Future of Financial Inclusion and Money Advice Conference 20 July 2011

1. Opportunities and challenges for the credit union movementMatt BlandPolicy & Communications OfficerABCUL Future of Financial Inclusion and Money Advice Conference 20 July 2011

2. Agenda • Credit unions today • Challenges • Opportunities • The credit union sector of the future • Questions & answers

3. Credit unions today

4. What is a credit union? • Financial co-operative, owned and controlled by members • One-member, one-vote • Core business – savings and loans • Increasingly more sophisticated product offering • ISAs • Child Trust Fund • Credit Union Current Account • Some mortgages

5. Scale & scope • Size – September 2010 • 436 credit unions • 0.9m members and junior savers • Total assets - £750m • Shares (deposits) - £635m • Lending - £500m • Growth • 1998 – 2008, membership tripled and assets quadrupled • Year to September 2010 – 10% annualised growth • Spread • Around 90% population eligible to join • 2% Britain, 5% Scotland and 20% Glasgow

6. Role in Financial Inclusion • Many credit unions established to tackle localised financial exclusion • Identified by Labour Government in 1999 for role in financial inclusion • Main provider of Growth Fund extending affordable credit • Safe savings – Farepak collapse • Work in partnership with key agencies • Social Housing – 70% of excluded SH tenants • Local councils – 10 fold return on investment in Leeds • Prisons – access catalyst for rehabilitation, LJMU • Advice Services – Connect Project • Schools – financial education, learning by doing • Employers – payroll deduction

7. Challenges

8. Regulation • FSA’s credit union sourcebook reviewed to coincide with new legislation • New tougher standards welcome – strengthen sector • Challenge of transition • FSA to be scrapped – two new regulators brought in • General increase in the burden of regulation • EU initiatives – constant battle • Financial Services Compensation Scheme costs • Changes to accounting framework – IFRS • Potential move of consumer credit regulation to FSA successor

9. Effect of Austerity • Credit unions, like everyone, facing tough trading conditions • Funding more scarce • New modernisation fund – likely to be the last made available from Government • Council budgets under pressure, but social fund devolution • Economy generally depressed – potential for: • Higher arrears • Difficulties in lending

10. Financial inclusion vs.self-sustainability • Credit union interest restricted to 2% per month on reducing balance or 26.8% APR • DWP Growth Fund Evaluation finds lending costs outstrip revenues at this interest rate for small loans – but strong performance reducing costs • Other research identifies same issue – JRF non-profit doorstep lending, for instance • Imperative to streamline lending processes to improve margins – effective and efficient • Important to have wide range of members – cross-subsidy

11. Opportunities

12. Legislative Reform • New Legislation awaited since review in 2006 • Current legislation described as amongst the most restrictive in the world • Key reforms to Credit Unions Act include • New flexibility in ‘common bond’ – mix-and-match • Ability to accept organisations, businesses and community groups as members • Ability to pay interest as well as dividend on savings • Will herald a new phase of credit union development

13. DWP Modernisation Fund • £73 million earmarked for credit union modernisation • Subject to successful feasibility studies, could see development of central, common banking platform • Economies of scale – streamlined, efficient processes and modernised services • Potential delivery of services through the Post Office network • Recently launched research from Liverpool John Moores University and Policis recommends greater collaboration between credit unions

14. Merger and rationalisation? • Changes to legislation and regulation at turn of century saw spike in mergers • Caused by combination of looser legislation and tougher regulation – similar situation now • North Wales Credit Union recently created from merger of 5 credit unions – taste of things to come?

15. Other opportunities • Social fund devolved to local authorities? • Big Society agenda? • Government’s promotion of financial mutuals?

16. The credit union sector of the future?

17. Critical time facing credit unions • Time of great challenges and opportunities • Pressure from all sides to modernise and develop • Self-sustainability • Efficiency • Scale • Service • But great opportunities to achieve these goals • Legislation • Modernisation fund • Development of central services and link-up with Post Office • Merger and collaboration

18. Credit union sector in the future? • Fewer, larger credit unions • Several million members • A shared, central banking platform • Sophisticated, consistent product offering: • Telephone banking • Internet banking • Current accounts as standard • Greatly reduced cost base • Link-up with Post Office in place • Key alternative to the banking sector

19. Any questions?

20. Contact details Matt Bland – Policy & Communications Officer matt.bland@abcul.org / 0161 819 6933