Transcript Opportunities and challenges for the credit union movement Matt Bland Policy & Communications Officer ABCUL Future of Financial Inclusion and Money Advice Conference 20 July 2011

Opportunities and
challenges for the credit
union movement
Matt Bland
Policy & Communications Officer
ABCUL
Future of Financial Inclusion and
Money Advice Conference
20 July 2011
Agenda
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Credit unions today
Challenges
Opportunities
The credit union sector of the future
Questions & answers
Credit unions today
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
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ISAs
Child Trust Fund
Credit Union Current Account
Some mortgages
Scale & scope
• Size – September 2010
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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
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
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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
Challenges
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
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EU initiatives – constant battle
Financial Services Compensation Scheme costs
Changes to accounting framework – IFRS
Potential move of consumer credit regulation to FSA
successor
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
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 nonprofit doorstep lending, for instance
• Imperative to streamline lending processes to
improve margins – effective and efficient
• Important to have wide range of members – crosssubsidy
Opportunities
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
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
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?
Other opportunities
• Social fund devolved to local authorities?
• Big Society agenda?
• Government’s promotion of financial mutuals?
The credit union sector of the
future?
Critical time facing credit
unions
• Time of great challenges and opportunities
• Pressure from all sides to modernise and develop
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Self-sustainability
Efficiency
Scale
Service
• But great opportunities to achieve these goals
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Legislation
Modernisation fund
Development of central services and link-up with Post Office
Merger and collaboration
Credit union sector in the
future?
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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
Any questions?
Contact details
Matt Bland – Policy & Communications Officer
[email protected] / 0161 819 6933