Credit unions today and the challenges they face

An interesting commission came my way recently from Co-operative News to take stock of the state of the credit union movement across the world. The piece is now published and can be found on CN’s website. (There’s also a link on my own website, www.andrewbibby.com/coops.html)

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What future(s) for Britain’s credit unions?

I’ve been looking at the HM Treasury document published last month as part of its public consultation on the future of credit unions in Britain.

The government is asking, among other things, about credit union legislation and the future of the common bond concept.  Or, in short, it’s asking what needs to be done to make credit unions more secure and more effective.

I do admit to the occasional worry about our credit unions.  I worry on the one hand that, as the trend grows for them to become bigger and more professional, they are heading off in exactly the same trajectory as our building societies, where member ownership became little more than a legalistic formality.  I worry about my credit union no longer feeling as though it is ‘mine’, or rather ‘ours’.  But then conversely I worry that strategic oversight by elected volunteer boards isn’t really up to the job of looking after its members’ money in a properly efficient way. A friend complained the other day that she’d been waiting a month for her (and my) credit union to sort out a problem with her account.  The letter she’d sent had brought no reply.

I suppose I have another worry, too, and that is ironically caused by the very enthusiasm with which the government recently has been embracing the credit union idea, as the answer to everything from loan sharks to small business finance needs. As coops around the world know very well, too much top-down influence (and funding) doesn’t always produce the most appropriate answers.

It’s interesting is to see what we can learn from countries where the credit union movement is more developed, so it’s fortuitous that the latest issue of the Journal from the Society for Co-operative Studies which has just arrived through the post has a useful piece by Paul Thompson on credit unions in the US.  What’s particularly interesting – and perhaps slightly depressing – is to see how closely the three challenges Paul identifies for the US movement mirror what I see as the issues here too.

The first, according to Paul, is the challenge of fostering credit union philosophy (he calls for credit unions to have a ‘philosophical compass’ to keep them on the right path of providing honest reliable service to members, and avoiding staff convenience and self-aggrandisement).

Secondly, he identifies a challenge of maintaining credit union democracy  as they grow in size and lose direct contact with members.  And thirdly he detects a governance challenge for management boards (“During the past 40 years, boards of directors have been playing catch-up in terms of understanding their credit union’s business”).

Back to the UK:  the government’s consultation period lasts until September 1st.

Ethical banking: so what else is there?

It’s the morning after the day before… and, particularly in the light of those posts appearing from unhappy Co-op Bank customers pledging to move their accounts, it seems natural today to ask what we have left in terms of cooperative and values-driven banking in Britain.

The short answer is that cooperative banking in Britain, unlike many other European countries, has effectively meant just the Co-operative Bank, originally established in 1872 to serve the 1000+ local consumer co-operative societies.  Elsewhere in Europe co-operative banking grew not from consumer co-operation but from what we would now describe as locally based credit unions. If you’re interested, you’ll find a piece I wrote in the summer for The Guardian on European coop banking sector (and there are some very big banks involved) here.

What Britain did have (at least until the wave of demutualisations following the Thatcher-era Building Societies Act) was a thriving mutual savings and mortgage loans sector.  The largest remaining mutual mortgage lender by a very long way is the Nationwide Building Society, of course.  As a footnote, the Nationwide was originally directly associated with the cooperative movement (it changed its name from the Co-operative Permanent in 1970).  As a result of Co-operatives UK’s wooing of the mutual sector,  the Nationwide has recent chosen to become a Co-ops UK member.

Triodos Bank has been an innovative player in Britain in relation to ethical investment for almost twenty years, since the parent Dutch bank took over a small Rudolf Steiner-inspired UK bank in 1995.  Triodos’s own roots are in the Steiner movement (or anthroposophy, if you prefer), although the bank dropped its formal links with the Steiner movement in 1999.  It is not cooperatively structured, and indeed its internal structure is complicated (I last wrote about Triodos in detail for The Observer in 2004).  Its shares are held entirely by a Foundation with the mission of protecting the original principles of the bank, but a form of quasi-equity (so-called ‘depository receipts’) is made available to both individuals and institutions.  Incidentally, a Dutch cooperative bank is the largest institutional shareholder in Triodos, with a 6.6% holding of depository receipts. Peter Blom, a Dutch banker, has been in charge since 1989 and there’s an interesting video interview with him where he discusses among other things Steiner’s influence and Triodos’s approach to money on YouTube.

The Charity Bank is owned by CAF, the Charities Aid Foundation (the “charities’ charity”).  It offers savings products but not personal banking.  Unity Trust, owned by trade unions and with a minority shareholding from the Co-operative Bank, offers banking for charities and the not-for-profit sector but not for individuals.

And last but not least is Britain’s growing credit union movement. Britain was a late developer in terms of credit unions (perhaps because of the reach of building societies) and not everything over the past twenty years has been entirely plain sailing but Britain does now have some established and strong credit unions, the largest of which offer basic personal banking.  I wrote earlier this year on credit unions for the magazine Choice, and you’ll find this article on my website here.