Examination of Witnesses (Questions 228-239)
MR MARK
LYONETTE, MS
SUSAN DAVENPORT
AND MR
LAKSHMAN CHANDRASEKERA
28 FEBRUARY 2006
Q228 Chairman: Good morning. Can I open
this session on the financial inclusion inquiry and welcome you,
and for the shorthand writers, could you introduce yourself.
Ms Davenport: I am Sue Davenport.
I am the Chief Executive Officer at Leeds City Credit Union.
Mr Lyonette: Mark Lyonette, Chief
Executive of ABCUL.
Mr Chandrasekera: Lakshman Chandrasekera,
Chief Executive of Southwark Credit Union.
Q229 Chairman: Could you speak up, please,
because this room has bad acoustics. First, could you give us
some background on your organisation?
Ms Davenport: Leeds City Credit
Union is the largest live or work credit union in Britain. We
have 13,000 adult members, 2,000 young savers, including almost
200 Child Trust Funds. We were the first credit union in Britain
to be granted permission by HM Revenue and Customs to provide
CTFs. We are based in the city centre in Leeds and we are currently
expanding rapidly with branches in our communities through a partnership
with our local authority, utilising their former cash offices.
We employ 32 staff at the moment, and we have five branches out
in the community. We have merged with six small community and
church based credit unions, so we have a very wide and varied
membership.
Mr Lyonette: ABCUL is the credit
union trade association. We represent 70% of all the 550 credit
unions in the country, but that is 85% of the members and the
assets within those credit unions. We are ourselves a co-operative.
We are owned by our members and obviously have a democratically
elected board.
Mr Chandrasekera: Southwark Credit
Union, which was established in 1982, is the largest live or work
credit union in London. We have about 6,000 members, 1,000 of
whom are juniors. We have also got branch offices. We are working
in Southwark, one of the deprived boroughs in London.
Q230 Chairman: The concept of credit
unions is an excellent concept, but to what extent is there recognition
amongst credit unions that they need to become more professional
and market-orientated if they are to make significant contributions
to financial inclusion?
Mr Lyonette: I think that is very
much the case. As you know, credit unions themselves have undergone
major changes in the last six years. They have been going for
about 26 years in Britain but for the first 20 years many of the
approaches, many of the ways of developing credit unions, were
actually well meaning but very misguided and it is only really
since the turn of the century that credit unions, particularly
community credit unions, live or work credit unions, have actually
developed in a way which has seen thousands of members joining
them rather than historically what would have been a couple of
hundred people. So there has been a whole process of change within
them for five or six years now.
Q231 Chairman: I believe George Mudie,
a Committee member who unfortunately cannot be here this morning,
was instrumental in establishing your credit union, Sue.
Ms Davenport: That is correct.
Mr Mudie was the leader of Leeds City Council at the time my credit
union was established and he set up the original committee to
form it. We were originally a council employees' credit union
and we have changed several times over our history. We have been
around for 18 years, and actually he still is a member of the
credit union. In fact, he is opening our newest branch on Friday
in Seacroft.
Q232 Chairman: Do you need to become
more professional and market-orientated?
Mr Chandrasekera: Yes. I believe
we are also taking part in the PEARLS programme, in which we learn
a lot of new things happening in other credit union systems in
the world, which is an eye-opener for us, and now we are talking
to the other credit unions, asking them to change the way that
they work and the practices that they have.
Q233 Angela Eagle: What do you think
the mutual model can bring to the table in terms of the provision
of financial services that existing corporate structures do not?
Could you give us an indication of where you see a niche market
for yourself and what it is that you actually bring to the table
in terms of financial exclusion with some of the lowest paid people
in the country?
Mr Lyonette: Focusing on the mutuality
aspect first, perhaps historically a number of credit unions in
Britain have made the mistake of thinking that being mutual would
be in itself sufficient in order to be attractive and to grow
and clearly that is not the case. Only a very limited number of
people will use a credit union solely because it is a mutual financial
institution. You need to have the products and services in the
way that people want those products and services, and that has
been quite a hard lesson for many credit unions to learn. However,
as some of you will be aware, the credit unions across the world
are a much bigger part of the financial services landscape than
in Britain. In the States, for example, there are 85 million people
in credit unions, about 24% of the adult population, and they
consistently will score higher marks on customer service and customer
satisfaction than the banking sector in the States and they typically
would have lower fees and lower charges. It is a very different
banking sector in the States; people tend to pay for all their
transactions as they use them, but nevertheless, credit unions
would come out very well there, and part of that I think is about
the fact that we have members and we do not have customers, and
the fundamental focus of credit unions is about meeting the members'
needs, not simply driving up the highest levels of profit that
can be achieved in the sector.
Q234 Angela Eagle: We have traditionally
quite a small credit union sector which is just beginning to grow.
Can you say whether you think it is suited to helping ease financial
exclusion and what do you think this sector can actually do in
helping the Government to reach its target to get many of the
12 million people currently unbanked into access to financial
services?
Mr Lyonette: Traditionally, people
have looked at credit unions in terms of financial exclusion in
terms of the credit we provide. People have looked at us as a
very good source of affordable credit. We have struggled to promote
ourselves as actually being able to do a lot more than that, and
intrinsically linked to the provision of credit is an easy, convenient
source of savings. It is anecdotal evidence only. We do not have
any hard and fast research, but one of the key things that we
have all experienced is that it is only when people actually start
to save a small amount of money when they have been paying high-cost
credit, at that point, that people break the cycle of taking more
and more high-cost loans. So savings is not just another service;
savings is actually quite important in people changing their financial
circumstances, even on very low incomes. I think the biggest single
step forward that the movement is making in terms of being able
to do so much more is in introducing our own transaction banking.
Q235 Angela Eagle: I was going to
come on to that.
Mr Chandrasekera: I can explain
a little bit about what we are doing on financial exclusion in
Southwark. We have introduced a number of products like the benefit
direct account, as we call it, where people can pay their benefits
into the credit union and they can also save money and borrow
money. People think that, because they are receiving benefits,
they cannot save money, but we have proven otherwise, because
the statistics I have here show that so far we have lent about
£448,000 for the 550 members who are in receipt of benefits,
and the biggest thing is those members also saved £80,000,
which comes to about £2.43 a week, but that shows that, given
a proper environment, these people are willing and happy to save.
Q236 Angela Eagle: So presumably
that proper environment excludes things like penalty charges and
the high costs of getting the timing of your repayments wrong,
the kinds of things we have seen as a Committee happen regularly
for customers who earn low amounts of money and take out small
loans in the commercial sector.
Mr Chandrasekera: Yes. That is
one of the biggest advantages, that we are friendly. The staff
get to know our members and so on, so they like to come to us
every week and share a joke with us and so on. So it is a different
environment.
Ms Davenport: I would say what
we are offering as well is a very personal service. We take the
time to help these people, explain how to use an account, what
we expect of them as a member and what they can expect from us.
Like Lakshman, we have actually introduced quite a lot of products
specifically geared towards people. For example, we have a Christmas
club so they can put a little aside each week for Christmas. There
is no minimum deposit for the savings account. They can save as
much or as little as they can afford. We also have a benefits
direct account, where they get a line of credit based on their
ability to repay, and when they have then had a credit history
with us, that credit limit can be increased based on their circumstances.
We have also shown that they have the ability to save with us.
Given a little bit of help and encouragement, and I think that
is sometimes what is lacking elsewhere, quite a lot of people,
who perhaps have not used a financial institution before and are
used to working in a cash economy, do not know how to operate
an account, and we take the time to explain it to them. We have
employed a member of staff, a member relations adviser, whose
job is to help someone with forms and how the accounts work and
so on. We think that is a very important factor in helping someone
who perhaps does not understand financial institutions.
Q237 Angela Eagle: Moving on to this
issue about trying to get accounts that can do transactions in
the way banks can do, the PAT14 report, which was very complimentary
and supportive of credit unions, suggested establishing a central
services organisation that credit unions could buy into. That
has not happened, and you have in the mean time been doing your
own thing. Can you explain to the Committee what has been going
on there and how come that is financially viable?
Mr Lyonette: Maybe some of the
Committee are not aware that back in 1999 the PAT14 report recommended
that one of the top five things the Government should do would
be to support a central service organisation for the credit union
sector, and there were basically three things that a central service
organisation was intended to do. One was to introduce a change
programme for the movement to become more market-led, become more
professional, to make sure we understood people's needs better;
the second was to introduce transaction banking so we could give
people the day-to-day tools that we all take for granted ourselves,
no doubt; and thirdly, it was to have a marketing approach. We
were obviously disappointed when that initiative did not come
to fruition but, obviously, we understood that in terms of the
wider demands being placed upon banks at the time in terms of
the universal bank account and the POCA. But nevertheless, those
needs were still there, and they are still the three main things
the movement needs to focus on. We managed to work through the
change programme by introducing—you have probably seen it
in our evidence—the World Council of Credit Unions PEARLS
financial monitoring system, which is much more than a set of
financial ratios; it is about helping people to understand how
to balance the credit union business so that you meet the needs
of your different target audiences. That has had a major impact
and that, I have to say, has been with the support of Barclays.
I should say I do not know whether it is important in these committees,
but we have received money over the last five years from both
Barclays and the Co-operative Bank. I do not know whether we need
to declare that conflict of interest but it is perhaps useful
for you to know that. Transaction banking has taken us much longer
to get to fruition. Over the last three years we have had a tendering
process with all the high street banks, narrowed it down to those
interested, and at the end of the day the Co-operative Bank has
won the tender to actually provide this.
Q238 Angela Eagle: What will this
mean in practice for a member of Sue's Leeds Credit Union?
Ms Davenport: They will have a
current account with a credit union, which is better than a basic
bank account because it has more features, but of course, because
it is a credit union, it is local; again they will get that personal
service, help with understanding how to run it, and they will
be able to pay their household bills and set up direct debits,
so it will be a full service current account. It will not have
an overdraft facility but they can have a line of credit with
the credit union's normal lending system anyway, and it will have
an ATM card so they will be able to access their money, and quite
a lot of members will also qualify for that card to be a debit
card too. So it will have very good features. We at Leeds are
very excited about it because we have about 1,000 of our members
who pay their entire income the into the credit union, whether
that is benefits or wages or salary, and those people also often
use our bill paying service, and for us it will make that administratively
much easier, because the transaction banking is a much more automated
process, and it will allow us to expand that to more people, because
obviously you get economies of scale.
Q239 Angela Eagle: You are confident
that that can be commercially viable? Most of the large banks
tell us that your kinds of customers are not profitable.
Ms Davenport: They would, wouldn't
they! To be honest, they probably are not profitable for them
because they have a great deal of overheads we do not. They are
working on a much larger scale. Even for us, comparatively quite
a large credit union, we are still only working in the local area
and we have much lower overheads, and we feel also that the fact
that we would take the time to work with these people means that
they will become profitable, if you use this word, members of
society and therefore profitable to us as a co-operative society,
a credit union, so we think that that local focus and the fact
we are working over a modest area and the fact we are not trying
to operate globally gives us an advantage in being able to make
it a worthwhile service, and of course, we are not out to make
millions of pounds' worth of profit.
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