Presentation is loading. Please wait.

Presentation is loading. Please wait.

The World of Credit Unions Dr. Paul A Jones Research Unit for Financial Inclusion.

Similar presentations


Presentation on theme: "The World of Credit Unions Dr. Paul A Jones Research Unit for Financial Inclusion."— Presentation transcript:

1 The World of Credit Unions Dr. Paul A Jones Research Unit for Financial Inclusion

2 What is a Credit Union? Credit unions are democratic, member-owned financial cooperativesCredit unions are democratic, member-owned financial cooperatives Credit unions exist to serve their members and communities.Credit unions exist to serve their members and communities. Credit unions are safe, convenient places to access affordable financial services.Credit unions are safe, convenient places to access affordable financial services.

3 Credit unions world wide 186,000,000 Members186,000,000 Members 54,000 Credit Unions54,000 Credit Unions 97 Countries97 Countries –Canada – 1,068 credit unions – 48% penetration –USA – 8,536 credit unions – 43% penetration –Australia – 144 credit unions – 26% penetration –Dominica – 14 credit unions – 147% penetration Credit unions in EcuadorCredit unions in EcuadorCredit unions in EcuadorCredit unions in Ecuador

4 Credit unions in Ghana and US Youth savings programmeYouth savings programmeYouth savings programmeYouth savings programme Community Choice Credit UnionCommunity Choice Credit UnionCommunity Choice Credit UnionCommunity Choice Credit Union

5 Credit unions in Europe CountryNo Members Penetrati on SavingsAssets Great Britain ,359501, %1.25%838,081,811977,109,401 Ireland ,050,0003,000, %110.61%17,546,637,11419,921,369,957 Poland70761,550,6601,394, %5.14%1,906,673,0812,053,326,919 Romania11 52,47748, %0.31%20,512,95126,236,191 Russia ,954277, %0.27%204,820,288246,096,806 Ukraine ,790,4141,297, %4.00%528,954,468615,785,393 Estonia102, %2,634,09510,447,537 Latvia30 22,60122, %1.39%11,688,64013,984,969 Lithuania595668,84155, %2.24%156,440,694173,001,786 Macedonia116,1055, %0.37%2,728,9734,605,573 Moldova ,40096, %3.09%7,742,72924,834,536 TOTAL ,560,5046,704, %2.92%21,226,914,84424,066,799,068

6 Credit unions in Europe 2012 Click for interactive mapClick for interactive mapClick for interactive mapClick for interactive map

7 European origins of credit unions Originated in Germany in the 1840s and evolved in three general directions: European Co-operative BanksEuropean Co-operative Banks France, Germany, Netherlands Small Savings Co-opsSmall Savings Co-ops Italy, Greece North American ModelNorth American Model Britain, Ireland, Eastern Europe Spread throughout the world by the World Council of Credit Unions - WOCCU WOCCU

8 Economic Goals Not for profit, not for charity, but for serviceNot for profit, not for charity, but for service Profits go to the memberProfits go to the member Giving people a better deal on financial servicesGiving people a better deal on financial services Providing financial services to people excluded by the for-profit sectorProviding financial services to people excluded by the for-profit sector Creating jobs in the communityCreating jobs in the community

9 Social Goals People helping peoplePeople helping people Giving people control over their financial destinyGiving people control over their financial destiny Mutual self-help and relianceMutual self-help and reliance Building communityBuilding community Education in the wise use of moneyEducation in the wise use of money Instilling democratic and co-operative valuesInstilling democratic and co-operative values

10 Park Road Credit Union Operates in Toxteth, Liverpool 8Operates in Toxteth, Liverpool 8 Many people excluded from financial servicesMany people excluded from financial services Many do not have a bank accountMany do not have a bank account A group of 25 volunteers, mostly women, mobilised community supportA group of 25 volunteers, mostly women, mobilised community support Created their own financial institutionCreated their own financial institution

11 Credit unions in Britain Hampshire Credit UnionHampshire Credit UnionHampshire Credit UnionHampshire Credit Union London Mutual Credit UnionLondon Mutual Credit UnionLondon Mutual Credit UnionLondon Mutual Credit Union Hull and East Yorkshire Credit UnionHull and East Yorkshire Credit UnionHull and East Yorkshire Credit UnionHull and East Yorkshire Credit Union Community Development Credit Unions in the US National Federation of CDCUsNational Federation of CDCUsNational Federation of CDCUsNational Federation of CDCUs

12 Financial Exclusion The inability of people to access the financial systemThe inability of people to access the financial system Part of the much wider concept of social exclusionPart of the much wider concept of social exclusion Disproportionately effects people on low incomesDisproportionately effects people on low incomes

13 Social Exclusion is a shorthand term for what can happen when people or areas suffer from a combination of linked problems such as unemployment, poor skills, low incomes, poor housing, high crime environments, bad health, poverty and family breakdown Kempson et al FSA 2000, p 7

14 Whats financial exclusion? –No bank account –No savings –No assets –No access to money advice (or financial capability education) –No insurance –No access to affordable credit PAT 14s 1999 report, Access to Financial Services and HM Treasury 2004

15 Extent of financial exclusion in UK Over 1.6 million adults in the UK do not have access to a transactional bank account, (Fin Inclusion Task Force 2010)Over 1.6 million adults in the UK do not have access to a transactional bank account, (Fin Inclusion Task Force 2010) –Of the 2.7m originally found to be unbanked, 1.1 m have been moved into banking 54% of unbanked are family households (Policis / FPF 2011) At least 800,000 children live in households without bank accounts (HMT 2006).54% of unbanked are family households (Policis / FPF 2011) At least 800,000 children live in households without bank accounts (HMT 2006). 64% of low income households have no cash savings, rising to 74% of those in the lowest income quintile Source : Policis / FPF % of low income households have no cash savings, rising to 74% of those in the lowest income quintile Source : Policis / FPF m home credit users. Circa 1m payday users. 25% of home credit users and 23% of payday users dont have other credit options. Source : Policis / FPF 2011 payday use up to near 2m2.4 m home credit users. Circa 1m payday users. 25% of home credit users and 23% of payday users dont have other credit options. Source : Policis / FPF 2011 payday use up to near 2m

16 Extent of financial exclusion in UK 1.1 m low income individuals need to borrow and have been unable to do so in last two years. Policis and FPF m low income individuals need to borrow and have been unable to do so in last two years. Policis and FPF % of low income households – circa 5 individuals - believe that it would be impossible for them to borrow £200 – 500 from a mainstream lender Source : Policis / FPF % of low income households – circa 5 individuals - believe that it would be impossible for them to borrow £200 – 500 from a mainstream lender Source : Policis / FPF ,000 users of illegal money lending, 2% of low income population rising to 6% of most deprived communities Source: Policis / BIS ,000 users of illegal money lending, 2% of low income population rising to 6% of most deprived communities Source: Policis / BIS million households in social housing lack contents insurance, while they are twice as likely to be burgled as people living in privately owned properties (Widening the safety net; Demos, 2005)3 million households in social housing lack contents insurance, while they are twice as likely to be burgled as people living in privately owned properties (Widening the safety net; Demos, 2005) 60% of all calls to Citizens Advice about debt and benefits60% of all calls to Citizens Advice about debt and benefits –Around one in four of the issues brought to Scottish bureaux relate to debt

17 Extent of financial inclusion Two-thirds (67 per cent) of low-income credit users, some 6.7 million individuals, pay behaviour-driven costs on their mainstream credit use. On an annualised basis 3.6 million, or 44 per cent of the 8.2 million low-income borrowers, incur behaviour-driven costs. These account for a total of £630 million per annum and an average per head of £174 per annum.Two-thirds (67 per cent) of low-income credit users, some 6.7 million individuals, pay behaviour-driven costs on their mainstream credit use. On an annualised basis 3.6 million, or 44 per cent of the 8.2 million low-income borrowers, incur behaviour-driven costs. These account for a total of £630 million per annum and an average per head of £174 per annum. –Friends Provident Foundation 2011

18 Financial Exclusion Originally seen as a geographical issue (Leyshon and Thrift 1995)Originally seen as a geographical issue (Leyshon and Thrift 1995) –Reduction of financial retail outlets in poorer communities –Bank and building society closures –Problems of physical access and car ownership 'the inability to access necessary financial services in an appropriate form. Exclusion can come about as a result of problems with access, conditions, prices, marketing or self-exclusion in response to negative experiences or perceptions' (Sinclair, 2001).'the inability to access necessary financial services in an appropriate form. Exclusion can come about as a result of problems with access, conditions, prices, marketing or self-exclusion in response to negative experiences or perceptions' (Sinclair, 2001).

19 FSA 2000 – Kempson access exclusion: restricted access via the processes of risk assessment;access exclusion: restricted access via the processes of risk assessment; condition exclusion: where the conditions attached to financial products make them unsuitable for the needs of some people;condition exclusion: where the conditions attached to financial products make them unsuitable for the needs of some people; price exclusion: where some people can only access financial products at prices they cannot afford;price exclusion: where some people can only access financial products at prices they cannot afford; marketing exclusion: where some people are effectively excluded by targeted marketing and sales;marketing exclusion: where some people are effectively excluded by targeted marketing and sales; self-exclusion: people decide that there is no point in applying for a financial product because they believe that they would be refused. These beliefs can arise from many experiences and perceptions.self-exclusion: people decide that there is no point in applying for a financial product because they believe that they would be refused. These beliefs can arise from many experiences and perceptions.

20 The financially excluded the long-term unemployed;the long-term unemployed; old-age pensioners;old-age pensioners; those excluded from earnings because of sickness or disability;those excluded from earnings because of sickness or disability; female single parents;female single parents; certain ethnic minority groups, especially Pakistani and Bangladeshi households;certain ethnic minority groups, especially Pakistani and Bangladeshi households; those reliant on state welfare benefits or living in rented accommodation.those reliant on state welfare benefits or living in rented accommodation. –Sinclair 2001 CHANGING NOW AS RESULT OF RECESSION

21 The impact of exclusion higher charges for basic financial transactions and credit – lack of access to a bank account means that certain financial transactions such as money transfer and cheque cashing may be more expensive;higher charges for basic financial transactions and credit – lack of access to a bank account means that certain financial transactions such as money transfer and cheque cashing may be more expensive; –Pre-payment meters can mean an extra £215 pa on energy bills no access to certain products or services – a range of services, such as contract mobile telephones, require a bank account for regular Direct Debits;no access to certain products or services – a range of services, such as contract mobile telephones, require a bank account for regular Direct Debits; lack of security in holding and storing money – operating solely on a cash budget leaves people more vulnerable to loss or theft;lack of security in holding and storing money – operating solely on a cash budget leaves people more vulnerable to loss or theft; barriers to employment – a bank account for receipt of wages is a basic requirement for most employers; andbarriers to employment – a bank account for receipt of wages is a basic requirement for most employers; and entrenching exclusion – having no formal banking or credit history at all can be as much of a disadvantage as an impaired credit history in accessing certain financial services.entrenching exclusion – having no formal banking or credit history at all can be as much of a disadvantage as an impaired credit history in accessing certain financial services.

22 The impact of exclusion To the community and societyTo the community and society –Linked to child poverty –Costs of the benefit system –Greater links to social exclusion HM Treasury 2004 Lack of access to finance is often the critical mechanism behind both persistent income inequality and slow economic growth.Lack of access to finance is often the critical mechanism behind both persistent income inequality and slow economic growth. Hence financial sector reforms that promote broader access to financial services should be at the heart of the development agenda. World BankHence financial sector reforms that promote broader access to financial services should be at the heart of the development agenda. World Bank

23 Life on a Low Income "I've got to put my money away for bills before I can relax and even think about food.""I've got to put my money away for bills before I can relax and even think about food." "When you're pushing the trolley around and you see people pushing one that's almost full and yours isn't, I think 'I wish I could just put what I wanted in and not have to worry', but I can't.""When you're pushing the trolley around and you see people pushing one that's almost full and yours isn't, I think 'I wish I could just put what I wanted in and not have to worry', but I can't." "You feel degraded. You think other people know that you are in debt. You think you have done something wrong.""You feel degraded. You think other people know that you are in debt. You think you have done something wrong." "Little things that never mattered before are suddenly major issues and you fight over them. I fight with him [her husband], I shout at the kids, he does as well and the kids cry.""Little things that never mattered before are suddenly major issues and you fight over them. I fight with him [her husband], I shout at the kids, he does as well and the kids cry." KEMPSON

24 The impact of recession Credit refusals rising for allCredit refusals rising for all Higher risk borrowers experiencing refusalsHigher risk borrowers experiencing refusals Home credit borrowers – finding it difficult to access credit in the last year – double the refusalsHome credit borrowers – finding it difficult to access credit in the last year – double the refusals Greater moves to access third sector and higher cost credit by people on more moderate incomesGreater moves to access third sector and higher cost credit by people on more moderate incomes

25 A more cohesive society for a stronger EuropeA more cohesive society for a stronger EuropeA more cohesive society for a stronger EuropeA more cohesive society for a stronger Europe Financial Services Provision and Prevention of Financial ExclusionFinancial Services Provision and Prevention of Financial ExclusionFinancial Services Provision and Prevention of Financial ExclusionFinancial Services Provision and Prevention of Financial Exclusion Country reportsCountry reportsCountry reportsCountry reports European consumer debt networkEuropean consumer debt networkEuropean consumer debt networkEuropean consumer debt network FinanciteFinanciteFinancite Financial exclusion in Europe

26 What can be done? Does Government have a role?Does Government have a role? Do banks and other financial providers have a role?Do banks and other financial providers have a role? Does third sector finance have a role?Does third sector finance have a role?

27 The role of credit unions in Britain So let me take this opportunity to recognise the value of third sector lenders – like credit unions – who have a huge role to play expanding the provision of affordable credit, and opening up opportunities for people.So let me take this opportunity to recognise the value of third sector lenders – like credit unions – who have a huge role to play expanding the provision of affordable credit, and opening up opportunities for people. Lets be clear on this – they cant solve everything, but they can do much to help out. Theyre excellent at targeting people whore financially excluded from financial services.Lets be clear on this – they cant solve everything, but they can do much to help out. Theyre excellent at targeting people whore financially excluded from financial services. Economic Secretary to the Treasury 2005Economic Secretary to the Treasury 2005

28 Changing Credit Unions The Path to Quality Credit UnionsThe Path to Quality Credit Unions –Traditional model credit unions –Business-oriented credit unions –New Model Credit Unions –Regulated Credit Unions –Quality Credit Unions

29 Traditional model credit unions Social focus rather than business orientatedSocial focus rather than business orientated Small community operationsSmall community operations –Entirely volunteer run and vulnerable to burn out Personal and community developmentPersonal and community development Not built for expansion and growthNot built for expansion and growth Influence on industrial sectorInfluence on industrial sector Impact – real but marginalImpact – real but marginal –By 1998, average membership community credit union was around 200 members –40% of community credit unions in England and Wales were financially weak

30 1999 – Business-oriented credit unions Towards sustainable credit union developmentTowards sustainable credit union development Move to become more business focusedMove to become more business focused Business plans, leadership and promotionBusiness plans, leadership and promotion Employing staff, high street premises, computerisationEmploying staff, high street premises, computerisation Serving a more diverse membershipServing a more diverse membership Support of Government and local authoritiesSupport of Government and local authorities Signs of growth within individual credit unionsSigns of growth within individual credit unions

31 2001 New Model Credit Unions Learning from the International MovementLearning from the International Movement Business and market orientationBusiness and market orientation Radical financial and organisational restructuringRadical financial and organisational restructuring Financial discipline – introduction of PEARLSFinancial discipline – introduction of PEARLSPEARLS Commercialisation and mainstreamingCommercialisation and mainstreaming –to be successful, credit unions must attract a varied membership base Fundamental to developing capacity to serve low income communitiesFundamental to developing capacity to serve low income communities Rationalisation of the movementRationalisation of the movement –Significant growth within individual credit unions

32 Facing into the paradox New model, poverty alleviation and financial exclusionNew model, poverty alleviation and financial exclusion If credit unions are to achieve the social goal of combating poverty and financial exclusion, they have to first attain economic viability and commercial successIf credit unions are to achieve the social goal of combating poverty and financial exclusion, they have to first attain economic viability and commercial success

33 2002: Regulated credit unions The impact of FSA regulationThe impact of FSA regulation Introduction of Approved Persons RegimeIntroduction of Approved Persons Regime Established operational standards and financial disciplineEstablished operational standards and financial discipline Development of a culture of complianceDevelopment of a culture of compliance Impact on service deliveryImpact on service delivery –Financial Services Compensation Scheme 59% of directors think Approved Persons Regime is a good thing. More likely to say this in larger CU:59% of directors think Approved Persons Regime is a good thing. More likely to say this in larger CU: –76% directors in 5,000 plus member CU –50% directors in 200 or less member CU

34 2005: Quality Credit Unions New Model in the British contextNew Model in the British context –learning from the West Midlands Modern and professional, accessible and visibleModern and professional, accessible and visible Commitment to good governanceCommitment to good governance BBCU – credit unions not meeting WOCCU standards Customer focusedCustomer focused researches, understands and meets member wants understands dynamics of the low income market Accessible savings, affordable credit, transaction services, insurance, money advice, money management support Access to Credit on a Low Income (Co-operative Bank 2001)

35 2005: Quality Credit Unions Emphasising savings mobilisation Child Trust Fund and ISAs Flexible and responsible approaches to lending BBCU – includes greater use of credit scoring Development of transaction services ABCUL and The Co-operative Bank new project Benefit direct accounts Insurance services Money advice and financial education

36 Effective promotion and delivery Through partnerships and networksThrough partnerships and networks –Working strategically with other organisations –Reaching out to the community through others –Councils and local authority departments, Sure Start, Primary care trusts, housing associations, employment agencies, schools, refugee councils, CAB offices, community and charitable organisations, victim support groups, churches and faith groups Promoting mutual benefitsPromoting mutual benefits

37 Financial Inclusion - HM Treasury Promoting Financial Inclusion 2004Promoting Financial Inclusion 2004 –Free face to face money Advice –Access to Banking –Access to affordable Credit Financial Inclusion: the way forward 2007Financial Inclusion: the way forward 2007 –Save savings –Insurance –Helping people with financial distress – including how banks can help

38 Financial Inclusion the way forward Ensuring that everyone has access to appropriate financial services, enabling them to – Manage their money on a day-to-day basis, effectively, securely and confidentlyManage their money on a day-to-day basis, effectively, securely and confidently Plan for the future and cope with financial pressure, by managing their finances to protect against short-term variations in income and expenditure and to take advantage of longer-term opportunitiesPlan for the future and cope with financial pressure, by managing their finances to protect against short-term variations in income and expenditure and to take advantage of longer-term opportunities Deal effectively with financial distress, should unexpected events lead to serious financial difficultyDeal effectively with financial distress, should unexpected events lead to serious financial difficulty

39 Capital Credit Union Ltd Capital Credit Union LtdCapital Credit Union LtdCapital Credit Union LtdCapital Credit Union Ltd Capitals CE0 talks about combating extortionate lendingCapitals CE0 talks about combating extortionate lendingCapitals CE0 talks about combating extortionate lendingCapitals CE0 talks about combating extortionate lending

40 DWP Growth Fund DWP - THE GROWTH FUND 405,134 loans to a total value of £175,351,444. (May 2011) Circa 100 credit unions delivered GF –86% of loans and 86% of the money 76% of credit unions delivering Growth Fund say it had assisted growth (2008) Eight in ten Growth Fund lenders reported that their organisation had improved its working practices as a result of the Growth Fund and now operated in a more business-like way. (2011)

41 Impact of FI Agenda From tackling poverty to promoting financial inclusion – change of emphasis Focus away from solely the provision of loans Widening access to credit union membership in low income communities Some concerns: Danger to long-term sustainability as co-operative and mutual financial institutions? Impact on image of credit unions? Concern about return of dependency?

42 Scaling up credit unions Enabling legislation and proportionate regulation Sound governance and strong management Sustainable business models, products and services Appropriate investment

43 Legislation and regulation Enabling legislation 2012 More flexible common bond (field of membership test) Organisational and corporate membership Once a member always a member Interest not just dividends on savings deposits Proportionate regulation 2012 Higher level of capital adequacy than basic solvency, of at least 3% Additional provisioning for bad debt FSA to act on credit unions who are out of compliance

44 Governance and Management Sound governance Corporate Governance Code Recruitment drive for new board members Corporate volunteering initiatives. Strong management 83% of LWCUs now employ paid staff (2008) Operational training available face to face and online Leadership development opportunities Secondment programmes. Formal mentoring systems

45 Products and services Affordable credit, but also – Safe Savings, building personal assets – Insurance – Mortgages –Cash ISA, Childrens Accounts, –Christmas Accounts, etc –Financial Education –Flexible payment options – –benefit deduction, payroll deductions, cash collection

46 Credit Union Current Account 25 credit unions, over 30,000 accounts VISA Debit card + LINK ATM network Payment of salary/benefits Direct Debits and Standing Orders Not reliant on high penalty charges to cover costs Uses back office facilities of Co-operative Bank, but accounts are controlled and run by each credit union.

47 Credit unions in London 35 credit unions in Greater London Serving 27 of Londons 33 boroughs Strong social and community focus Growing faster than in Britain generally 2005 – 2009 –Assets up 92% (national increase, 44%) –Loans up 70% (national increase, 36%) –Savings up 79% (national increase, 39%)

48 Modest penetration In 2009, 60,000 credit union members in London 1% of Greater London population Growing at 18% per annum Demand-side research revealed 0.75m individuals, (30% of low-income Londoners and 42% of social tenants), lacked access to credit

49 Financial Inclusion Growth Fund September 2006 and to March 2011, 11 credit union contractors in London have: –Granted over 44,000 loans to low-income borrowers, 78% of whom are women and over 80% social housing tenants –Made loans to total value of over £19 million –Opened over 25,000 current or savings accounts for Growth Fund borrowers –Maintained less than 10% DWP target delinquency rate16 on loans in 87% of the participating credit unions GF credit unions grown most significantly –80% increase in savings since 2005 – 2009 (non GF 43%)

50 Financial challenges Low income to average assets –50% negative net income High operating expenses –9 exceed 10% expense to average asset ratio –Endemic to serving segments of low income market Bad debt –GF credit unions 9%; non-GF 11.7% Dependency on external subsidy Loan to asset ratio – 57% GF and 56% others Need to maximise savings Need to price realistically

51 Organisational challenges Leadership, governance and management Consistency in products and services Serving wider target market Developing information technology Developing effective partnerships

52 Rationalisation and strain Focus on business efficiencies Expansion and merger –Current approach to increasing efficiency and driving down costs Current credit union model under strain –Organisational and financial strain –Impact of new legislation and regulation

53 Collaboration Current model – atomistic and competitive Need for radical new approach WOCCU – greater collaboration, greater market share Fischer (2002, 2005) Need for cohesive, networked and integrated system –To drive scale, efficiency and performance

54 A cultural shift A focus on commonality rather than uniqueness and a radical increase in operational excellence (Grace 2010) Focus on shared back and front office services Dependent on trust and commitment

55 Harnessing technology The electronic hub – or the back office Collaboration on back office functions Facilitate new products and services Enable link with the Post Office and other partners

56 Government support Coalition Government – success of the Financial Inclusion Growth Fund Credit Union Expansion Project (£35.6 million) Looking for step change in governance and organisational capacity Project to be managed by Cornerstones and ABCUL – from 2013 to 2015

57 57 Nos. of CUs vs. Nos. Of Members Number of credit unions Credit union membership

58 Credit Union Growth

59 Finale This is our credit union This is our credit union


Download ppt "The World of Credit Unions Dr. Paul A Jones Research Unit for Financial Inclusion."

Similar presentations


Ads by Google