Memorandum submitted by the Association
of British Credit Unions Limited (ABCUL)
INTRODUCTION
1.1 The Association of British Credit Unions
Limited (ABCUL) welcomes the opportunity to make a submission
to the Treasury Select Committee inquiry into financial inclusion.
ABCUL is the principal national trade association for British
credit unions and represents 70% of the 549 credit unions throughout
England, Scotland and Wales.[1]
ABCUL member credit unions encompass 85% of the £345,607,000
share capital and £286,819,000 loan portfolio of the half
a million adults who uses credit unions each week.
1.2 ABCUL, like its member credit unions,
is an Industrial and Provident Society. It is a co-operative owned
and controlled by its members. ABCUL belongs to the World Council
of Credit Unions the world wide apex body whose members represent
43,147 credit unions in 91 countries serving 136 million people.
1.3 Over the last eight years the Association
has played a leading role in reforming and modernising the credit
union movement in Britain. As a result the credit union movement
is now adopting models of development and offering a range of
products which has dramatically improved the scale of many credit
unions. Credit union membership has almost doubled since 2002
and British credit unions now serve approximately over 500,000
adult members and 70,000 junior members.
1.4 Credit unions have four statutory objectives:[2]
(a) the promotion of thrift among the members
of the society by the accumulation of their savings;
(b) the creation of sources of credit for
the benefit of the members of the society at a fair and reasonable
rate of interest;
(c) the use and control of the members' savings
for their mutual benefit; and
(d) the training and education of the members
in the wise use of money and in the management of their financial
affairs.
1.5 ABCUL and its member credit unions welcome
the Treasury Select Committee's inquiry into financial inclusion.
We are pleased to contribute written evidence to the inquiry and
would welcome an opportunity to contribute orally. In this paper
we set out the present contribution of credit unions to promoting
financial inclusion across a number of areas, not just the provision
of affordable credit. We summarise the key changes that the movement
has undergone in recent years with legislative and regulatory
support from the UK Government. We finish by recommending the
key actions necessary to fulfil the potential of credit unions
to promote financial inclusion.
1.6 ABCUL is currently undertaking a piece
of research with the Personal Finance Research Centre at Bristol
University[3]
to document who uses different types of credit unions. The majority
of credit unions have always understood their membership to be
the low-waged, those in receipt of benefits and those who without
the credit union would otherwise be financially excluded. However,
in recent years some commentators have claimed that credit unions
are not predominantly serving the financially excluded. There
are also widespread misunderstandings about the nature of many
employee credit unions. For instance credit unions in the passenger
transport industry estimate that 40% of their members when joining
the credit union are using high cost forms of credit.
1.7 Preliminary findings from the research
show that for those responding to the survey the credit union
is the preferred source of saving and borrowing. Evidence is also
emerging that members have stopped using high cost credit as a
direct result of joining the credit union. The final research
report will be published in March 2006 and we would welcome the
opportunity to share the findings with the Treasury Select Committee.
We feel this research will be valuable to this enquiry as it looks
in detail at credit union member's attitudes to saving and borrowing.
1.8 Attached to the report in Annex 1[4]
we have included a recent article from Paul Jones, Liverpool John
Moores University (2005) which charts the key stages in the development
of the credit union movement and explains the reforms underway
within the movement.
ACCESS TO
BANKING SERVICES
2.1 The problems arising from lack of access
to appropriate transaction services are well documented. Those
living without a bank account often pay more for goods and services
because they cannot access the discounts made through direct debits
and standing orders. Cheque cashing is also a problem with the
only solution often being high cost cheque cashers. As financial
exclusion is linked to poverty, we have in Britain a situation
where the poor pay more.
2.2 ABCUL believes that there are two key
issues in this area which need to be addressed before we will
realise the benefits of transaction banking for the unbanked and
underbanked. These are:
— The overriding focus on simply reducing
the numbers of people without a bank account has obscured the
need to ensure that basic bank accounts are appropriate for people
on low incomes and therefore well used.
— The extent to which mainstream suppliers
are ever going to deliver an appropriate, affordable solution
within existing market constraints remains unresolved.
2.3 The Government's agreement[5]
with the banking industry to halve the numbers of adults in households
without a bank account has understandably led to the Financial
Inclusion Taskforce placing a major emphasis simply on counting
the number of accounts opened. ABCUL agrees with the criticisms
expressed by consumer groups that this is not the key issue. The
basic bank account is not fit for purpose as it has not completely
addressed the needs of low income consumers. The National Consumer
Council has stated that, "solutions that work for people
on higher incomes cannot be expected to work for low-income consumers
without addressing their specific needs and circumstances".[6]
Much work needs to be done on transforming the existing basic
bank account if it is ever to meet those needs.
2.4 More fundamental to this issue is the
need for clarity on who can and will provide these services. There
appears to have been an undocumented change of thinking within
Government over the last six years on the extent to which they
expect banks to directly provide transaction banking services
for all who could be reasonably expected to use them. The PAT14
report on Access to Financial Services[7]
concluded that the banks would provide resources for others to
provide these services. The major policy initiative was the contribution
of £180 million from the banks to funding the development
of the Universal bank account/Post Office Card Account (POCA).
The failings of the POCA to provide a basic transaction account
linked to the payments systems are well documented. It does not
provide customers with somewhere to receive their wages, it provides
no outgoing basic electronic funds transmission and does not offer
access to the Link ATM network. The banks frustration at being
asked to fund a poorly specified product have left a lasting legacy
that still dominates this landscape. This is preventing a clear
definition of the problem let alone a workable solution.
2.5 It is not clear why or how the Government
now believes banks can or will provide these services within the
existing market constraints eg Free in-credit banking. It does
not seem to be in the interests of consumers to accept uncritically
the assumption that banks will eventually design an appropriate
product which is profitable and then promote it effectively to
all who need it. It is not clear that the banks view on who should
provide these services has changed since the PAT14 report.
2.6 Engaging with the banks to develop a
clear understanding of this problem is a challenge that the Financial
Inclusion Taskforce should be prepared to take on in the coming
months.
2.7 The PAT14 report also contained a significant
commitment to developing the capacity of the credit union movement.
The plans to develop a central services organisation (CSO) funded
by banks ending up being lost in the wake of the Universal Banking
project. The key purpose of the CSO was to enable credit unions
to provide transaction banking for their members. It is ABCUL's
belief that despite the failure of this project to get off the
ground this has remained as the missing piece of the jigsaw for
credit unions in the UK.
2.8 Six years later the credit union movement
has grown significantly in scale and capacity and has gone on
to design its own appropriate transaction banking services working
in partnership with the banking industry. This has been achieved
without any public subsidy either nationally or locally. Over
the last two and a half years the Association and its members
have engaged with the banking industry in a competitive tendering
process supported by banking technologists Bayberry.
2.9 In November 2005 ABCUL announced that
it had chosen The Co-operative Bank as the preferred supplier.
As a result work has now started on developing a full service
account which will provide people on low income with a more appropriate
product than the basic bank account.
2.10 This initiative will allow credit
unions to offer their members a credit union service account including
ATM access, direct debits and standing orders plus the availability
of a low risk debit card. Credit unions have worked hard to design
the account to eliminate the undesirable features of existing
basic bank accounts.
2.11 One of the major criticisms of the
basic bank account is that low income consumers operating in cash
are generally not used to monthly budgeting, and are more likely
to have irregularities in their income and expense. Yet one of
the features of a basic bank account is that standard bank charges
are incurred when there is any mismanagement of the account. These
fees represent a high proportion of weekly income.
2.12 It has been a key design consideration
of our account that credit unions will be able to set fees in
line with credit union rather than bank policy. This will mean
charges will be substantially lower as they will be set in order
to discourage abuse of the account, rather than to generate profit.
2.13 Another major drawback of basic bank
accounts is the barriers to access that can be present at branch
level. Banks have been reluctant to promote basic bank accounts.
The anti-money laundering regulations have also been a barrier
to access with many banks adopting anti-money laundering policies
whereby only government issued photographed documents such as
passport and driving licences are acceptable forms of ID.
2.14 Credit unions do not refuse access
to membership to anyone as long as they qualify for membership
under the common bond. By their very nature credit unions are
inclusive organisations and are member owned and run, and many
credit unions treat financial inclusion as one of their primary
objectives. While still being compliant credit unions have adopted
more flexible anti-money laundering policies which recognise that
not everyone has a passport or driving licence. Credit unions
will readily accept other forms of acceptable ID such as letters
from a person in a position of trust in order to ensure that no
one is excluded from their services.
2.15 In summary we believe our credit union
service account will provide credit union members with a current
account facility that is tailored to their needs, affordable and
accessible.
2.16 Credit unions will deliver these services
by "piggy backing" on the existing back office systems
of partner bank. In effect they will rent their technology while
maintaining ownership and control of the accounts. We are confident
that the first credit unions to offer their own accounts to members
will take place in 2006 with a further roll out in 2007.
2.17 Supported by the resources of the larger
credit unions and the Association we believe credit unions have
introduced one of the most exciting step changes in the financial
inclusion landscape.
2.18 The potential for these services to
have a major impact has increased dramatically since PAT14 as
the credit union movement can now receive most kinds of benefit
paid directly into the members credit union account. The introduction
of individual service accounts will hugely improve the efficiency
of this service and allow credit unions to make a huge step change
in the number of people receiving benefits that they can serve
sustainably.
2.19 Support from the UK Government to individual
community credit unions operating in areas of high financial exclusion
would enable them to roll out a low cost and appropriate alternative
to the POCA and basic bank accounts.
ACCESS TO
AFFORDABLE CREDIT
3.1 Credit unions currently provide affordable
credit to around 500,000 adults in Britain. As of June 2005 credit
unions had a loan portfolio worth £286,819,000. The demand
for credit union loans generally peaks at Christmas time, which
can be seen in the fact that credit unions had on loan £315,680,000
as of December 2004.[8]
58% of these loans are for less than £1,000.[9]
3.2 In 1999, at about the same time as the
PAT14 report was being published an alternative model for community
finance was being sketched out on the drawing board. This model
proposed by Community Finance Solutions eventually became the
Community Regeneration Trust, the most usual form of Community
Development Financial Institutions (CDFI's) for personal lending.
3.3 Community Regeneration Trusts or Moneylines
as they are often known were put forward on the back of criticisms
of the failure of credit unions to achieve coverage and scale.[10]
ABCUL shared many of those frustrations with the prevalent approaches
to credit union development in the 80s and 90s. However, it was
the Associations view that the most effective way forward was
to reform the credit union movement. We believe that the comparative
progress over recent years has shown that this strategy was a
sound one.
3.4 In 2004 there were just six of these
Community Development Finance Institutions (CDFIs) for personal
lending. Between them they had a total loan portfolio of £1,200,000,
comprising of 2,668 loans. This figure rose £100,000 from
£1,100,000 in 2003.[11]
Many of these organisations have scaled back considerably their
initial business plans. For example Portsmouth Area Regeneration
Trust, now South Coast Moneyline started in 2000 projecting that
it would itself be lending £4 million by 2006.
3.5 Therefore six years after the launch
of an alternative to credit unions the credit union sector still
represents over 99% of all third sector lending in Britain. Perhaps
more significantly the present growth in the number of people
on low incomes served by the credit union sector is outstripping
the growth rate of CDFI's for personal lending. Credit union membership
continues to grow at more than 10% per annum.
3.6 Perhaps not surprisingly another new
vehicle has now been proposed as the community finance solution.
The Community Banking Partnership[12]
has been proposed by Community Finance Solutions, the New Economics
Foundation and the National Association of Credit Union Workers.
3.7 Credit unions are currently subject
to a maximum interest rate of 12.7% APR, which works out at 1%
per month on a reducing balance. The Government has agreed to
raise this to 2% per month or 26.8% APR in order to give credit
unions greater flexibility in their lending. CDFIs are not subject
to an interest rate cap but charge between 20-30% APR for personal
loans.
3.8 However, despite the efforts of all
third sector lenders there is still an estimated 7.8 million adults
in the UK who do not have access to affordable credit and who
invariably turn to high cost lenders for their credit needs. The
National Consumer Council have estimated that low income consumers
pay on average £129 a month in interest—11% of their
income, and people on benefits borrow an estimated £330 million
a year from home credit, with interest payments alone amounting
to an estimated £140 million.[13]
3.9 A £500 loan over 55 weeks from
the largest home credit providers, Provident Financial costs a
borrower £325 in interest. A loan for the same amount over
52 weeks from a credit union costs £31.07, a saving of £293.93
on an individual loan. We can see the impact of this on a community.
Streetcred credit union in Rochdale which was registered in April
2001 has lent over £1.8 million, and has saved their community
an estimated £1.6 million in interest payments.
3.10 Streetcred credit union is just one
example of how community credit unions have been developed in
a more effective manner in recent years. ABCUL has played a major
role in providing the thought leadership and the operational expertise
to change business development models and product offerings.
3.11 Many credit unions had been set up
in the 1980s and 1990s solely as anti-poverty initiatives. Run
solely by local volunteers, these credit unions were not built
for expansion and growth, and although they had a real impact
in the communities in which they were based, this impact was limited.
3.12 In 1999 a significant piece of development
research into credit union's in Britain was published called,
"Towards Sustainable Credit Union Development".[14]
For the first time credit unions were encouraged to become more
business focused and more professional. The employment of paid
staff and professional high street premises, along with clear
leadership and vision began to show real signs of growth in those
credit unions that adopted the changes.
3.13 In July 2002 credit unions became regulated
by the Financial Services Authority which added credibility and
financial discipline to the movement. Today ABCUL are promoting
the "Quality" credit union model as the best vehicles
to promote financial inclusion. Quality credit unions are credit
unions which have developed to meet the actual, rather than the
perceived needs of its members. They operate capacity based lending
money based solely on an individual's ability to repay. This is
a major departure from the traditional model of lending people
money as a multiple of what they had saved. From January 2006
regulatory reforms from the FSA mean credit unions will also be
able to offer larger loans over longer periods.
3.14 All credit unions provide affordable
credit to those that would otherwise have to turn to high cost
lenders to meet their needs. Yet credit unions that are providing
affordable credit to the highest numbers of financially excluded
individuals are those that have embraced change.
3.15 One of the key catalysts for change
was the introduction of the World Council of Credit Unions PEARLS
Monitoring System. The far-sighted sponsorship of this programme
by Barclays has had a far reaching impact upon the way that credit
unions work. Understanding PEARLS has taught many credit unions
to be both more flexible and more responsible lenders. PEARLS
has already proved itself as a powerful tool for change, for example
just one credit union that has taken part in the PEARLS project
has seen it's loan portfolio grow from £99,000 in 2001 to
£745,000 in 2005.[15]
However, there is more work that can be done to extend this understanding
and improve the practice across the movement.
3.16 Credit unions that have adopted the
PEARLS principles for lending have seen a huge increase in the
demand for loans. Therefore an injection of capital into the movement
through the Department of Work and Pensions £36 million Growth
Fund is to be welcomed. The balance of government investment and
PEARLS lending practices has the potential to have a huge impact
on the credit union movement's ability to provide affordable credit
to large numbers of financially excluded people.
3.17 We believe that the PEARLS programme
could usefully be extended to many more credit unions working
in areas of high financial exclusion with the support of the UK
Government. This investment would help protect and maximise the
investment of the Growth Fund.
FINANCIAL EDUCATION
AND ACCESS
TO FINANCIAL
ADVICE
4.1 Low financial capability skills are
inextricably linked to financial exclusion; credit union staff
and volunteers routinely help members fill in forms, each loan
application form must be completed with a budget plan, and most
credit unions provide additional financial education in the form
of leaflets or formal education initiatives including outreach
work.
4.2 Credit unions are also active in local
schools. ABCUL recently surveyed members and of those responding
625% were active in their local schools. This involves setting
up collection points where pupils can save, involving pupils in
the running of the collection points, and offering credit union
services to the parents and teachers.
4.3 ABCUL are involved with Pfeg which is
campaigning for the introduction of financial capability into
the national curriculum. We support this move as children and
young adults who leave school must immediately interact with the
financial services industry or benefits system without any prior
knowledge of how they work. With the prevalence of easy credit
now available it is young people who are proportionally borrowing
more and becoming over-indebted.
4.4 We also support the FSA's work on supporting
improved financial education in the workplace. Some credit unions
have a purely industrial common bond which means that members
must work for a particular employer or in a particular industry
in order to be able to join the credit union. A number of employers
have recognised the benefits that a credit union can bring for
their employees and so have provided support to the credit union.
One credit union whose members work for a particular bus company
has even helped their employers to retain staff. The bus company
has started an initiative whereby they will make regular contributions
to the savings account of all new employees that join the credit
union which they can only access if they complete one year of
service. This has significantly increased staff retention as most
staff leave within the first year. Employee credit unions interact
with members through payroll deductions and this is the point
when many new employees start to save, often for the first time.
Therefore employee credit unions provide direct access to the
financial system at a key life stage.
4.5 We expect that credit unions will be
able to play an increasingly important role in developing financial
capability.
INCENTIVES AND
BARRIERS TO
SAVING FOR
PEOPLE ON
BELOW AVERAGE
INCOMES
5.1 Credit unions currently have a share
capital of over £345,607,000. Initial findings from the research
we are currently undertaking with the Personal Finance Research
Centre at Bristol University has shown that the main reasons why
credit union members save with the credit union are because: it
is convenient, it allows them to borrow, they were recommended
by a friend or relative, and it pays dividends. Half of those
responding save to buy things they want or need, the majority
save with the credit union monthly or more often, and already
there is some evidence of greater regularity and amount being
saved with the credit union compared with other forms of savings.
5.2 In the last few years the move to direct
payments of benefits has greatly increased the number of people
having their benefits paid into credit union. There have been
some interesting consequences, particularly around the level of
benefit that credit unions have retained in savings.
5.3 Southwark credit union in London started
offering a benefit service to members in 2005. By June 2005 235
members were having a total of £344,950 in benefits paid
into the credit union and £32,149 or 9.3% of that was retained
by the credit union as savings. Other credit unions are reporting
between 5% and 10% retention of benefits.
5.4 This suggests that to those on low incomes
or in receipt of benefits, and who may otherwise be financially
excluded, the credit union is an attractive savings vehicle. Credit
unions do not require a minimum level of savings, they do not
require that a set amount be saved, or that savings be paid on
a specific date. Members can save in cash, by benefit or wage
deduction or by direct debits and standing orders.
5.5 Credit unions do encourage members to
save, and in some cases saving is a requirement of membership.
However, credit unions do not require people to save more than
they can afford, they simply require them to save which can be
as little as pennies each week. The option to save small sums
of money and to save irregularly is not easily available on the
high street. Yet those that are financially excluded tend to have
erratic incomes and are hit hard by unforeseen circumstances,
this presents a barrier which makes regular saving difficult to
manage.
5.6 The initial findings from the Savings
Gateway pilot proves that those on low incomes can and are willing
to save if there is an incentive to do so. However the amount
of benefit income that credit unions are retaining in savings
and the fact that they have always required their members to save
shows that people can save without necessarily needing a financial
incentive. The key to mobilising savings among low income groups
is convenience and flexibility. Dave Richardson, Technical Officer
for the World Council of Credit Unions (WOCCU) has written that,
"as verified by the credit union experience, poor people
have a much higher demand for savings products than lending services".[16]
Credit unions throughout the world have shown that savings mobilisation
among even the poorest of communities is possible.
5.7 The WOCCU publication, "Striking
the Balance in Microfinance, A Practical Guide to Mobilising Savings",[17]
discusses the importance of trustworthiness and client confidence
in the institution in which they are saving. The book also states
that client relations and how the customer is treated by a financial
organisation is extremely important to low income and first time
savers. However, the situation in Britain is that many people
still feel excluded from mainstream financial organisations, that
they deem "not for them".
5.8 The effect of savings on an individual
cannot be underestimated, which is why it is impossible to talk
about a long term solution to financial inclusion without including
the accumulation of assets into the strategy. Credit unions have
a significant role to play in promoting savings among those with
below average incomes, mainly because they are accessible, flexible
and treat all members equally. Therefore we propose that the Government
recognise the role and value of credit unions in any future schemes
to promote savings to those who are on low incomes. The Government
should ensure that credit unions can become authorised providers
of the Savings Gateway if and when it is rolled out nationally.
5.9 ABCUL have just secured a change in
the legislation to allow credit unions to also offer cash ISAs,
and initial interest from credit unions indicates that take up
of these products by their members will be significant. This will
help credit unions strike the appropriate balance between savers
and borrowers. We will be happy to share information with the
select committee once these products have been running for an
appropriate amount of time.
THE ROLE
OF THE
GOVERNMENT, THE
FINANCIAL SERVICES
AUTHORITY AND
OTHER BODIES
AND ORGANISATIONS
IN PROMOTING
FINANCIAL INCLUSION.
6.1 The government has committed £120
million to help promote financial inclusion, £51 million
will go towards providing additional face to face money advice
and £36 million has been allocated for the provision of affordable
credit through third sector lenders. This injection of capital
for third sector lenders is welcomed by the credit union movement.
ABCUL has used the last year to promote, both to our members and
others, the ways in which credit unions can make the biggest impact
with these funds.
6.2 We have asked our members to sign up
to a common approach to the growth fund which is based on best
practice within the movement. The DWP guidelines for granting
growth fund money to third sector lenders are target driven and
will demand that applicants have a proven track record and provide
robust business plans to support their application. The funding
regime also ensures that the money goes directly to the organisations
involved in lending. We fully support this approach as it will
increase accountability. In the past much funding was channelled
through third party organisations such as development agencies
or consultants. This model failed to generate significant growth
or sustainability in the sector and we are keen that those mistakes
are not repeated.
6.3 Therefore we hope that government continues
to recognise that funding for third sector lenders needs to be
focused on organisations that can prove that they can make a difference
to financial exclusion. Additionally funding must go directly
to the lending organisations whose primary interest is in the
growth and sustainability of that business.
6.4 We welcome the moves that government
are currently making to promote financial inclusion, however,
in terms of reducing the numbers of unbanked we have set out in
Section 2 the key issues that we would like to see addressed.
6.5 The introduction of banking services
for credit unions has the potential to make a very significant
impact on financial exclusion. The credit union movement has invested
in the development of these services. In The Cooperative Bank
we have a banking partner committed to providing the technology
needed to make this available to all credit union members. The
first credit unions to launch their own service accounts will
take place in 2006.
6.6 Currently only the largest credit unions
have the existing resources to implement the service. Although
the costs are relatively small in comparison to other financial
inclusion projects, for those credit unions involved, the implementation
of banking services represents the most significant investment
that they have ever had to make.
6.7 However, there still remain a significant
number of credit unions, particularly community credit unions
that could manage and deliver the service and who are keen to
roll this out to their members. However, it is these credit unions
that are prevented from doing so because of the initial investment
that is required. We believe that the Government should recognise
the strategic importance of this initiative and support individual
community credit unions in entering the market.
6.8 We are not envisaging a complete roll
out of banking services to every credit union in the country.
We understand that many of our members rely heavily on volunteer
support and currently do not have the capacity to undertake such
a significant development. However, there are credit unions, many
of which are based in the most deprived local authority areas
in the country that would be able to deliver these services to
thousands of people in their communities. This would bring "banking"
services into the heart of those communities, through trusted
organisations, offering products that meet the needs of the financially
excluded.
6.9 ABCUL would be happy to provide the
Treasury select committee with further information regarding our
banking services project.
6.10 Although ABCUL welcome the DWP Growth
Fund, it is finite and the number of credit unions benefiting
from government investment will be limited. However, the movement
in still in need of investment capital. One source of capital
open to credit unions is subordinated loans; credit unions can
access subordinated loans from any source, however the lender
must agree to the loan being subordinate to the members savings
should the credit union become insolvent. This has restricted
the number of sources of subordinated loans open to credit unions.
6.11 HM Treasury recently consulted on
extending Community Investment Tax Relief (CITR) to CDFIs for
personal lending. ABCUL argued that if there was an extension
of CITR then it should also be extended to credit unions seeking
subordinated capital. This position was supported by the Financial
Inclusion Taskforce and several high street banks that confirmed
that they would be willing to lend to credit unions on a subordinated
basis and at favourable rates if they could receive CITR on those
loans.
6.12 It is unclear whether or not CITR
will be extended as Treasury have said that further investigation
needs to take place into current usage by CDFIs for business lending.
However there is a strong demand within the credit union movement
for an extension of CITR as the growth fund, while welcome, will
not completely meet the demand for capital that currently exists
in the movement. We believe that the availability of CITR for
subordinated lending to credit unions would provide one of the
building blocks for long term sustainability of the movement.
6.13 Credit unions have also identified
a change in legislation which would help them to build capital
and promote financial inclusion in their communities. The Credit
Union Act 1979 5(1) states that only individuals can be members
of credit unions, however many credit unions have been approached
by local community groups who wish to deposit their money with
the credit union, however they are prevented from doing so by
current legislation.
6.14 Given that government are investing
£36 million in supporting third sector lenders we feel that
these additional measures which would boost credit union capital
represent coherent joined up thinking and would create additionality
to what the Growth Fund is trying to achieve.
THE BENEFITS
OF FINANCIAL
INCLUSION AND
THE EXTENT
TO WHICH
FINANCIAL INCLUSION
MEASURES CAN
CONTRIBUTE TO
COMBATING POVERTY
AND REDUCING
BARRIERS TO
EMPLOYMENT.
7.1 Treasury has stated that, "Financial
exclusion imposes significant costs on individuals, their wider
neighbourhood and society as a whole".[18]
As stated previously the National Consumer Council has identified
that people on benefit pay an estimated £140 million per
year in interest rates on home credit which reduces the income
they can spend on their families and in their communities. This
is just one aspect of financial exclusion. Money is being taken
out of the pockets of the most vulnerable individuals and communities
which directly detracts from the work government is doing to create
wealth in communities.
7.2 Very few employers now pay in cash,
therefore in order to access employment people need to have access
to the banking system. Many credit union members have their wages
paid into a credit union. We know of credit unions which have
saved employees from losing their jobs simply because they were
able to accept that persons wages when a bank account was not
available.
7.3 Credit unions are part of the financial
system and as such can provide a mainstream solution to financial
exclusion. With the right investment and legislative change credit
unions have the potential to provide financial services to many
more financially excluded individuals and families.
January 2006
1 FSA figures, December 2005. Back
2
Credit Union Act, 1979. Back
3
Funded by the Esmee Fairbairn Foundation, 2005. Back
4
Not printed. Back
5
The goal was published in the Pre-Budget Report 2004 (Pre-Budget
Report, HM Treasury, December 2004). The terms of the goal were
agreed between the five biggest retail banks, the BBA and the
Treasury. Back
6
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