When you are on a low
income, it is very difficult to get credit. And yet, most of us could
not manage certain purchases outright, even if we get a decent wage.
This is where the Credit Union offers a real alternative.
Run by a volunteer board
of directors which are elected by its members, a Credit Union is
basically a financial cooperative, owned and controlled by its members.
They offer affordable
loans and encourage members to save. By law, the maximum a Credit Union
can charge is 12.7% and this is charged on an ever reducing balance,
which means that every week or month, you will pay less and less
interest. There are no hidden charges and you will not be penalised for
repaying the loan early.
Anyone can join a credit
union, as long as they are part of the 'common bond'. This could be
people living in a shared area, working for the same employer or
belonging to the same association.
So how do you start your own credit union?
The average time it
takes to establish a credit union is between one and three years. The
minimum number of members required for the initial set up is 21 and the
maximum number of members once you are established is limited to just
After you have secured enough members to start your union, there are a number of tasks which will need to be completed.
• Firstly, decide on a common bond – where your credit union will operate
• Get a group together with the necessary range of skills and experience to develop a successful community business
• Carry out a pledge
drive – find out just what demand there is for a credit union in the
area you wish to service and use the information obtained to inform
your business plan projections
• Join The Association
of British Credit Unions (ABCUL) as a Study Group member – for just £35
a year, you get a full manual and access to all of ABCUL's information
• Discuss and research
your plans with the regulators – The Financial Services Authority (FSA)
will need to approve your common bond and satisfy itself that your
business plan and policies and procedures meet its standards. The FSA
website www.fsa.gov.uk gives the regulatory requirements Credit Unions
now have to meet to safeguard member's money in the same way as banks
and building societies
• Obtain funding & sponsorship -and include the figures in your business plan
• Choose officers –
Officers and employees of the credit union will need to obtain
‘Approved Persons Status' from the FSA, and will need training for
• Think about marketing & promotion and how you will meet your business plan targets
• Launch your credit union.
It is also vital to
secure sponsorship from local sources, such as employers, housing
associations, business groups or councils as setting up your own credit
union can initially be an expensive process. ABCUL estimates the costs
at between £30,000 and £70,000 in setting up a scheme with premises and
staff for the first three years.
Credit unions in the UK
are also required to reach a statutory minimum reserve of 10 per cent
of aggregate assets to protect their members. Until they reach this
level, credit unions should transfer at least 20 per cent of their
surplus into reserves each year.
Covering you and your members
In the UK a credit union
has to take out insurance to protect its members' funds from fraud and
mismanagement. However, there is no industry-wide compensation scheme
to protect members' savings should a credit union become bankrupt.
Before you set up your
credit union from scratch, consider investigating if credit unions in
neighbouring areas would be willing to expand their common bond to your
locality or place of employment.
Many credit unions are
expanding their common bonds to cover much larger populations, and your
area may already be included in someone else's plans. ABCUL can advise
you on initiatives happening where you are, and put you in touch with
the right people.
To the wider community,
a Credit Union improves the general financial knowledge of its member
and offers training to its volunteers investing in local money.
It helps restore a sense
of pride in disadvantaged and disaffected communities and provides a
means of targeting financial exclusion.
For further advice and assistance on setting up your own credit union visit www.abcul.org.