New legislation is needed to allow credit unions to play a leading role in tackling social exclusion, a study by the New Economics Foundation with support from NatWest has found. Launched on October 13 to mark International Credit Union Week, the report, A Commitment to People and Place, says that more than one in four people (26%) do not have a bank or building society current account. So credit unions should be allowed to offer mainstream banking services. It also calls for ‘red-lining’ by the financial services industry to be monitored by the new regulatory authority, with banks required to disclose information on their services for low income groups, along the lines of the Community Reinvestment Act in the USA. Over 175,000 people already save regularly with a credit union. Contact Ed Mayo, NEF, on 0171 377 5696 or Andrew Robinson, NatWest, on 0171 454 6915
RESPONSIBLE CREDIT
The European Commission is supporting research in Germany, France and the UK on the social responsibility of credit institutions, looking at opportunities to develop social economy banking. The UK study was published on November 19 and is also supported by the Charities Aid Foundation, Kellogg’s and Unity Trust Bank.
The report contrasts the great concern shown by the government and Bank of England to services for small businesses with the lack of attention to voluntary sector financing. Identifying ?1.2 billion of existing socially-directed investment and ?300 million in credit unions, it makes more than 30 recommendations for action by banks, the government and the third sector itself, including an obligation under the Banking Code of Practice to report on services for low income consumers and community groups. Contact Malcolm Lynch Solicitors on 0113 242 9600
REBUILDING SOCIETY
A new organisation to support local social investment loan funds was launched on November 20. The Rebuilding Society Network includes the three main funds already operating in the UK (the Aston Reinvestment Trust, Glasgow Regeneration Fund and Totnes Local Investment Trust) and aims to develop successful models, share best practice and provide technical services. Among initial funders are Barclays Bank and Friends Provident. Contact Danyal Sattar, RSN, on 0121 523 6886
CHARITABLE CARPET BAGGERS
The Nationwide Building Society, which was under pressure from some members to demutualise, has imposed a restriction on opening new accounts to deter speculators. From November 3, a customer opening a current, savings or mortgage account had to agree irrevocably to assign any ‘windfall’ benefit, should the society ever incorporate, to a newly established Nationwide Foundation. Other building societies are considering similar moves, including the Yorkshire Building Society which is considering limiting the charity restriction to two years. Contact James McCormick, Nationwide, on 01793 513513
BUILDING BANKS
The newly-formed Northern Rock Foundation has appointed Fiona Ellis as director and is likely to focus its first grants programme in 1998 on the needs of disabled people and their carers. The company joined the Stock Market in October, having decided to demutualise earlier in the year, vesting 5% of shares in the Foundation. Each year the Foundation will receive 5% of pre-tax profits under covenant, which would have been worth around ?8 million in 1996.
Meanwhile the Greater Bristol Foundation had received £160,000 by October in donations from members of the former Bristol and West Building Society. Nearly 2,500 people contributed from their ‘windfall’ gain following the merger with the Bank of Ireland. Contact Kate Stewart, Northern Rock, on 0191 279 4114 or Helen Moss, Greater Bristol Foundation, on 0117 921 1311
EXPANDING SUPPORT
Allied Dunbar has published its 1996/97 community report, showing that the Charitable Trust makes grants of over £1.5 million a year, funded from 1% of profits. The separate Staff Charity Fund made grants totalling more than ?400,000, while the Allied Dunbar Foundation involves financial advisers, with an additional ¬% of profits.
On November 25, the financial arm of BAT Industries, British American Financial Services, announced the renaming the Allied Dunbar Charitable Trust as the BAFS Trust to promote community involvement projects across the whole BAFS group including Eagle Star and Threadneedle Asset Management. The Trust concentrates on issues which generally find difficulty gaining popular backing, as well as supporting staff involvement. It has donated more than ?25 million since it was set up in 1973. Contact John Bickell, Allied Dunbar, on 01793 514514
SPECIAL INTERESTS
The Lloyds TSB Foundation for England and Wales has issued new guidelines for applicants for 1998, following a review of areas of special interest. The overall policy of helping disadvantaged or disabled people remains, and priorities now include advocacy for people with learning disabilities, crime prevention involving young people, employment training and homelessness. The England and Wales foundation receives nearly three quarters of the annual covenant income from the Group, based on 1% of pre-tax profits averaged over three years. By 1999 the foundations’ annual income is expected to exceed ?25 million. Contact Kathleen Duncan, Lloyds TSB Foundations, on 0171 204 5276
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Should we have a Community Reinvestment Act in the UK? Gordon Brown toyed with the idea in opposition, but dropped it as likely to worry business in the run up to the election. The lessons from the USA are mixed. On the positive side, it has had the effect of forcing banks to think about the services they offer the ‘bottom end’ of the market. The best ones then see profitable market opportunities, with the CRA portfolio often being ten or fifteen times as large as the community contribution programme and even more effective.
The danger of regulation is that people follow the letter of the law, not the spirit. The rules end up driving the process, not the needs of the community nor the business. So the better strategy is two fold: first, free up the regulation on the not-for-profit and community competition like credit unions, so banks get a run for their money; second, require all banks under the Code of Practice to report fully each year on what they do for low income customers. That will create the right climate and allow those already taking action, for example keeping open a marginal inner city branch, to get some credit.
Meanwhile community affairs managers (and the directors of new building society foundations) should seriously consider putting some of their budgets into community loan funds, as risk capital not needing a full commercial return. At worst, the money is spent once as with a donation. At best, being repaid with interest, its effect is multiplied.
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