Transcript Credit Union Research

The World of Credit Unions
Dr. Paul A Jones
Research Unit for Financial Inclusion
What is a Credit Union?
• Credit unions are democratic,
member-owned financial cooperatives
• Credit unions exist to serve their
members and communities.
• Credit unions are safe, convenient
places to access affordable financial
services.
Credit unions world wide
• 186,000,000 Members
• 54,000 Credit Unions
• 97 Countries
–
–
–
–
Canada – 1,068 credit unions – 48% penetration
USA – 8,536 credit unions – 43% penetration
Australia – 144 credit unions – 26% penetration
Dominica – 14 credit unions – 147% penetration
• Credit unions in Ecuador
Credit unions in Ghana and US
• Youth savings programme
• Community Choice Credit Union
Credit unions in Europe
Members
Penetrati
on
Penetrati
on
2006
2005
2006
2005
2006
2006
550
543,359
501,879
1.33%
1.25%
838,081,811
977,109,401
525
620
3,050,000
3,000,000
109.98%
110.61%
17,546,637,114
19,921,369,957
Poland
70
76
1,550,660
1,394,433
5.66%
5.14%
1,906,673,081
2,053,326,919
Romania
11
11
52,477
48,869
0.34%
0.31%
20,512,951
26,236,191
Russia
238
213
366,954
277,776
0.37%
0.27%
204,820,288
246,096,806
Ukraine
760
746
1,790,414
1,297,000
5.55%
4.00%
528,954,468
615,785,393
Estonia
10
2,634,095
10,447,537
Latvia
30
30
22,601
22,005
1.44%
1.39%
11,688,640
13,984,969
Lithuania
59
56
68,841
55,458
2.78%
2.24%
156,440,694
173,001,786
1
1
6,105
5,245
0.43%
0.37%
2,728,973
4,605,573
Moldova
485
504
106,400
96,299
3.39%
3.09%
7,742,729
24,834,536
TOTAL
2729
2863
7,560,504
6,704,674
3.31%
2.92%
21,226,914,844
24,066,799,068
Country
No
No
2006
2005
Great Britain
540
Ireland
Macedonia
Members
2,693
0.30%
Savings
Assets
Credit unions in Europe 2012
• Click for interactive map
European origins of credit unions
Originated in Germany in the 1840’s and evolved in three general
directions:
• European Co-operative Banks
France, Germany, Netherlands
• Small Savings Co-ops
Italy, Greece
• North American Model
Britain, Ireland, Eastern Europe
Spread throughout the world by the World Council of
Credit Unions - WOCCU
Economic Goals
• “Not for profit, not for charity, but for
service”
• Profits go to the member
• Giving people a better deal on financial
services
• Providing financial services to people
excluded by the for-profit sector
• Creating jobs in the community
Social Goals
• “People helping people”
• Giving people control over their financial
destiny
• Mutual self-help and reliance
• Building community
• Education in the wise use of money
• Instilling democratic and co-operative
values
Park Road Credit Union
• Operates in Toxteth, Liverpool 8
• Many people excluded from financial
services
• Many do not have a bank account
• A group of 25 volunteers, mostly
women, mobilised community support
• Created their own financial institution
Credit unions in Britain
• Hampshire Credit Union
• London Mutual Credit Union
• Hull and East Yorkshire Credit Union
Community Development Credit
Unions in the US
• National Federation of CDCUs
Financial Exclusion
• The inability of people to access the
financial system
• Part of the much wider concept of
social exclusion
• Disproportionately effects people on
low incomes
Social Exclusion
• “is a shorthand term for what can
happen when people or areas suffer
from a combination of linked
problems such as unemployment,
poor skills, low incomes, poor
housing, high crime environments,
bad health, poverty and family
breakdown” Kempson et al FSA 2000, p 7
What’s financial exclusion?
– No bank account
– No savings
– No assets
– No access to money advice (or financial
capability education)
– No insurance
– No access to affordable credit
• PAT 14’s 1999 report, Access to Financial Services
and HM Treasury 2004
Extent of financial exclusion in UK
• Over 1.6 million adults in the UK do not have access to a
transactional bank account, (Fin Inclusion Task Force 2010)
– Of the 2.7m originally found to be unbanked, 1.1 m have been moved into
banking
• 54% of unbanked are family households (Policis / FPF 2011) At
least 800,000 children live in households without bank
accounts (HMT 2006).
• 64% of low income households have no cash savings, rising to
74% of those in the lowest income quintile Source : Policis /
FPF 2011
• 2.4 m home credit users. Circa 1m payday users. 25% of home
credit users and 23% of payday users don’t have other credit
options. Source : Policis / FPF 2011 payday use up to near 2m
Extent of financial exclusion in UK
• 1.1 m low income individuals need to borrow and have been
unable to do so in last two years. Policis and FPF 2011
• 35% of low income households – circa 5 individuals - believe
that it would be impossible for them to borrow £200 – 500 from
a mainstream lender Source : Policis / FPF 2011
• 310,000 users of illegal money lending, 2% of low income
population rising to 6% of most deprived communities Source:
Policis / BIS 2010
• 3 million households in social housing lack contents
insurance, while they are twice as likely to be burgled as
people living in privately owned properties (Widening the
safety net; Demos, 2005)
• 60% of all calls to Citizens Advice about debt and benefits
– Around one in four of the issues brought to Scottish
bureaux relate to debt
Extent of financial inclusion
• Two-thirds (67 per cent) of low-income
credit users, some 6.7 million individuals,
pay behaviour-driven costs on their
mainstream credit use. On an annualised
basis 3.6 million, or 44 per cent of the 8.2
million low-income borrowers, incur
behaviour-driven costs. These account for
a total of £630 million per annum and an
average per head of £174 per annum.
– Friends Provident Foundation 2011
Financial Exclusion
• Originally seen as a geographical issue (Leyshon
and Thrift 1995)
– Reduction of financial retail outlets in poorer
communities
– Bank and building society closures
– Problems of physical access and car ownership
• 'the inability to access necessary financial
services in an appropriate form. Exclusion can
come about as a result of problems with access,
conditions, prices, marketing or self-exclusion in
response to negative experiences or perceptions'
(Sinclair, 2001).
FSA 2000 – Kempson
• access exclusion: restricted access via the
processes of risk assessment;
• condition exclusion: where the conditions attached
to financial products make them unsuitable for the
needs of some people;
• price exclusion: where some people can only access
financial products at prices they cannot afford;
• marketing exclusion: where some people are
effectively excluded by targeted marketing and sales;
• self-exclusion: people decide that there is no point in
applying for a financial product because they believe
that they would be refused. These beliefs can arise
from many experiences and perceptions.
The financially excluded
• the long-term unemployed;
• old-age pensioners;
• those excluded from earnings because of
sickness or disability;
• female single parents;
• certain ethnic minority groups, especially
Pakistani and Bangladeshi households;
• those reliant on state welfare benefits or
living in rented accommodation.
– Sinclair 2001
• CHANGING NOW AS RESULT OF
RECESSION
The impact of exclusion
• higher charges for basic financial transactions and credit –
lack of access to a bank account means that certain financial
transactions such as money transfer and cheque cashing may
be more expensive;
– Pre-payment meters can mean an extra £215 pa on energy bills
• no access to certain products or services – a range of
services, such as contract mobile telephones, require a bank
account for regular Direct Debits;
• lack of security in holding and storing money – operating
solely on a cash budget leaves people more vulnerable to loss
or theft;
• barriers to employment – a bank account for receipt of wages
is a basic requirement for most employers; and
• entrenching exclusion – having no formal banking or credit
history at all can be as much of a disadvantage as an impaired
credit history in accessing certain financial services.
The impact of exclusion
• To the community and society
– Linked to child poverty
– Costs of the benefit system
– Greater links to social exclusion
• HM Treasury 2004
• Lack of access to finance is often the critical
mechanism behind both persistent income
inequality and slow economic growth.
• Hence financial sector reforms that promote
broader access to financial services should be at
the heart of the development agenda. World Bank
Life on a Low Income
• "I've got to put my money away for bills before I
can relax and even think about food."
• "When you're pushing the trolley around and you
see people pushing one that's almost full and
yours isn't, I think 'I wish I could just put what I
wanted in and not have to worry', but I can't."
• "You feel degraded. You think other people know
that you are in debt. You think you have done
something wrong."
• "Little things that never mattered before are
suddenly major issues and you fight over them. I
fight with him [her husband], I shout at the kids,
he does as well and the kids cry."
• KEMPSON
The impact of recession
• Credit refusals rising for all
• Higher risk borrowers experiencing
refusals
• Home credit borrowers – finding it difficult
to access credit in the last year – double
the refusals
• Greater moves to access third sector and
higher cost credit by people on more
moderate incomes
Financial exclusion in Europe
• A more cohesive society for a
stronger Europe
• Financial Services Provision and
Prevention of Financial Exclusion
• Country reports
• European consumer debt network
• Financite
What can be done?
• Does Government have a role?
• Do banks and other financial
providers have a role?
• Does third sector finance have a
role?
The role of credit unions in Britain
• So let me take this opportunity to recognise the
value of third sector lenders – like credit unions –
who have a huge role to play expanding the
provision of affordable credit, and opening up
opportunities for people.
• Let’s be clear on this – they can’t solve
everything, but they can do much to help out.
They’re excellent at targeting people who’re
financially excluded from financial services.
• Economic Secretary to the Treasury 2005
Changing Credit Unions
• The Path to Quality Credit Unions
– Traditional model credit unions
– Business-oriented credit unions
– New Model Credit Unions
– Regulated Credit Unions
– Quality Credit Unions
Traditional model credit unions
• Social focus rather than business orientated
• Small community operations
– Entirely volunteer run and vulnerable to burn out
•
•
•
•
Personal and community development
Not built for expansion and growth
Influence on industrial sector
Impact – real but marginal
– By 1998, average membership community credit union
was around 200 members
– 40% of community credit unions in England and Wales
were financially weak
1999 – Business-oriented credit unions
•
•
•
•
Towards sustainable credit union development
Move to become more business focused
Business plans, leadership and promotion
Employing staff, high street premises,
computerisation
• Serving a more diverse membership
• Support of Government and local authorities
• Signs of growth within individual credit unions
2001 New Model Credit Unions
•
•
•
•
•
Learning from the International Movement
Business and market orientation
Radical financial and organisational restructuring
Financial discipline – introduction of PEARLS
Commercialisation and mainstreaming
– to be successful, credit unions must attract a varied
membership base
• Fundamental to developing capacity to serve low
income communities
• Rationalisation of the movement
– Significant growth within individual credit unions
Facing into the paradox
• New model, poverty alleviation and
financial exclusion
• If credit unions are to achieve the social
goal of combating poverty and financial
exclusion, they have to first attain
economic viability and commercial
success
2002: Regulated credit unions
• The impact of FSA regulation
• Introduction of Approved Persons Regime
• Established operational standards and financial
discipline
• Development of a culture of compliance
• Impact on service delivery
– Financial Services Compensation Scheme
• 59% of directors think Approved Persons Regime
is a good thing. More likely to say this in larger
CU:
– 76% directors in 5,000 plus member CU
– 50% directors in 200 or less member CU
2005: Quality Credit Unions
• New Model in the British context
– learning from the West Midlands
• Modern and professional, accessible and visible
• Commitment to good governance
• BBCU – credit unions not meeting WOCCU standards
• Customer focused
• researches, understands and meets member wants
• understands dynamics of the low income market
• Accessible savings, affordable credit, transaction services,
insurance, money advice, money management support
• Access to Credit on a Low Income (Co-operative Bank 2001)
2005: Quality Credit Unions
• Emphasising savings mobilisation
• Child Trust Fund and ISAs
• Flexible and responsible approaches to
lending
• BBCU – includes greater use of credit scoring
• Development of transaction services
• ABCUL and The Co-operative Bank new project
• Benefit direct accounts
• Insurance services
• Money advice and financial education
Effective promotion and delivery
• Through partnerships and networks
– Working strategically with other organisations
– Reaching out to the community through others
– Councils and local authority departments, Sure
Start, Primary care trusts, housing
associations, employment agencies, schools,
refugee councils, CAB offices, community and
charitable organisations, victim support
groups, churches and faith groups
• Promoting mutual benefits
Financial Inclusion - HM Treasury
• Promoting Financial Inclusion 2004
– Free face to face money Advice
– Access to Banking
– Access to affordable Credit
• Financial Inclusion: the way forward 2007
– Save savings
– Insurance
– Helping people with financial distress – including
how banks can help
Financial Inclusion the way forward
Ensuring that everyone has access to appropriate
financial services, enabling them to –
• Manage their money on a day-to-day basis,
effectively, securely and confidently
• Plan for the future and cope with financial
pressure, by managing their finances to protect
against short-term variations in income and
expenditure and to take advantage of longer-term
opportunities
• Deal effectively with financial distress, should
unexpected events lead to serious financial
difficulty
Capital Credit Union Ltd
• Capital Credit Union Ltd
• Capital’s CE0 talks about combating
extortionate lending
DWP Growth Fund
• DWP - THE GROWTH FUND
• 405,134 loans to a total value of £175,351,444.
(May 2011)
• Circa 100 credit unions delivered GF
– 86% of loans and 86% of the money
• 76% of credit unions delivering Growth Fund say
it had assisted growth (2008)
• Eight in ten Growth Fund lenders reported that
their organisation had improved its working
practices as a result of the Growth Fund and now
operated in a more business-like way. (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?
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
Governance and Management
Sound governance
• Corporate Governance Code
• Recruitment drive for new board members
• Corporate volunteering initiatives.
Strong management
• 83% of LWCUs now employ paid staff (2008)
• Operational training available face to face and online
• Leadership development opportunities
• Secondment programmes.
• Formal mentoring systems
Products and services
• Affordable credit, but also
–
–
–
–
–
–
–
Safe Savings, building personal assets
Insurance
Mortgages
Cash ISA, Children’s Accounts,
Christmas Accounts, etc
Financial Education
Flexible payment options –
– benefit deduction, payroll deductions, cash collection
Credit Union Current Account
•
•
•
•
•
25 credit unions, over 30,000 accounts
VISA Debit card + LINK ATM network
Payment of salary/benefits
Direct Debits and Standing Orders
Not reliant on high penalty charges to cover
costs
• Uses back office facilities of Co-operative
Bank, but accounts are controlled and run by
each credit union.
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
• 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
• 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
• Low income to average assets
– 50% negative net income
• High operating expenses
– 9 exceed 10% expense to average asset ratio
– Endemic to serving segments of low income market
• Bad debt
– GF credit unions 9%; non-GF 11.7%
•
•
•
•
Dependency on external subsidy
Loan to asset ratio – 57% GF and 56% others
Need to maximise savings
Need to price realistically
Organisational challenges
•
•
•
•
•
Leadership, governance and management
Consistency in products and services
Serving wider target market
Developing information technology
Developing effective partnerships
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
Collaboration
• 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 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
•
•
•
•
The electronic hub – or the back office
Collaboration on back office functions
Facilitate new products and services
Enable link with the Post Office and other
partners
Government support
• Coalition Government – success of the
Financial Inclusion Growth Fund
• Credit Union Expansion Project (£35.6
million)
• Looking for step change in governance and
organisational capacity
• Project to be managed by Cornerstones
and ABCUL – from 2013 to 2015
Nos. of CU’s vs. Nos. Of Members
800,000
800
780,251
687
700,000
666
698
686
700
665
659,281
630
596
Number of Members
530
500,000
400,000
594
569
550
600
554
532
520
475
454
500
436
Number of credit unions
Credit union membership
400
300,000
300
200,000
200
138,582
100,000
100
0
-
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009*2010*
57
YEAR
(*2009-2010 figures based on incomplete set of unaudited CQ returns)
Number of registered credit unions
600,000
Credit Union Growth
1982 - 2012
1,000,000
700
900,000
600
800,000
500
700,000
600,000
400
500,000
Members
300
400,000
Shares (£000's)
Loans (£000's)
300,000
200
Number of credit unions
200,000
100
100,000
0
1982
1987
1992
1997
2002
2007
2012*
Members
14,179
27,162
88,007
224,674
406,564
604,945
883,670
Shares (£000's)
1,959
6,079
28,505
107,394
272,491
456,326
795,720
Loans (£000's)
1,794
5,754
26,877
98,811
246,138
403,671
605,053
Assets (£000's)
2,223
7,025
32,489
123,979
318,877
548,453
960,993
81
108
383
596
686
504
389
Number of credit unions
Assets (£000's)
0
Finale
This is our credit union