Christians have been involved with credit unions since they first reached these shores. North Birmingham had strong links with Catholic, Baptist, Methodist and Anglican churches through hosting collection points and providing volunteers. But in many ways it fell into the category of mission or outreach, part of what we could call the Church’s ‘bias to the poor’. If Christians joined the credit union they did so in the capacity of ‘Angels’, investing capital for the encouragement of others and to enable the lone parent at mums and tots to buy a washing machine. In 2013 the Financial Services Compensation Scheme produced an information video outlining its work with credit unions and it featured a very telling comment from a vicar in regard to his local credit union “my idea with the credit union is that I was giving twenty quid a month to a good cause”. But as long as people choose to view credit unions in the same light as a charity or a good cause they will never provide a ground breaking and sustainable alternative to banks and finance companies. Credit unions need to be the lender of choice for people of choice, they need customers not patrons.
2011 saw the end of the DWP Growth Fund and many local authorities having to tighten their belts. Many credit unions had been unable to achieve sustainability during the ‘fat years’ and went under, in the West Midlands, for example, seven community credit unions cease trading in an two year period between 2011-2013. Often this was due to a combination of factors, poor credit control and governance primarily but with the residualisation of the credit union sector it became increasingly difficult to community credit unions to stay afloat. Concentrating on high maintenance low income borrowers made it almost impossible to make the cost of delivering a loan less than the interest charge on it. To give you an example of how this works take one community credit union that issued 600 £500 loans in November compare this with a bank that issued the same total £300,000 but as 40 £7500 loans. The credit union has to process 2400 weekly repayments per month (low income loans are almost always repaid weekly) compared with the bank processing just 40. If the credit union is fortunate it will maintain default at around 5% but even at that rate it will involve some kind of recovery action against 30 borrowers. For the bank 2.5% default results in just 1 account to manage. Without a balanced portfolio, this kind of labour intensive lending becomes untenable and the credit union goes ‘bump’. When this happens the community credit union is just another project aimed at helping the poor that was unsustainable and reinforces the idea that the poor cannot help themselves.
Sadly Christians, particularly those working in deprived areas are used to failure, to projects that lose their funding, ideas that never take off, and schemes that fall apart when key personnel move on. And while it is painful for those involved at the same time there is a tendency to spiritualise things, to see the whole thing, ending included, as part of the divine plan, the effort is never wasted, after all, ‘the word of the Lord never returns empty’. But by making credit unions into a campaign to alleviate poverty for the disadvantaged rather than promoting a fair and just finance for all, how much do we contribute to the ongoing perception of the ‘poor man’s bank’ and bang another nail in the coffin of community finance?