Credit unions extend savings, low cost borrowing and financial education to people on low incomes, according to a government consultation paper on possible legal reforms. Published on November 16, Proposed Amendments to the Credit Unions Act 1979 outlines a series of measures to help expand the credit union movement, which currently has over 200,000 members across the UK and more than £100 million assets. Among proposals are lifting the limit on membership from the current level of 5,000, while extending loan repayment periods and relaxing the ‘common bond’ rules, which mean that members must work together or live in the same community.
The consultation document follows a seminar at No 11 Downing Street on November 3, at which the government and UK banks and building societies heard from US representatives about the American experience of community development banking. Speakers included representatives from Shorebank of Chicago, Bankers Trust and Bank of Scotland. Contact Zubeda Esmail, Treasury, on 0171 270 4487 (www.hm-treasury.gov.uk)
FINANCIAL EDUCATION
The Financial Services Authority is considering a range of measures to promote public understanding of financial services and products. Among the proposals in a consultation paper launched on November 12 are adding financial literacy to the National Curriculum, setting up a consumer helpline and promoting lifelong learning through employers and trade unions. The FSA is the first industry regulator to be given a statutory obligation for consumer education.
In the week before the launch of the paper, representatives of more than 100 community organisations, brought together under the umbrella of the new Citizen Organising Foundation Institute, demonstrated outside FSA offices in London. They were protesting at the absence of banking and insurance services in deprived inner city areas and isolated communities. Contact Sarah Modlock, FSA, on 0171 676 3234 (www.fsa.gov.uk)
GRASSROOTS FINANCE
A growing number of alternative, small scale financial initiatives are filling the gap left by closure of branch banks in disadvantaged neighbourhoods, the Joseph Rowntree Foundation has found. A study for the Foundation by the New Economics Foundation, published on November 16, Small is bankable: community reinvestment in the UK, describes the role played by credit unions, community loan funds, micro-finance funds and social banks. They generally have very low bad debt rates, no more than 3%, and the study describes how technical assistance from the private sector is helping. It suggests that Britain could follow the US example of community investment disclosure. Contact David Utting, JRF, on 0171 278 9665 (www.jrf.org.uk)
CHARITIES COULD BENEFIT
Unity Trust Bank, the specialist bank for charities owned by the trade unions, say charities could be ideally placed to take advantage of the new credit union rules, through their existing network of supporters and members. Unity has published A guide to credit unions, which details the advantages of membership and encourages charities to set up their own credit unions. Contact Stephanie Lennon, Unity, on 0121 616 4149 (www.unitygroup.co.uk)
SOCIALLY RESPONSIBLE INVESTMENT
The All-Party Parliamentary Group on Socially Responsible Investment met on November 9 to discuss financial exclusion and the case for community reinvestment disclosure by banks. Building on research by the New Economics Foundation, which has produced a brief on US legislation relating to the disclosure of community lending performance, Tony Colman MP has already proposed a 10 minute rule bill seeking reinvestment disclosure by UK banks. Gordon Pell of Lloyds TSB commented on the proposals from the perspective of a major UK clearing bank.
Tony Colman also presented a Private Member’s Bill to Parliament on November 18 which would require financial advisors to ask their clients about ethical, social or environmental concerns which they wish to have taken into account. Contact Penny Shepherd, UK Social Investment Forum, on 0171 404 1993
LOCAL INVESTMENT FUND GRANT
The National Lottery Charity Board has awarded £115,723 over three years to the Local Investment Fund, so it can employ a full time loans manager and launch regional community loan funds. LIF is a partnership between the DETR, BITC and the private sector led by NatWest, providing loan finance to economically viable voluntary organisations which have been refused conventional bank finance. Since 1994, it has made 12 loans totalling £1.2 million. The first regional fund is to be launched in Merseyside, where Girobank will be lead funder, with matching funding coming from the European Union. Then the Co-operative Bank will lead a second fund serving the North West, with other areas to follow. Contact Virginia Pilbrow, LIF, on 0171 224 1600
Comment
Community Affairs Briefing has been warning for several years now that access to financial services by disadvantaged communities was a growing issue of public debate. It is now very clearly a `hot topic’ in corporate social responsibility. The Treasury is not just promoting credit unions; as reported elsewhere in this issue, it has launched a radical review of the whole UK banking industry. The industry regulator is moving beyond the prevention of abuse into the promotion of good practice.
We live in an era when state handouts are more scarce, corporate donations budgets are constrained and banks play safe in lending. The consequences are felt not just by community organisations but by individuals too – for example, will people on low incomes and with no experience of financial planning really make provision for their retirement when the state pension falls further in value?
To use a monetary metaphor, the effect of this reduced role for the state is actually a coin with two sides. Support for credit unions and community enterprise funds helps teach the individuals involved in their running more about finance. Support for financial literacy education helps individuals play a more active role in their community organisations. This is because grass roots community organisations in deprived areas can reach individuals other agencies cannot. This virtuous circle is one which the financial services industry must actively accelerate, or face ever stronger calls for greater regulation.
COMMENTS