Business help urged for credit unions

The way in which credit unions are run in the UK could be revolutionised, a conference was told today.

Credit unions are cooperatives, owned and controlled by their members, that offer loans and savings accounts to local communities. By law they can charge a maximum of 1% interest a month on loans, and membership is usually, but not always, restricted to people who live in a specific area, work for one employer or belong to a certain trade union.

A conference in Wolverhampton organised by the Association of British Credit Unions Ltd (ABCUL), heard that a group of "beacon" credit unions across the West Midlands, which have received specialist professional support, have grown at almost twice the pace of others.

The Financial Services Authority has been keen to extend the remit of credit unions with the hope of using them to help reduce financial exclusion. People on lower incomes wanting to borrow small sums of money often find themselves restricted to expensive credit deals from specialist lenders whereas credit unions offer a much better value alternative.

Between March 2002 and December last year savings in the beacon group, which includes credit unions in Birmingham, Walsall, Worcester, Redditch and Bromsgrove, rose by 47% and loans outstanding by 49%, compared with growth rates of 26% in savings and 22% in loans at other West Midlands credit unions.

Paul Jones, from Liverpool John Moores University, author of a report on the project, said: "If credit unions are to realise their potential to serve low income communities effectively they must first adopt a more business-like and professional approach.

"The West Midlands project has clearly demonstrated that if credit unions develop business plans, strengthen board leadership, employ staff and move to more professional premises, the results can be spectacular.

"Despite early misgivings within certain sections of the credit union movement, the business argument for professional development is now accepted by government, by funders and by credit unions themselves."

Andy Powell, leader of the West Midlands project said: "We have seen a real culture change in the beacon credit unions that has led to radical restructuring of their business processes in order to create better products and services for their customers.

"We are seeking to find more opportunities to put this learning into practice and have been particularly encouraged by the interest from regional development agencies and local authorities who are seeking to increase credit union services in their areas"