Credit unions must change to be sustainable

“The operating model for credit unions needs to be reformed,” according to the chief of Britain’s largest credit union association. Financial co-operatives need to be sustainable without external...

“The operating model for credit unions needs to be reformed,” according to the chief of Britain’s largest credit union association.

Financial co-operatives need to be sustainable without external funding/grants if they are to serve a broad range of people, said Mark Lyonette, chief executive of trade body Abcul at a financial inclusion conference in London.

He said: “Credit unions need to find a way of operating which enables them to cost effectively provide a range of convenient and attractively priced products which appeal to a wide range of people.

“Ironically for credit unions keen to tackle exclusion this will mean providing services to people who have plenty of other choices, so that they can serve more people who rely on them for affordable services. Let’s be really clear this doesn’t mean not serving financially excluded people. This would be anathema for most. It means making sure we have a balance.

“If banks don’t want to offer these sorts of services, they may still have a valuable role to play – we are not asking for funding, but there are ways in which their resources, skills base and knowledge can help the third sector lenders move to a new way of working, then that will be a valuable contribution.”

On Tuesday, Mr Lyonette, who was joined by the Archbishop of Canterbury at the event, spoke about the importance of savings for consumers and the cost of providing those services from the unions.

He said: “If we are to help people not only become financially included, but also have more financial resilience and confidence in managing their money, then we need to make it easy and more convenient for people to save as well. I don’t mean long term savings for pensions or even savings chasing any kind of a return. I mean helping people spend less than they earn and putting a small amount aside from each pay and/or benefit cycle.

“Even a small amount of short term savings can make an enormous difference to our ability to manage both expected and unexpected expenses. If an essential item fails and a family has no savings to fall back on, they may see no other option than to take out expensive credit to fund that purchase. Savings may mean that the item could be repaired, or shopping around could find a much cheaper alternative than those offered through ‘rent to buy’ shops.”

On the sustainability of services from providers, Mr Lyonette added: “There will be new pressure on banks to provide accounts for everyone. However for a variety of reasons banks are narrowing the mainstream market all the time. The income level required to qualify for a mainstream bank account has increased significantly quicker than inflation since 2005.

“And we know banks are not going to provide smaller, shorter term personal loans. They don’t bring in sufficient income to make it worthwhile for them. So if banks do not have an appetite to provide these services, then perhaps we can expect them to help a credit union sector which does.”

He went on to praise the commitment by the UK banking sector in supporting credit unions. Last year, Lloyds committed to donating £4m in cash to the sector, while Citi and Barclays are looking to provide further support, he said.

Mr Lyonette closed by saying that providing services for all is a challenge for unions: “Indeed the gap between the costs of providing services and the income they attract can also be too wide for many credit unions. And this is the challenge which leads to my one action. We don’t operate in an environment where credit unions, and CDFIs for that matter, can or should rely on subsidies to cover the costs of their operations.”


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