About 400 credit unions currently operate in the UK, and their influence is growing

Britain’s youngest credit union, in the industrial Cumbrian town of Barrow in Furness, has just been celebrating its 100th membership application. Barrow and District Credit Union, the fruit of much hard work and planning over many months by a committed group of volunteers, received its authorisation from the Financial Services Authority just before Christmas.

It begged and borrowed the necessary furniture, and opened its doors of its office just off Barrow’s main shopping street in February. Since then, little by little, the money has been coming from its members. Their savings and surplus cash will form the capital pool which, in due course, the credit union will be able to lend back to those of its members in need of affordable loans.

At a time when the payday lenders have been under media scrutiny for their astonishingly high interest rates (the Guardian recently reported the case of one lender charging more than 16,000,000% APR), the credit union way of providing financial services seems almost too good to be true. Loans are currently set at a maximum rate of interest of 2% per month (26.8% APR), for example. But despite more than 20 years of trying, Britain’s credit union movement is still struggling to get attention. Compared with Australia, say, where a quarter of the population are credit union members, or the US where credit unions claim 95 million members, the British movement still has a long way to go.

Barrow certainly seems ready for its credit union. “There’s a lot of payday lenders and cash-your-cheque-here places. There are some illegal loan sharks operating as well,” says Rob Cairns, the credit union’s chairman. Having taken retirement in 2011 from his job as chief executive of the resolutely local Furness Building Society, he has since found himself back in the world of financial services, this time in a lay capacity. The plan to set up a credit union in the town goes back four years, he says, and has been actively progressed by a local steering group for two years. Until last month when the doors were opened, Barrow was the most economically deprived town in Britain without its own credit union, he adds.

His credit union is now taking it a step at a time. Its recently appointed general manager is currently being funded by a charitable foundation, but the business plan suggests full self-sufficiency within three years. The next step will be to begin lending. After that Cairns hopes the credit union will be able to encourage regular savings by partnering with local employers. “That’s on the action list – we need to get payroll schemes established,” he says. He is also keen to ensure the credit union appeals to all in the local community, not only those on low incomes. “We need people who have some spare cash, to provide the funding for those that don’t.”

Credit unions – effectively financial cooperatives, controlled by their members – are now regulated by the FSA, which means members’ savings are protected up to £85,000, in exactly the same way as they would be in banks or building societies.

Barrow’s planned route forward to long-term sustainability is one being followed more generally by Britain’s credit union movement. The main federation the Association of British Credit Unions Ltd (ABCUL) met for its annual conference earlier this month aware that the days when revenue funding support (often from sympathetic local councils) could be obtained are passing.

ABCUL’s chief executive Mark Lyonette sees benefits in sloughing off the old dependency culture. “It is actually a weakness if you come to rely on financial support,” he says. Instead, he points to three major new opportunities opened up for credit unions by legislative changes last year.

One reform is that credit unions are now able to offer interest on members’ savings, rather than simply offering subsequent dividends. “This puts us on a par with building societies and will make a big difference,” he says. A second change sees the membership ‘common bond’ broadened, making it easier for credit unions to attract members nationally. Membership is for the first time also opened to organisations, and ABCUL hopes that housing associations and community organisations among others will be tempted to put some of their reserves with their local credit union. “This will have a knock-on effect on credit union credibility,” Lyonette says.

The past decade has seen Britain’s credit unions consolidate and merge, so that from a peak of about 700 individual credit unions there are now roughly 400 operating. The two largest, Glasgow Credit Union and the police officers’ No 1 Copper Pot (Number One Police Credit Union), both have assets over £100m and offer sophisticated financial services for their members. Thirty or so offer basic current account banking and many more provide pre-paid Visa cards for members to withdraw their money through ATMs.

Lyonette sees scope for both the large professionally managed credit unions and the small-scale volunteer-only organisations, such as are sometimes linked to churches. But he also points out that relying on unpaid workers does run the risk that a credit union can simply run out of volunteers. In general, he is keen to see credit unions collaborating more with each other, including developing shared back-office processing and administration.

One possibility is that the Post Office network may be available as a point of contact for credit unions. “I think that’s likely to happen within two or three years,” Lyonette says. More generally, the government is offering up to £38m to support the infrastructure development of the movement through the credit union expansion project. Credit unions may have a key role to play later this year when benefits are reformed and universal credit introduced, not least in helping members budget to be able to pay their housing costs.

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