Serving members and surviving the storm: Credit unions on the recession frontline

A conference organised by the Swoboda Research Centre looked at effective ways to serve members through the cost of living crisis while maintaining resilience

UK credit unions are on the frontline of the cost of living crisis and the looming recession, and last week the sector met to discuss ways  to support people struggling on the margins of the economy.

The Swoboda Credit Union Conference, held in Manchester on 11 November, saw delegates face up to this stark economic outlook – and look for opportunities for the sector to lead the way through the crisis.

They will have to do this while coming under pressure themselves. Dr Paul Jones, director of research at Swoboda Research Centre, warned that “the landscape is changing for many of our credit unions”, with savings being withdrawn, loan applications on the rise and increased distribution of foodbank and fuel vouchers.

Andy Burnham, metro mayor of Greater Manchester, repeated this warning in his opening address. He said the situation is “extraordinarily difficult and likely to get worse – but crisis brings opportunity and a chance for credit unions to come to the fore.”

Andy Burnham

Credit unions are doing great work in their communities and are needed now more than ever, he added. In Greater Manchester, many residents are experiencing “huge insecurity” when it comes to essentials like food, but credit unions are responding with initiatives like Sound Pound consortium and the launch next month of the government-backed no-interest loan scheme. 

“We need to rethink things and collaborate in a different way,” said Burnham, who suggested an increase in payroll giving, or having a credit union presence at the 306 warm banks being opened across the region to help people survive the winter. 

He said successful ideas could be rolled out to other regions, and repeated his call for more devolution to allow regions to work with sectors such as credit unions to find solutions. 

“Bottom-up change is better than change dictated by government,” he said, calling on ministers to decentralise power and “let a city like this control its destiny”.

Niall Alexander, from financial inclusion body Fair4All Finance, said personal debt would soon become an “unmanageable” problem with many people already running up credit card bills to pay for essentials. Soaring living costs will hit disadvantaged people – including social tenants, minorities and single mothers – hardest.

He said he was not sure credit unions can fill the gap left by the fall in payday lending, and warned the sector would come under pressure with a rise in defaults, increased loan referrals from the DWP.

And in the communities credit unions serve, there will be a “huge rise” in people borrowing from friends and family – and also from illegal doorstep lenders. 

Related: Credit union survey shows severity of this winter’s cost of living crisis

This situation will put credit union staff under strain, and they will need support, said Erik Porter, CEO of Cheddr – a social enterprise which helps organisations deliver financial wellbeing for their customers.

He said many credit unions offer valuable supports around financial education, workplace savings and mental health support which should be mentioned in recruitment ads “because you are hiring people into a really difficult job”.

Employees with poor financial wellbeing can hamper a business, he added, putting them under stress which increases levels of sick leave and staff turnover, and lowers productivity and work quality.

It is often impossible for credit unions to match higher salaries in the finance industry, so what else can they do? “Solutions don’t have to cost a ton of money,” said Porter: there are other ways to offer support – offering remote working, mental health first aiders, low or no interest loans, money coaching and cycle-to- work schemes. 

Related: Woccu 2021 statistical report reveals credit union priorities

The conference also featured a panel on “the credit union experience”.

Tony Denny from Enterprise CU, Merseyside, said the credit union mission is to provide ethical financial support for members all through their lives. “If we can’t do it now, of all times, then we aren’t meeting our mission,” he warned. 

The right measures have to be in place, he added: that means a strong organisation, with well-supported, properly paid staff; credible succession plans for all key roles, and a simple range of products.

And staff need to be empowered with the tools to make the right decisions for members, enabling them to offer payment breaks, interest reductions, product flipping. 

Crucially, credit unions need to protect their own financial stability. “Who gives top-up loans?” asked Denny. “Do you actually think you are going to get that money back?”

Related: Leeds Credit Union partners with east London council on cost-of-living support

He warned against creating “a vicious cycle” of unsustainable debt for members; instead there must be ways to help members “meet their debts in a sustainable way so they can go on to support themselves and their families”.

But credit unions “don’t need to be scared of poor credit”, said Kathryn Fogg from Pennine Community CU. “We can work on it. If we don’t lend to people they will go elsewhere and we will undo the good work we’ve done over 40 years. We need to find a way to lend to people who are going through difficult times.”

Mechanisms include payroll deductions, or family loans where repayments to the credit union come directly from child benefit. “It’s a fantastic product,” said Fogg, who stressed the value of the financial education that comes with the loans.

Pennine has also looked at how the cost of living crisis is affecting its staff. It increased junior wages, paid a bonus at end of year, and offered low-interest loans; it has also increased its community donations.

This work is paying off, she said. “Last year, compared to high-interest lenders, we saved our communities £20m in interest”. This money is then spent and circulated in local economies.

Samantha Homer from Capital CU, Edinburgh, said her credit union has changed its policies to help members whose financial choices have narrowed. A requirement that members save £15 a month was locking some people out; this has been waived and 4% of members have taken advantage of the change. 

Capital has introduced a £50 loans to offer immediate low-level support, and a new financial education service which encourages members to come in earlier, so they can be given support before they default. Staff are being trained in early intervention and taught how to spot if a member is struggling. 

Local partnerships also help, with a credit union presence at local agencies and a link-up with Hibernian FC, where Capital is the preferred financial partner for season ticket saving or loan schemes. And it works with the club’s community foundation to give financial education to young people.

Offering a perspective from the Republic of Ireland, David McAuley from Donore CU in County Meath said credit unions have to be sustainable. 

After Donore nearly went out of business between 2012-14, it took steps to ensure its sustainability, he said. This meant a shift in emphasis from 12% top-up loans – which had become “the never-never” – to bigger loans which generate more income. Donore’s biggest loans have grown from €2,000 to €5,000. “That income means we are better equipped to face that crisis …  We know defaults are going to go up but we can face it.”

Credit unions in Ireland have some advantages over the UK, added McAuley. “We’re still part of the EU and still part of a network of countries that support each other”. And Ireland has “a more generous social network”, with disability and unemployment and child benefits rising. “We’ve still got a situation where people struggle but it’s better than the UK.”

The afternoon session, which focused on resilience, was led by Miranda Flury, president of Hawkeye Strategies, a Canadian consultancy which specialised in co-op governance.

“Resilience is not about surviving,” she said, “it’s about thriving – withstanding adversity in a way that does not diminish you.”

This means “building capacity to withstand a wide range of problems and respond opportunistically to events … it gives you the chance to take advantage of opportunities when competitors are least prepared”.

In credit union boardrooms, she added, “people are realising that the status quo is the least likely outcome. The status quo doesn’t exist … When you realise that your boardroom mindset changes.”

Resilience means keeping a credit union well capitalised and increasing the flexibility of your financial resources. Credit unions must decide what level of expenditure or borrowing maximises their chances, and how best to increase their strategic options? For instance, does bricks-and-mortar expansion, or digital, best serve growth in the target market – and what future costs do they bring? 

Internal resilience is also vital – in terms of a business model that can adapt to changing member expectations change, new regulations and challenger start-ups.

And organisations should build people resilience – for instance by treating “failure as learning opportunities”, through succession planning, or through diversity and inclusion. On this point, said Flury, “it’s not enough to have diverse people sitting round the table, they should also have the ability to speak up and be heard. The literature shows that if it’s there, you will make better decisions.”

Resilience also requires a credit union to maintain brand trust – by keeping employees engaged, by responding properly when errors are made, and by “consistently following through with what you say you are going to do”.

Crucially, resilience must be monitored, she said. Credit unions should continually ask where their financial resilience lies – if it is concentrated in a few members or well spread across the membership; if new business lines are profitable; and whether or not budget assumptions have proved accurate.

Other factors to monitor include talent acquisition processes, the level of dependence on third parties, cyber breaches, how quickly teams and leaders can adapt to change, the effectiveness of disaster recovery and business continuity plans, and whether or not legacy systems are in critical failure.

It’s also vital for credit unions to know their communities, said Flury. “Do you know their vulnerabilities, have you gone into your communities to assess them?”

These questions all feed into a resilience which means “your credit union is around for years to come and can serve members in times of need,” she told delegates.