Permaculture banking: a guide to Credit Unions

Dave Kilroy
Monday, 1st June 1998

Dave Kilroy, a credit union development worker for Devon Co-operative Development Agency Ltd., explains how Credit Unions offer an alternative and sustainable way of providing financial services

A credit union is a money co-operative owned and run by its members. It provides a safe and friendly place for savings, and low interest loans to members. It exists for service to its members, not for profit - any surplus it makes is given back to the members.

Credit Unions are there to help people save - most credit union members join in order to save, and only later might they take out a loan if they feel safe doing so. They are also there to give members access to credit - many people in society do not fall into the banks' 'ideal customer' category, and if such people want a loan they may be refused credit - so their only choice is finance companies who charge 165% Annual Percentage Rate (APR) or more on loans, or even 'loan sharks' who can charge up to one million percent on loans! Compare these rates to the maximum a credit union can charge of 1% a month (12.68% APR).

Credit unions encourage personal money management, and give peace of mind (free insurance on savings and loans). Through local services they also support local economies, and help to develop communities.

The Philosophy

Credit unions subscribe to these 'Operating Principles' agreed by the World Council of Credit Unions:

1. Democratic Structure

  • Open and voluntary membership.
  • Democratic control of the credit union, one member, one vote.
  • Non-discrimination in relation to race, religion, gender, disability etc.

2. Service to Members

  • Improve the economic and social well-being of members.
  • Distribution of surplus to members.
  • Building financial stability of the credit union as well as members. 

Social Goals

  • On-going education in economic, social, democratic and mutual self-help principles.
  • Co-operation among co-operatives in order to best serve members and communities.
  • Social responsibility, to include all in their communities in the benefits credit unions can bring.

The Workings

Members save money into a common pool, which is then used for loans to those members needing loans. The interest which members pay when repaying loans to the credit union is used for running expenses. At the end of the year the surplus income is put into reserves and/or paid back to the members as a dividend on their savings.

Volunteers run the credit union as instructed by the members. Credit unions are co-operatives and are run democratically by the members who each have one vote irrespective of how much they have saved in the credit union. The members elect three management committees who are all volunteers. Each year the management committees report to the members at the Annual General Meeting, members can elect any other member to serve, or stand for office themselves.

As with any money system, people worry about the safety of their investment. All credit unions are insured against fraud, are overseen by the Registry of Friendly Societies, and have an independent audit carried out each year. In addition one of the management committees, the Supervisory Committee, acts as a 'watchdog' and does nothing but check that things are being run properly. Finally, if the members suspect things are not as they should be, they can, at any time, call a special meeting or even call in the Registry of Friendly Societies.

More Efficient Than Banks

Credit unions are much more efficient than banks and suffer only a fraction of bad debts compared to banks. The difference is the philosophy and ethos of credit unions and how they treat their borrowers. Members with loans who get into difficulties are treated in a humane and flexible way - renegotiating your loan with a credit union is hassle-free and doesn't cost anything (compare this to a high street bank). However, the credit union does reserve the right to take a defaulting member to court if necessary.

Credit Unions Around The World

Credit unions are not new, they were first developed in Germany in the 1850s. The idea quickly spread throughout mainland Europe and to Canada, the USA, Africa, Australia, the Caribbean, Asia, as well as closer to home in Ireland. There are over 100 million credit union members world-wide, with assets of over £350 billion.

Credit Unions in Britain

Unfortunately in Britain we have been slow to appreciate the benefits of credit unions. The first British credit union was established in London in 1964. In 1979 the Credit Union Act was passed which made for a much safer legal structure for credit unions.

But even with this Act in place the growth in credit unions remained slow until the mid 1980s when the Registry of Friendly Societies (who implement the Act) loosened some of its more restrictive interpretations of legislation. Today there are over 600 credit unions with assets of more than £100 million, and 200,000 members; last year 113,000 loans were made to members worth £91 million. A new credit union is being registered every week, and last year the movement grew by 18%. Hopefully we will soon be in the same position as Australia, Canada and Ireland where almost one third of the total population are credit union members.

However credit unions in the UK are still 'small fry' compared to the high street banks. There are many reasons for this, low awareness of credit unions by the general public, restrictive legislation, the need for credit union volunteers to drive the movement, and the strict criteria used by the Registry of Friendly Societies when registering new credit unions.

The majority of credit unions in the UK are found in the Midlands, the North and the London area. But through a lot of hard work in the South West credit unions are growing here too. A few years ago the South West Credit Union Forum was started, it now has 15 registered credit unions and 25 steering groups working towards starting up as credit unions.

Yes, Minister

The Forum recently organised a trip to the House of Commons of credit union volunteers from across the South West of England. This was in response to the Government's proposed new legislation which will affect credit unions.

At an ungodly hour in the morning in March a coach left Plymouth bound for London. It wended its way across the West Country picking up credit union activists as it went. It arrived at Westminster with forty volunteers who then met with 12 MPs and Lord Ted Graham (Chair of the UK Co-operative Council).

They told the MPs their views on current legislation and its restrictive affect on credit unions. They also went on to highlight their concerns and to say what they would like to see in forthcoming legislation. They got a positive response, so we have high hopes that credit unions will not be discriminated against in any new laws and will be able to take full advantage of new opportunities.

Ways to Expand the Movement

Getting Rid Of Restrictive Laws

Some cynics say that the 1979 Credit Union Act was written with too much involvement from the high street banks. This legislation has kept credit unions in Britain artificially small; small in membership, small in the size of loans they can give - and in general unable to grow to their full potential - such restrictions need to be swept away.

Opening Up New Opportunities

New legislation is needed giving credit unions the power to take advantage of new technology such as 'hole in the wall' machines. There are also many ways in which credit unions could serve their members better if they were allowed to offer, for example, competitively priced house insurance (not a viable option for many people). Finally, credit unions must be allowed to act as providers of such government initiatives as the Individual Savings Account (ISA).

Get The Promotional Bodies Together

There is little doubt that not having a single national voice to speak up for credit unions is holding the movement back. There is a real need for the various credit union promotional bodies to merge. Doing this could mean better marketing, better training of volunteers and better provision of services to members.

Setting Up a Share Protection Scheme

The movement has been working for several years to set up a scheme whereby if a credit union fails its members will be guaranteed all of their savings back. At present, individual credit unions have made sure that no members in the UK have lost out when a credit union folds. Whilst this compares well with investors in, say, Barings Bank, it is not as good as having a cast iron guarantee.

Raise The Profile Of Credit Unions

Most people haven't heard of credit unions. This needs to change if we are to gain the kind of population percentages of credit union membership that have been reached in Australia, Canada, Ireland.

Recruit and Train Credit Union Volunteers

The most important thing needed for credit unions to thrive is volunteers. Training is provided either by the credit union joined, or by a local development agency; and the credit union provides employee insurance cover. People volunteer for many reasons: to help their community, to have fun, to gain work experience, to access training, and many other reasons. The movement has to continue to attract volunteers to replace those who leave and to build volunteer numbers. With more volunteers, credit unions can deliver more and more to their members and local communities.

Credit Unions and Sustainability

The main input credit unions need is people - people to join, and people to volunteer to run them. Are you ready to join?

Useful Addresses

Association of British Credit Unions Limited (ABCUL) Holyoake House
Hanover Street Manchester M60 0AS Contact: Stephanie Sturrock (Office Manager) Tel: 0161-832 3694

National Association of Credit Union Workers (NACUW) c/o Community Enterprise Unit County Hall
Topsham Road, Exeter EX2 4QD Contact: Mike Atkinson (Secretary) Tel: (01392) 382152

National Federation of Credit Unions (NFCU) Units 1.1 / 1.2 Howard House Commercial Centre
Howard Street Tyne & Wear NE30 1AR Contact: Margaret Nolan (National Co-ordinator) Tel: 0191-257 2219

Registry of Friendly Societies
Victory House 30-34 Kingsway London WC2B 6ES Contact: Credit Union Section Tel: 0171-663 5000

Scottish League of Credit Unions (SLCU) PO Box 16455 Glasgow G21 1PH Contact: Helen Kane (Secretary) Tel: (01383) 852876

South West Credit Union Forum (SWCUF) c/o Devon CDA 25 Wolseley Close Plymouth PL2 3BY Contact: Dave Kilroy (Secretary) Tel: (01752) 500888