Roehampton Study Of Credit Unions

Published by Graham Tomlin for Credit Union Solutions Ltd in Central Government and also in Education, Health, Housing, Local Government

A recent study of the effectiveness and efficiency of credit unions by Steve Hope of Roehampton University has concluded that whilst there has been support for the sector by Government through the DWP’s Growth Fund, nevertheless the profitability of the sector as a whole has declined in recent years.

Growth Fund credit unions were significantly up scaled by comparison with the modest 3% growth per annum over the last decade of the sector as a whole. Growth Fund, which targeted what is still a relatively high risk group of members, is a high cost operation and one which is unlikely to be expanded in future years given the likely future capacity of credit unions.

The report observes that loan delinquencies are an increasing problem with average provision increasing from 2% to 4% between 2003 to 2008, with the likelihood of further increases in provision in the future. Going forward the numbers of credit unions continues to decline as more mergers and closures occur while the regulator requires ever increasing bad debt provisions and increased professionalism.

By contrast the larger credit unions have now developed such that they overlap with building societies. In general the larger credit unions have a strong employer base which also reduces their cost base.

Steve Hope’s report says.

“There is therefore little doubt about the continuing need for the sector as a whole to attract forms of external support if more credit unions are to reach the ideal of financial independence over the course of the next decade. Fundamentally it is also questionable whether credit unions that are focused in large or major part on serving those who are financially excluded can reasonably expect to become financially independent.”

He goes on to say that.

“Credit union service organisations (CUSOs) are widespread in other parts of the world and this offers some encouragement in the UK context. However, it is also fair to say that the local ground up initiative of a shared services model in West London, while encouraging locally in terms of the sustainability of those involved has, surprisingly perhaps, not been adopted elsewhere in the movement.”

Steve Hope closes by calling for a more open debate across the movement and better and more widespread access to accounting information.

This report paints a somewhat bleak picture for the future for credit unions. If we concentrate on serving those that need us most we run the risk of insolvency and if we just concentrate on those members that can access credit virtually anywhere we make the financially excluded even more so.

My view is that we need much more information about what percentage of financially excluded customers is optimal for keeping us afloat. Giving Steve and other researcher’s information can only do us good and assist our arguments for funding.

As you would expect I would urge small credit unions to cooperate together rather than die apart. There is no merit in expending thousands of volunteer hours just to end up being forced to close by virtue of the need to increase bad debt provision. Credit Union Solutions is but one model of a CUSO and we offer all credit unions advice on what we did right and what to avoid. After all how do you sell the concept of financial cooperation if you cannot cooperate together?