The development of credit unions in Britain Paul A Jones PhD Social Economy Course – Prague 2016

Credit unions in Britain (England, Scotland and Wales) Just under 360 credit unions –Majority live and work (community –”territorial”) –Also serve employee groups Passenger Transport, the Co-operative and the Police From 200 to over 35,000 members No 1 Police Credit Union – 30,000 members; Manchester Credit Union – 20,000 members Penetration of total population less than 2%. –Wide regional differences – Liverpool est 15% Total: 1,100,000 members / 130,500 juniors £1,32 billion in assets

Traditional model credit unions First credit union in Britain in 1964 –Serving immigrant communities Small community operations –Entirely volunteer run Social focus rather than business orientated Not built for expansion and growth Influence on industrial and employee sector Impact in England and Wales – real but marginal - after 12 years growth –By 1998, average membership community credit union after was around 370 members –Average membership of an employee credit union was 1,552 members

Reasons for slow growth Poor and inadequate legislation Unsound business model in 1980s / 90s Insufficiently attractive products and services Divided trade associations –Largest is the Association of British Credit Unions Ltd – ABCUL –Also UK Credit Unions, ACE CU Services, Scottish League, Independent Credit Unions

Changing Credit Unions Traditional model credit unions Business-oriented credit unions New Model Credit Unions (WOCCU) Regulated Credit Unions (Financial Services Authority) Quality Credit Unions – that can serve members with the products and services they want and need

7 Doctrines of Success Learning from the international credit union movement –Serve the financial needs of the wider population –Savings mobilisation –Product diversification –Operating efficiency –Financial discipline –Good governance and effective management –Assimilation or giving a financial service better than the mainstream David Richardson, World Council of Credit Unions, 2000

Are we good enough to make use of these powers? Is what we offer attractive enough? Will people invest and save with us? Are we able to do what we need to do? Blueprint for Development

Scaling up credit unions Enabling legislation and proportionate regulation Sound governance and strong management Sustainable business models, products and services Appropriate investment

Legislation and regulation Enabling legislation 2012 More flexible common bond (field of membership test) Organisational and corporate membership Once a member always a member Interest not just dividends on savings deposits Proportionate regulation 2012 Higher level of capital adequacy than basic solvency, of at least 3% Additional provisioning for bad debt FSA to act on credit unions who are out of compliance

Improving products and services Increased range of savings products –Increased use of payroll deduction –saving while you earn –Christmas accounts, children’s accounts –Payment of dividend but also now interest on savings (some CUs) –Cash ISA (Tax free Individual Savings Account) Multiple loan products at variable interest rates –Some credit unions now do mortgages (equity loans) Insurance, including loan and savings insurance Flexible payment options – –payroll deductions, state benefit receipt, PayPoint cards, cash collection Credit union current account –Also pre-paid debit card, budgeting accounts Financial education and access to money and debt advice Greater use of online technology

Saving in credit unions Saving when repaying a loan (encouraged always, obligated traditionally) Saving by payroll deduction with employers Saving through low value deposits - payable in cash in credit unions or in post office Satellite points in community locations Locked in savings accounts - e.g. Christmas savings Dedicated savings accounts - holiday savings accounts Estate loans - given to people with no savings that go directly into savings - people cannot withdraw savings until they pay down the loan - people effectively pay to save Additional withdrawable savings accounts - if main account locked with a loan greater than savings Childrens’ savings in schools (which encourages parents) Matched or pump-primed savings accounts

Working in partnership Employers – New legislation means employees can be added into new common bond – Payroll deduction Housing providers – Employees and tenants of housing providers can now be added into common bonds – Budgeting accounts Schools – Encouraging savings – Financial education Local Authorities – Included in economic development strategies – Local authorities joining credit unions UK and Devolved Government Churches – The Church Credit Champions Network – act/credit-unions act/credit-unions

British Credit Union Growth

Government support Credit unions seen as filling a gap in market for low and moderate income people Regarded as contributing to civil society Education of politicians by ABCUL and local credit unions Financial Inclusion Growth Fund –£100 million into the sector for serving low-income families – 405,134 loans to a total value of £175,351, credit unions contracted to meet GF targets Credit unions retained capital investment Improved working practices by operating in a more business-like way. (Bristol University, 2011)

Impact of FI Agenda From tackling poverty to promoting financial inclusion – change of emphasis Focus away from solely the provision of loans Widening access to credit union membership in low income communities Some concerns: Danger to long-term sustainability as co-operative and mutual financial institutions? Impact on image of credit unions? Concern about return of dependency?

Organisational challenges Leadership, governance and management Consistency in products and services Serving wider target market Developing information technology Developing effective partnerships

Government support for transformation Based on success of the FI Growth Fund Credit Union Expansion Project (CUEP) (£35.6 million) Project managed by Cornerstones and ABCUL – from 2013 to 2015 (extended to 2016) –About 30 credit unions in the project nationally –Voyager Alliance Credit Union

Credit Union Expansion Project objectives A new banking platform Online loan decisioning system – already in many credit unions Online membership including Identification checks Banking platform will support development of wider product range: including savings accounts and loans, current accounts, budget accounts, Channel delivery will includes internet, mobile, telephone, ATM, and Branch

Governance research project To set out the principles of a logical, consistent and integrated system of governance Bespoke to the credit union sector Clarifying the distinct nature of governance – not as a higher tier of management

The book Credit union strategic Governance Jones P A, Money N., and Swoboda R LJMU and CMS 2016

Chapters in the CUSG book A systematic approach to credit union governance The function of the board of directors The function of the CEO and management The board - management relationship Board oversight and control - Culture, values and principles Board oversight and control - Strategy and the setting of goals and objectives Board oversight and control - Risk and Compliance The role of board policy The role of the board in monitoring performance Board organisation Strengthening credit union boards –Knowledge, competence and experience of directors, –Board and director evaluation, –Board and director training and development Director recruitment, nomination and election CEO recruitment and professional development Accountability to the membership Internal audit and the supervisory committee The Senior Managers Regime and the system of governance

Governance research papers Strategic planning Internal audit and the role of the supervisory committee The role and responsibilities of a director Director recruitment and selection The role and responsibilities of the CEO Oversight of risk and compliance Accountability to the membership Board-management relations CEO recruitment, performance management and succession planning Delegations and escalations of authority The monitoring of performance on strategic objectives and effective use of management information The monitoring of performance of the CEO Board and director evaluation The functioning of sub- committees Board decision-making The development of board policy