. My words to the Group are set out below:
“It has been a great pleasure to be part of the Task Group over the past year and to see at first hand such enthusiasm from such a wide range of people
I think we can safely say that one persons words have never had so much effect on the credit union sector as those from the Archbishop in July 2013.
The Archbishop has had a huge impact on the sector’s profile. And with all of us constrained in how much we can spend on marketing and promotion – the column inches have been invaluable.
The Church Credit Champions Network, led by the Centre for Theology and Community, is linking churches and credit unions for the benefit of communities in London and Merseyside and is already paying dividends in different ways.
HM Treasury’s announcement of £150,000 funding from the LIBOR fines to support the LifeSavers primary schools savings project is a boost for a more sustainable way of delivering financial education by credit unions.
It was also partly as a result of talking to Sir Hector that Lloyds Banking Group decided to commit £4 million in cash to expand and strengthen the sector. Before Christmas The Credit Union Foundation was able to announce 17 credit unions were to receive the first £1m. And tomorrow over the road in the House of Commons we launch the second year.
And His Grace has inspired many others to become involved too – the Church has wholeheartedly embraced the actions which he advocated. I have seen some fantastic results from the messages that have cascaded down through the Church and which many of our member credit unions have benefitted from.
I know there are a number of examples of such partnerships in the room today and I am really looking forward to hearing about some of that great work a little later.
All of these things and more demonstrate the power of the Church’s support.
But while the support has been fantastic there are 3 things I have been keen to stress during my time on the Task Group:
– Credit unions need to be profitable without external revenue subsidy
– Credit unions are not charities here to serve only the poorest
– Credit unions will often need to work together to improve efficiency, increase quality, expertise and compliance. Particularly if they are to compete with the mainstream providers.
Globally there is a powerful maxim that captures the credit union mutual ethos. Not for profit, not for charity but for service.
Firstly lets talk about profit. Everyone understands we are not here to maximise profit but we must make a profit. Credit unions that are not currently profitable without external subsidy must make sustainability their priority. They must prioritise their economic goals not just expanding their social goals.
New activities which could divert credit unions from the core tasks which allow them to operate safely and sustainably are not going to help credit unions or the people who need their services.
It’s only through growing safely and sustainably that credit union services can be made available to more of the most vulnerable in society – not to mention the ranks of working people who increasingly go underserved by the mainstream as lending criteria are tightened.
To grow safely and sustainably, credit unions need to make good loans and get that money back in. They need to be able to make larger as well as smaller loans, to bring in the income they need to cover their costs, put capital aside against losses and provide a return to savers.
This is of course not to say that credit unions don’t want to do more to fulfill their social goals. Nor is it to say that credit unions should abandon their ethics and commitment to service.
Credit unions want to do more education work, with young people and the wider community, and they want to make sure that they can provide affordable and appropriate financial services for people who are otherwise excluded. However schools work for example will likely be a net drain on profits not a net income. Taking that on now for many will weaken not strengthen their business.
So onto the second part of the phrase. Not for Charity. Credit unions are not charities, we cannot be here only for those that are excluded.
I get worried when I hear credit unions positioned in the same space as the food bank. The food bank is a sad reality of modern life and many of them are superbly run however they are not a brand designed to appeal across the income range.
There is sometimes an image of credit unions portrayed that they are a safety net for the poorest in our society. This leads to people thinking that the best way they can assist credit unions is to deposit their money with them, or, worse, to secure grant funding for them.
But small, short term loans on their own are unlikely to bring in the income credit unions need to pay their way and grow. No amount of extra deposits will solve this dilemma – and grant funding is only likely to put off the inevitable.
We will fail in so far as we are seen by churches, our supporters, the media as something for “others” and not for all. For credit unions to be successful they must emphasise service, high quality service to members from a range of incomes and ages. There is no other model that works anywhere.
In case you think I am just having an easy pop at the church let me give you an example of this from a different space. Many of the largest credit unions in the country grew with the support of employers and trade unions. Twenty years ago they both helped position credit unions as an easy way to save from payroll, and a responsible way to borrow for all employees. To use a health service analogy it was closer to promoting preventative health care than Accident and Emergency. By and large it worked well transforming many peoples lives in the process giving them a better balance of savings and loans to fund their life.
Now we currently have trade unions interested afresh in helping the sector grow but they are often positioning credit unions as the Accident and Emergency service. Go to the credit union when all else is lost. This is not working and will never work.
And a word of warning for other community finance models. If you want a sustainable model that does not rely on external revenue subsidy you will need an internal cross subsidy and/or a very high price. That means a range of borrowers, loan sizes and terms. Without an internal cross subsidy you will either require ongoing grant or your prices will be so high there is not much different to the commercial sector. The big mistake we make is to assume the size of the profit is the only difference between commercial and community finance lenders. Commercial lenders may have significant profits but they often sit on top of high volume, efficient distribution models. Way ahead of the community sector. When I hear of 200% APR for community finance lenders on 12 month loans or longer then I worry.
Having said all of this I am very encouraged when I see good messages coming through from the Church that credit unions must also be supported to engage those of all incomes as an option for loans, by employers signing their employees up to payroll deduction and by those of us with relevant skills volunteering our services.
I hope that this will also extend to suggestions for funding mechanisms for the sector.
It is vital that any future funding supports the capital needs of the sector, strengthening credit unions’ financial position and helping them to grow their balance sheets while meeting their regulatory requirements for safety.
Grant funding, on the other hand, tends to hide problems in the business model and obscure failures to grow income and improve asset quality. These distortions only hold credit unions back.
I am confident there will be a time when credit unions have more of a demand for loans than they can provide, from a diverse range of people that will sustain a safe and growing social business. To do this in the highly automated, convenient manner which the mainstream consumers expect will likely mean credit unions need to cooperate with each other.”
Yesterday (19 January) I was very pleased to be able to join a distinguished line up of speakers, including the Archbishop of Canterbury and Queen Maxima of the Netherlands at the Financial Inclusion: The Next Move Forward Conference in London. Supported by Lloyds and HSBC, the day aimed to “take stock of the progress that has been made so far in promoting financial inclusion, and to examine the next moves forward“.
As part of a panel, I was asked to respond to a presentation from Sharon Collard, Professor of Personal Finance Capability at The Open University, on the subject of Banking the Under-Banked, improving access to good financial advice and helping individuals manage their money. On the panel we were all asked to come up with one action we thought would work best in addressing the challenges raised. I’d welcome your comments on what I said, which is set out below.
Credit unions are now serving 1.5m people in the UK. They are by far and away the most successful of any not for profit providers however we are a still a very small part of the financial services sector. That said it is an exciting time as a number of credit unions supported by government are putting in place changes to serve many more people.
Now on to Sharons speech. There is very little to disagree with there, but there are two points I would like to add. One is about the importance of savings in this debate and the other is being realistic about the costs of service and therefore recognising that banks are not likely to provide a joined up service with banking, credit and savings for all people.
Sharon is right when she says that this should be about making sure that everyone has access to transactional services that work for them.
But I would argue that if we are to help people not only become financially included, but also have more financial resilience and confidence in managing their money, then we need to make it easy and more convenient for people to save as well. I don’t mean long term savings for pensions or even savings chasing any kind of a return. I mean helping people spend less than they earn and putting a small amount aside from each pay and/or benefit cycle.
Even a small amount of short term savings can make an enormous difference to our ability to manage both expected and unexpected expenses. If an essential item fails and a family has no savings to fall back on, they may see no other option than to take out expensive credit to fund that purchase. Savings may mean that the item could be repaired, or shopping around could find a much cheaper alternative than those offered through ‘rent to buy’ shops.
And of course it’s often the expected expenses which get people into difficult debt. School uniforms need buying, cars need an MOT and Christmas happens every December. People can avoid getting into difficult debt if they can be assisted to budget for less regular but annual expenses such as these. As well as putting away a little for the unexpected.
Having some savings brings better choices.
In the wake of the Farepak collapse in 2006, the need to help people save safely for Christmas was recognised. But in the main, saving has not been given as much emphasis as I believe it should have been when we are discussing individuals’ financial needs.
So yes people need appropriate, fair and affordable transaction services. But if these don’t come with lines of credit and an easy way to siphon some of the money going through them into a safe savings account, we’re missing two tricks. And we’re not providing people with all the tools they may want to help them best manage their money.
The second aspect I wanted to raise, which doesn’t figure as highly from the consumers’ point of view – but it is essential from a providers point of view – is the cost and sustainability of these services.
As Sharon has mentioned there will be new pressure on banks to provide accounts for everyone. However for a variety of reasons banks are narrowing the mainstream market all the time. The income level required to qualify for a mainstream bank account has increased significantly quicker than inflation since 2005.
And we know banks are not going to provide smaller, shorter term personal loans. They don’t bring in sufficient income to make it worthwhile for them.
So if banks do not have an appetite to provide these services, then perhaps we can expect them to help a credit union sector which does?
I am delighted to say at this time that the UK banking sector is providing a greater level and diversity of support for credit unions than at any time in its history. In 2014 Lloyds committed to donating £4m in cash to credit unions. And alongside them Citi and Barclays are looking to provide further support to help the sector grow whether that’s sharing expertise, providing customer referrals or other support.
Indeed the gap between the costs of providing services and the income they attract can also be too wide for many credit unions. And this is the challenge which leads to my one action.
We don’t operate in an environment where credit unions, and CDFIs for that matter, can or should rely on subsidies to cover the costs of their operations.
And finally we were asked to suggest one action that would make a difference to this agenda.
For credit unions serving the financially excluded their operating model needs to be reformed. These credit unions need to find a way of operating which enables them to cost effectively provide a range of convenient and attractively priced products which appeal to a wide range of people.
Ironically for credit unions keen to make a bigger impact upon exclusion this will mean providing services to people who have plenty of other choices, so that they can serve more people who rely on them for affordable services. Lets be really clear this doesn’t mean they will not serve financially excluded people. This would be anathema for most of those credit unions. It means making sure they have a sustainable balance.
[Additional note: On the day I used the opportunity of sitting on the platform to echo the view of Danielle Walker-Palmour from Friends Provident Foundation that perhaps the one action should be the forming of a plan. Sir Brian Pomeroy had noted this was the first major conference on financial inclusion for many years. There were significant voices, an Archbishop and a Queen for starters, and many larger organisations present all committing to tackle the ongoing problem. Danielle pointed out that what is needed is some sort of a plan, and a focus to take this forward. How might that happen? ]
Credit unions in Britain are coming to the end of a 50th anniversary year, a year in which we have celebrated the achievements of some special individuals, gained support from a number of new quarters and continued to work together to grow and strengthen the sector.
ABCUL marked the anniversary at our Annual Conference in March, by presenting 16 awards to people and credit unions nominated by ABCUL Forums across they country. A further two special awards were made to founding members of the first credit union Britain, when Treasury Minister Andrea Leadsom launched a Call for Evidence to mark the anniversary in June. The awardees must have clocked up getting on 500 years service to the movement between them, and it was great for credit unions to be able recognise some of the pioneers who have helped us to get to where we are today.
Credit unions can be very proud of a number of significant achievements this year.
- Credit union savings broke through the £1 billion ceiling and membership continued to grow above 1 million adults.
- New groups continue to benefit from membership, from both existing and new credit unions. The beginning of the year saw the launch of a new credit union for members of the Association of Polish Engineers in Britain, with the support of high profile credit unions in Poland and New York. And just last week I was delighted to see that the Churches Mutual Credit Union has finally gained authorisation and will launch early next year.
- Over 50 credit unions have committed in principle to entering the exciting transformation stage of the Credit Union Expansion Project; the biggest collaboration the credit union sector has ever seen.
- And credit unions of all types and sizes have continued to build their own partnerships and develop services for their growing memberships.
Credit unions also remained high on the agenda in the wider world:
The Call for Evidence was an excellent opportunity for the Government, the sector and other interested parties to take stock and look at what credit unions need next. It was reassuring to know that policy makers recognise that, despite an overhaul of legislation and regulation and a major funding package, we are not all of the way there and there is more that can be done. We await the Government’s response with interest.
One of the strands of the Call for Evidence asked about how other organisations can support credit unions and this was certainly a major theme of the year, as credit unions continued to benefit from the support of a wide range of sources, including some long established backers and some new champions.
The Duchess of Cornwall hosted a reception at Clarence House to mark International Credit Union Day and her support and those of others led the Guardian to say that credit unions “have got lots of friends in high places who are helping to spread the word”.
The Lloyds Banking Group Credit Union Development Fund, launched in June, has provided a major new source of support for credit unions looking to expand their membership in a sustainable way. The Credit Union Foundation, which is administering the new fund, is also involved in other exciting ventures with support from Citi Bank and local authority procurement company Scape.
The Foundation welcomed the Archbishop of Canterbury to speak at its summer reception in the House of Lords where he thanked those in the sector for their hard work over a long period of time. In return, Foundation President Angela Hampson expressed gratitude for “the remarkable and profound effect that his words last summer have had both in highlighting payday lending and credit unions as an alternative”.
Justin Welby’s words last summer certainly raised the profile of our sector and as I wrote in a recent blog, that was certainly not the end of the story.
The Westminster Government continues to support credit unions through the Credit Union Expansion Project and we have also been able to welcome additional support from the Scottish and Welsh Governments. And with the success of both the Westminster based All Party Parliamentary Group and the Holyrood based Cross Party Group we have support from politicians from across the political spectrum.
One of the strands of work which the Archbishop’s Task Group has been focused on is encouraging those with relevant and experience to offer some of this to credit unions. Many credit unions are already benefiting from a new tranche of professionals who, either off their own backs or with encouragement from their employers, are getting involved in the governance of credit unions.
Looking back at our history and achievements has been important this year, but the movement doesn’t stand still for long, and we have plenty to look forward to -and to challenge us- in the next year.
Armed forces personnel look set to benefit from payroll deduction to credit unions as Ministry of Defence plans come to fruition. A major new credit union for retail staff is also set to launch. And we look forward to various other major employers assisting their staff to get a savings habit in the coming months.
The UK election in May is likely to bring a number of policy changes, and we are already engaged with all the main political parties to ensure policies which affect our members are in their best interests, and those of their members. The broad political support the sector enjoys could well prove to be important in what is, for now at least, a difficult result to call.
The exciting challenges of the Credit Union Expansion Project will continue and I can’t wait to see the first credit unions transition to the new banking platform, with all that will mean for their operations as well as their service offering.
As we enter our second half century as a movement, there is a lot to be done to ensure we fulfil the expectations of so many people and organisations, But we must also make sure that we don’t allow ourselves to be diverted from our key aims of serving our members well, and doing this sustainably.
And we must not forget that without that hard work and dedication within the movement that the Archbishop recognised, all of this support would have no effect. So as well as expressing our gratitude to those who support the movement so well, thanks are due to the thousands of credit union activists up and down the country who give up their time to the sector.
Best wishes to you all for a peaceful Christmas and a successful and prosperous 2015.
We often hear calls to action from prominent people, only for those words to fade from the public consciousness without much happening to follow it up. But almost 18 months on from the Archbishop of Canterbury’s much reported comments about payday lenders and we are seeing many signs of welcome practical action in the Church of England.
The Archbishop’s Task Group on Responsible Credit and Savings launched a website last month to tell the stories of both national and local initiatives which have been inspired by #toyourcredit, Justin Welby’s campaign to create a fairer financial system.
One of the first, tangible effects of the desire to increase the use of credit unions is the pilot scheme for the Church Credit Champions Network (CCCN). The scheme, run by The Centre for Theology and Community (CTC) and the Church Urban Fund launched in May and has already engaged with over 100 churches in London. 75 lay and clergy Credit Champions have been trained and real results are being seen already, as David Barclay, Faith in Public Life Officer at the CTC explains in a recent blog:
“That action is now beginning to bear fruit in a variety of ways. Churches in Islington have come together to launch a ‘500 for Islington’ campaign to find 500 new members for London Capital Credit Union in the next year. St James the Less and seven other churches in Pimlico are working together to open what would be the first credit union branch in Westminster. Meanwhile in Hackney, St James’, Clapton has opened up its building and had members trained up to help local people access the services of London Community Credit Union.”
Members of the Copleston Community Church in Peckham walked to the offices of London Mutual Credit Union at the end of October to deliver over 130 membership applications. People from both the church and the local community took part in the march which was organised by Theophilia Shaw, who was recently appointed as Church Credit Champions Network Co-ordinator for South London.
A similar march took place in Hackney last month, delivering 134 applications to London Community Credit Union where a campaign was launched to recruit 500 new members in the next year.
David is enthusiastic about the potential of the network, but realistic about how long it will take to replicate this success much more widely:
“Developing the network is a long term process, as it’s about trying to embed this issue in the life and the heart of local churches. That does not happen straight away – but we are really excited by the progress there has been. We’ve had a huge amount of interest from churches, people are really keen to be trained up as credit champions, and now we’re starting to see that translate into concrete action that will benefit people.”
If every Church of England church did eventually replicate the success of those churches in Peckham and Hackney and encouraged 130 members of its community to join their local credit union we would see more than 2 million extra credit union members. If those among them who were employers or senior managers helped set up payroll deduction schemes then those numbers could snowball.
And if other organisations, both religious and secular, adopt what the CCCN learns from its pilots, there is even more potential for people from across society to engage with credit unions.
Another output of the Task Group’s work is plans to establish savings clubs in schools around the country and tie this in with appropriate financial education. Many credit unions already have partnerships with schools and have helped thousands of young people to develop a savings habit and learn about managing finances. We know that those early savings habits are vital in giving people the best chance of continuing with good financial habits into adulthood.
But whether they join a credit union at age 7 or age 37, the most important factors for the success of the credit union sector is that these new members become active members and that they are part of a diverse membership of savers and borrowers.
Important as it is to help young people to gain good financial habits by working in schools, it is vital that scalable solutions are developed so new schemes are set up in a cost effective way . Young savers don’t bring in income and efforts to expand work in schools must be balanced with work which brings in the income credit unions need – and ultimately that is making good loans and making sure those loans are repaid.
It is encouraging to see that the Church’s campaign is, on the whole, reflective of the view that credit unions are for everyone, not just those who would otherwise struggle to get affordable credit.
If we are to sustainably expand, it is vital that the whole community is encouraged to get behind their local credit unions – and use them.
Church communities are themselves reflective of the diversity of the communities they live in; worshippers have a range of incomes, they are both employed and employers. Harnessing the potential of churchgoers as members, volunteers and partners is one way in which credit unions can extend grow and extend their impact.
But if we and our partners in churches and elsewhere put in all this effort to attract new joiners, this doesn’t necessarily mean that they will convert into active members. In parallel to this welcome activity to promote credit unions as a fairer financial alternative, we need to demonstrate that we can provide the value and the products that people need.
Very few of us make our financial choices on ethics alone; we can be persuaded that something is a good thing to do, but that is only the first step. Once credit unions have a new member, they then have the opportunity to reassure and delight in the level of service, the products and the credit union difference. It is this which can convert a member in name only into an active and valuable part of the credit union community.
In this guest blog, ABCUL President Robert Kelly reflects on his experiences at the International Co-operative Summit in Quebec.
As always, it is an enormous privilege to represent ABCUL at any conference event. However this event was unique in lots of ways. Travelling to Quebec at the beginning of October 2014 for the 2nd International Co-operative Summit allowed me to swap autumn weather Glasgow style vs. fall weather Quebec style! I have to be honest and say there were very few differences in the weather which was strangely reassuring. I had previously made a trip to Montreal with close friends in 1999 in my university years but this my first experience of Quebec and my loose grasp of French from school days came flooding back – well to me anyway!
The main conference event commenced on Monday 6th October and my first session was to gatecrash a symposium on credit union innovation led by the Filene Research.
This session presented multiple challenges on credit union board effectiveness, senior management recruitment strategies, the multitude of ways we all approach selling the credit union difference and most importantly a debate on how to develop and define the ‘value proposition’ to members! This was brought to life in a truly inspirational way by reviewing the approaches taken by 6 credit unions from across the US, Canada and Australia in a case study model.
ACTION POINT/CHALLENGE!! Would a more clearly defined ‘value proposition’ be of benefit to credit union boards, management, staff and more importantly members going forward and can we learn lessons from this approach in the UK?
The following days gave me a chance to attend various workshop and plenary sessions around technology innovation, co-operative identity, implementing co-operative principles in the workplace, selling the co-operative difference and learning from each other on a truly collaborative way. Analysing the challenges faced by the global co-operative sector is not an easy job but it’s clear to me that a honest desire for true collaboration and the constant promotion of sustainable business models is central to our ethos and ‘value proposition’.
The highlights of my trip to Quebec and participation in the conference were the opportunity to facilitate and mentor at 2 breakfast sessions for the Conference Young Leaders Network and to take part in a workshop session on ‘Developing a Meaningful Legal, Regulatory and Tax Framework’ alongside vastly respected leaders from the US credit union sector, the European Co-operative Banking sector and Desjardins. Pursuing the development of a Young Leaders Network in the UK system is a priority for me and let’s try and ensure we can capitalise on the initial success of this initiative at the last ABCUL AGM and conference.
The International Co-operative Summit 2014 was a fantastic learning experience for me and a genuine personal privilege to represent ABCUL at an international event. The experience left me in no doubt that the credit union sector in the UK can achieve great things when we open our mind to learning and development, when we embrace and adopt true collaborative opportunities and co-operative principles and more importantly when we show collective leadership and courage to deliver and implement seismic change.
Let 2015 be the year that credit union members across the country truly see the benefits of our desire for change and our courage to collaborate.
For more information on the Summit please visit the web-link below:
Robert Kelly – November 2014
When we talk about credit unions in the United States, we’re often citing the largest examples. When looking for support for an armed forces credit union we talk about the work of the Navy Federal Credit Union, with over 5 million members. And when I spoke at an event on universities and credit unions recently, I used the example of the Michigan State University Federal Credit Union, with $2.6 billion in assets and over 600 staff.
But we classify our largest credit unions as those with over £25 million in assets, so you could be forgiven for assuming that US credit unions are not where we should be looking for inspiration.
But just as there is a very broad range of credit unions in Britain – from 200 members to over 30,000 – there is diversity in the States. And the parallels don’t end there.
That is what a group of credit union leaders from across Britain found when they visited Detroit earlier in the year for the Annual Conference of the National Federation of Community Development Credit Union. NFCDU exists to support its members, all of which have a low-income designation. The trip was supported by Citi, who already do lots of work with the Federation and its members, and are beginning to do more over here as well. I was fortunate to join them for what was a thought provoking event.
As a delegation we were taken by the strong similarities in both the model and in the membership base the credit unions were serving. We were inspired by the tailoring of services to members’ needs and the strong community partnerships. The can-do attitude and commercial acumen impressed the group, as did the commitment to financial support for their members.
And we also recognised the challenges that our colleagues in the States faced, including ensuring governance standards keep pace with growth and the need to keep up with changes in the market.
During the event, I was able to sit down with Billy Myers, Director of the Office of Small Credit Unions Initiative (OSCUI) which is based within the US credit unions’ regulator, the NCUA. The team there offers an impressive range of services to help strengthen credit unions, including training webinars, mentoring and, for some, grants and loans. Its services are available to smaller credit unions, new credit unions and those with a low-income designation. Their experience in helping credit unions succeed is second to none.
Recently, Bill shared his top five actions for smaller credit unions, to help them survive and thrive, and this is a list which reinforces the similarities between our sectors.
Growth, Bill says, can be cured by making sure products are up to date and are marketed well. Maybe, he says, a change to the credit union’s field of membership (common bond to us) is needed.
Board and management should Watch the performance of the credit union and should know how it is performing in key areas such as capital adequacy, earnings and growth.
Lend, says Bill, as credit unions with a loan to share ratio of less than 60% are rarely sustainable. Those with more than 80%, he says, are hard to stop.
A knowledgeable board and staff keep the credit union on track, so Train is number four on the list.
And finally, Engage, as the NCUA finds that unsuccessful small credit unions are often unfocused, not networked and not interested. So engaging with other local credit unions and other local non-profit organisations is recommended.
If we had sat down to write this list for British credit unions, we would probably have come up with something not too dissimilar.
And much of the work credit unions are doing, with the support of ABCUL, Cornerstone and the Credit Union Foundation is aimed at tackling these challenges head on.
Growth – British credit unions continue to enjoy sustained growth in both membership and assets, and it is essential that this continues. Legislative change in 2012 enabled credit unions to reach out to new groups, including groups of employees, and this has led to some significant expansion across the country. Collaborative work to help credit unions get the products members want, and the access channels people value is also a key part of making sure credit unions continue to grow.
Watch – The first support from Citi for the British sector is a toolkit being developed to make it easier for directors to know what is going on in their credit unions. The toolkit will help improve the financial stability of community credit unions by providing a best practice accounting and board management pack, together with training support.
Lend –Lending responsibly over realistic and affordable time periods is what credit unions do best, whether they are lending £200 or £20,000. We work in a variety of ways to make sure credit unions have both a proportionate regulatory framework and the information and tools to ensure they make the best decisions. Automated Loan Decisioning has been developed to speed up the loan application process, bringing benefits to credit unions and borrowers alike.
Engage – ABCUL Forums provide opportunities for credit unions around the country to come together to share information and best practice. Other ABCUL events, such as the Annual Conference, also provide opportunities for our members to connect with each other. Credit unions benefit from a wide range of valuable partnerships in their communities and our work with organisations such as the Church of England is helping them broaden the networks they enjoy.
Train – Training is at the core of the provision of any trade association and we offer a range of services to members over a variety of platforms – including, like OSCUI, webinars. Strengthening that provision and making sure both operational staff and volunteer directors have the skills and knowledge they need is a key priority for us. The support of high profile individuals in the commercial world and civic society gives us the opportunity to harness the expertise of a range of skilled professionals. And the Credit Union Foundation is prioritising the development of education as a key part of its objects.
I’d recommend that anyone with an interest in what credit unions can achieve for communities or in what support can be given to credit unions to help them thrive takes a look at the work of the National Federation and at OSCUI. Their work is certainly a benchmark for what I hope we can achieve in Britain.
 Low-income designation credit unions have certain benefits built into law. Their membership must include a majority of low income members (with a family income 80% of less than the median income in the area)
To mark International Credit Union Day, I’m pleased to welcome the first guest to the blog. Here Sandra-Eve Bamigbade, a Director of the Plane Saver Credit Union gives us the benefit of insights gained from her recent trip to Kenya.
In September, I visited Kenya for three weeks to take a look at how financial inclusion is helping people to help themselves. My visit was facilitated by WOCCU and their office in Nairobi where they gave me a taster of what Kenya has to offer financially. I can confidently say, that there is a lot that can be learnt from the credit union movement in Kenya, not only for other African countries who are trying to improve financial inclusion, but to the movement as a whole.
In terms of financial inclusion, Kenya is very impressive. If you take a look at the Global Findex there’s a multitude of data that you can look at to compare financial inclusion. If we examine the percentage of the population that have an account at a formal financial institution (aged 15+) as well as the percentage of the population who have saved at a financial institution in the past year, we can see that Kenya is doing extremely well. Below is a quick snapshot of some statistics to contextualise the data.
Account at formal financial institution – 50%
Saved at a financial institution in the past year- 22%
Europe and Central Asia:
Account at a formal financial institution – 45%
Saved at a financial institution in the past year- 7%
Account at a formal financial institution – 24%
Saved at a financial institution in the past year- 14%
Account at a formal financial institution – 42%
Saved at a financial institution in the past year- 23%
Comparatively, Kenya’s figures are almost twice as much as their regional average and in relation to Europe and Central Asia, Kenya is almost equal, if not slightly ahead, with regard to savings. The Findex data was collected in 2011 and much has changed since then in Kenya, making the levels of financial inclusion much higher. In 2006, the FinAccess Report was the first ever in Kenya to formally profile the “developments in financial access and usage in Kenya” (FinAccess Report 2013) by the FSD (Financial Sector Deepening Trust). In 2006, FinAccess reported that 38% of the Kenyan population was excluded from the financial system- this number decreased by 8% by the next report in 2009 and then further dropped by 5% for the most recent report in 2013. Within the space of 7 years, Kenya has managed to financially include 13% of their population.
So how did Kenya manage to do this? There were several things that were necessary for the inclusion of the 13%, but one of the main aspects, in my opinion, was the introduction of M-PESA in 2007- a mobile phone financial service provider (MFSP). It is undeniable that MFSP changed the Kenyan financial landscape by making financial services more accessible and readily available to meet the needs of the people. MFSP was non existent in 2006 and within the first 2 years of M-PESA, MFSP usage grew from 0% of the population to 28.4%. By 2013, this number rose to 61.6%. Facilitating the mass usage of MFSP was the growth in mobile phone ownership from 19.2% in rural areas to 61.5% and from 53% in urban areas to 83.8% in 2013.
This mass adaptation of MFSP makes finance more accessible and provides a new platform for financial services to operate on to reach new members.
Financial Inclusion- what does it mean for individuals?
MFSP is great, but it does have its limitations and it cannot fully replace bank branches. But what about those who can’t access a bank for financial advice? WOCCU has been working with many SACCO’s (savings and credit co-operatives) in Kenya, in particular E-Kenya, a branchless SACCO, to ‘bring the SACCO to the people’. Whilst I was in Kenya, I went with E-Kenya on several field visits (where a field agent travels to see a group) normally in a rural/remote area. One of the groups I visited was a womens self-help group in Embu, which we attended with their local SACCO – Tuungane Tujijenge SACCO (TTS). The journey from Nairobi to the self-help group was 4 hours and required the last part of the journey to be carried out on motorbike as the village was so remote. This group meets regularly and discuss all issues impacting women’s welfare. TTS sends a representative along on a regular basis in order to advise the women on their financial worries and to explain the benefits of saving and the options available for borrowing. This empowers the women to take control of their own finances as 41.8% of women in Kenya reported that their spouse was the main decision maker compared to only 7.3% of men who consulted their spouse (FinAccess Report 2013). The womens self help group’s meetings with TTS enabled them to become financially autonomous.
One of the women from this group borrowed money in order to buy a motorbike for her son, pay for her children’s school fees and invest in her farm. She told me that “Finance has changed my life because I am not buying milk anymore, I live well because I have money for the use of my family and my children are well because they are receiving an education”. The motorbike was bought for her son so that he could become a ‘bodaboda’ driver – A bodaboda is a motorcycle taxi that is common place in East Africa, particularly in rural areas where the roads are less developed or inaccessible by car. From this income, she is able to repay her loan and continue to send her children to school while saving money for their further education. She borrowed the money from the women’s self-help group chama (An informal cooperative for the purpose of either savings, investing or borrowing) and has been made to feel liberated and empowered. With assistance from her chama and local SACCO, she was able to help herself.
Another example of someone whose life was positively impacted by accessing finance is the gentleman below.
This man was able to expand his business by borrowing money from a bank. He told me that “The loan changed my life because I can buy anything that I want now. This makes me feel very happy”. Access to finance has improved his social and personal life, as well as his living standard. “My life has changed because I never used to have any money. But today I have money”. He has now been able to begin saving money to further invest in his business, which supports himself and a family of 7. He feels empowered and able to make choices which makes him optimistic about his future.
Plenty of people have been empowered by access to finance and have been able to build a brighter future for themselves and their families like the two stories shared above. What we can learn from the innovative work happening in Kenya is to always our members first and to utilise the technology we have around us to make a more inclusive financial system for all.