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Is the British credit union model broken? Is a collaborative system the answer ?. Mainstreaming Co-operation: An Alternative for the 21st Century? 3 rd July 2012, Manchester Paul A JONES, Reader in the Social Economy Research Unit for Financial Inclusion. Community finance for London.

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Is the british credit union model broken is a collaborative system the answer

Is the British credit union model broken? Is a collaborative system the answer?

Mainstreaming Co-operation: An Alternative for the 21st Century?

3rd July 2012, Manchester


Reader in the Social Economy Research Unit for Financial Inclusion

Community finance for london
Community finance for London

  • A RUFI research study 2010-11

  • Supported by DWP (Government) and funded by Santander

  • Prompted by ending of Financial Inclusion Growth Fund

  • To provide a platform for the development of credit solutions and community finance.

  • Focus on scaling-up the credit union sector

  • Launched in House of Commons in July 2011

Approach and method
Approach and method

  • Collaborative and action-oriented inquiry

  • Leading credit unions in the capital; the DWP, local government and social housing sector

  • Demand side research

    • Quantitative consumer research data

    • Analysis and geo-spatial mapping of the Government index of multiple deprivation

  • Supply side research

    • Interviews with 15 credit unions, partners and stakeholders, research workshops, financial analysis of annual returns

Demand for financial services
Demand for financial services

  • Much of inner London is in the top decile of the index of multiple deprivation

  • Almost 25% of housing stock is social housing, rising to half in some boroughs in East London.

  • Average household income for Londoners on low incomes, is £11 ,240 p.a. lower than the national average of £12,175.

  • Ethnic minorities represent 57% of the low-income population.

  • 57% of low-income Londoners are credit users.

  • 61% of Londoners have no savings

  • Three quarters (74%) of Londoners on low incomes would find it difficult or impossible to raise £200 – £300 in an emergency without borrowing

  • Many low income Londoners not able to access credit – 39% no credit in last 5 years, rising to 45% in BME households

Credit unions in london
Credit unions in London

  • 35 credit unions in Greater London

  • Serving 27 of London’s 33 boroughs

  • Strong social and community focus

  • Growing faster than in Britain generally

  • 2005 – 2009

    • Assets up 92% (national increase, 44%)

    • Loans up 70% (national increase, 36%)

    • Savings up 79% (national increase, 39%)

Modest penetration
Modest penetration

  • In 2009, 60,000 credit union members in London

  • 1% of Greater London population

  • Growing at 18% per annum

  • Demand-side research revealed 0.75m individuals, (30% of low-income Londoners and 42% of social tenants), lacked access to credit

Financial inclusion growth fund
Financial Inclusion Growth Fund

  • September 2006 and to March 2011, 11 credit union contractors in London have:

    • Granted over 44,000 loans to low-income borrowers, 78% of whom are women and over 80% social housing tenants

    • Made loans to total value of over £19 million

    • Opened over 25,000 current or savings accounts for Growth Fund borrowers

    • Maintained less than 10% DWP target delinquency rate16 on loans in 87% of the participating credit unions

  • GF credit unions grown most significantly

    • 80% increase in savings since 2005 – 2009 (non GF 43%)

Financial challenges
Financial challenges

  • Low income to average assets (10 GF cus)

    • 50% negative net income

  • High operating expenses

    • 9 exceed 10% expense to average asset ratio (four in excess of 15%)

    • Endemic to serving segments of low income market

  • Bad debt

    • GF credit unions 9%; non-GF 11.7%

  • Loan to asset ratio – 57% GF and 56% others

  • Need to maximise savings – but linked to maximising loans

  • Need to price realistically

  • Dependency on external subsidy

Organisational challenges
Organisational challenges

  • Leadership, governance and management

  • Consistency in products and services

  • Serving wider target market

  • Developing information technology

  • Developing effective partnerships

Rationalisation and strain
Rationalisation and strain

  • Focus on business efficiencies

  • Expansion and merger

    • Current approach to increasing efficiency and driving down costs

  • Current credit union model under strain

    • Organisational and financial strain

    • Impact of new legislation and regulation


  • Current model – atomistic and competitive

  • Need for radical new approach

  • WOCCU – greater collaboration, greater market share

  • Fischer (2002, 2005)

  • Need for cohesive, networked and integrated system

    • To drive scale, efficiency and performance

A cultural shift
A cultural shift

  • A focus on commonality rather than uniqueness and a radical increase in operational excellence (Grace 2010)

  • Focus on shared back and front office services

  • Dependent on trust and commitment

Harnessing technology
Harnessing technology

  • The electronic hub – or the back office

  • Promoted by ABCUL

  • Collaboration on back office functions

  • Facilitate new products and services

  • Enable link with the Post Office and other partners

Government support
Government support

  • Coalition Government – success of the Growth Fund

  • Modernisation and Expansion Fund (£73 million announced )

  • Looking for step change in organisational capacity

  • Dependent on Experian feasibility study

Dwp credit union expansion project experian feasibility study report
DWP Credit Union Expansion ProjectExperian feasibility study report

  • credit unions only option to serve low-income communities

  • potential consumer market of at least 7 million working age adults

  • movement has expanded

    • but costs are high,

    • some of their processes and their systems are not currently fit for your purpose,

    • and a major programme of cultural and behavioural change required to achieve modernisation and expansion

  • 80% of the 95 credit unions consulted said they recognised the need for fundamental change

Dwp credit union expansion project
DWP Credit Union Expansion Project

  • £38 million committed yesterday

  • credit unions that have demonstrated progress, to participate in a programme of behavioural, process and systems change.

  • Aim to double membership in 7 years

  • Issue not one of demand but capacity

  • Focus on sustainability, efficiency and costs

  • Increase of interest rate cap to 3% pcm

The future is collaborative
The future is collaborative

  • Current business model broken

  • Collaboration – a radical change

  • Not easy - a major opportunity

    • Linked to new legislation and regulation

  • Climate is right – increasing interest in the co-operative and mutual sector

    • Government, local government, social housing providers and general public