Financially excluded are benefiting from credit unions

Credit unions are successfully reaching people who are financially excluded, offering them cheaper forms of borrowing, research showed today.

Nearly a quarter of people who were members of a credit union said they had used more expensive home credit in the past, which is offered by sales people who visit people in their homes and often charge very high rates of interest to borrow money. However, just 16% of these people said they had used it since joining the union.

A further 41% of people said they had stopped using home credit as a direct result of joining a credit union.

Credit unions are owned and run by their members, who often either live in the same area or work for the same employer. Savings from some members are used to offer cheap loans to others.

Research carried out by the Personal Finance Research Centre at Bristol University for the Association of British Credit Unions Ltd (Abcul) also found that the organisations were reaching people without bank accounts and encouraging members to save.

Only 83% of the 1,473 members questioned had a bank account, while the national average stands at 93%, and the proportion of credit union members with a bank account fell to 29% among people with incomes of less than £200 a week.

Almost one third of members said a credit union account was their only way of saving money, rising to 46% among those on low incomes.

Just under three-quarters of members said they saved regularly with their credit union, with the majority saying it was a more convenient way of setting money aside.

Mark Lyonette, chief executive of Abcul, said: "This report shows how credit unions are reaching a wide range of people in their communities and provides an invaluable baseline from which credit unions can measure their current and future work.

"It will help inform strategies for bringing credit union membership, and the affordable credit and savings opportunities that come with it, to many more people in years to come."

Abcul announced in May that credit unions would begin offering banking services later this year, to be rolled out nationwide in 2007. Bank accounts will come with a debit card, which can be used in shops and to withdraw money from cash machines, and accountholders will be able to set up standing orders and direct debits.