The Journal of Socio-Economics 37(2008)2141–2154
From tackling poverty to achieving financial inclusion—The
changing role of British credit unions in low income communities
Paul A.Jones ∗
Rearch Unit for Financial Inclusion,School of Applied Social and Community Studies,
莼菜怎么吃
Faculty of Health and Applied Social Studies Liverpool John Moores University,Fouth Floor,
属虎的多大
Kingsway Hou Hatton Garden,Liverpool,L32AJ,United Kingdom
Received 17April 2007;received in revid form 6December 2007;accepted 11December 2007
Abstract
This paper offers an analysis of the changing role of co-operative credit unions in tackling poverty and promoting financial inclusion in Britain.It examines the reality of poverty in low income communities and endeavours to critique the actions,methodologies and initiatives currently being adopted by credit unions to achieve financial inclusion.It examines the role of the UK government in i
ts support for credit unions and offers an early analysis of HM Treasury’s Financial Inclusion Fund.The paper argues that credit unions are best placed within the financial rvices industry to make an impact within financially excluded communities.©2007Elvier Inc.All rights rerved.
我们的校园作文JEL classification:G1;G2;I3
Keywords:Credit unions;Poverty;Financial inclusion;Low income communities;Financial rvices;Organisational reform;Co-operatives
1.Credit unions as anti-poverty initiatives
Poverty remains a major social and political issue in Britain.In 2003/2004,12million people were living in income poverty (Palmer et al.,2005).Of the,3.5million were children,a definite increa on the 1.9million children living in poverty in 1979(Flaherty et al.,2004;UNICEF,2007)and a figure which ro to 3.8million in 2007(DWP,2007).The poverty rate for working-age adults has remained unchanged at 19%for a decade (Palmer et al.,2006).In 2005,50%of tho living below the poverty threshold were living in just 20%of the small local neighbourhoods in Britain (Palmer et al.,2005);a reality confirmed earlier by HM Treasury (2004).For the most part,poverty is concentrated in low income and often distresd neighbourhoods where it is likely to be long term and entrenched (Hills,
2004).
牍的成语It was the experience of poverty,particularly during 1980s and 1990s,that motivated hundreds of volunteers to establish local community credit unions as a solution to the financial needs of the poor (Jones,1999).Alienated from banks and unable to access mainstream financial rvices,people in low income communities operated in a cash economy and,as need aro,had little choice but to borrow from home credit companies and other sub-prime lenders at rates of interest that ro regularly to over 200%APR (e Kempson,1996;Jones,2001b;Palmer and Conaty,2002).Whether in Toxteth,in Liverpool,where the adult unemployment rate was 38%in1989(Jones,2001a ),or in Bridgeton,∗Tel.:+441512314415.
E-mail address:P.A.JONES@LJMU.AC.UK .
URL:www.ljmu.ac.uk/HEA/financialinclusion/index.htm.
1053-5357/$–e front matter ©2007Elvier Inc.All rights rerved.
doi:10.1016/j.socec.2007.12.001
2142P.A.Jones/The Journal of Socio-Economics37(2008)2141–2154
Calton and Dalmarnock(NCUSWG,2001),the respon of community activists to poverty lay in co-operative lf-help and credit union development.In1986,there were just94British credit unions.By2000,there were almost700,the majority of which were in low income neighbourhoods(Donnelly,2004).By1999,83%of all community credit unions had been formed with the support of the local authority and the express purpo of tackling poverty and providing rvices for disadvantaged people(Jones,1999).
Political support for credit unions was high during1980s and1990s as they became part of local and central gov-ernment discour on tackling poverty and disadvantage(HM Treasury,1999).With the support of publicly funded grants and resources,1and the intervention of local authority development staff,credit unions expanded rapidly(Jones, 1999;Goth et al.,2006).Yet,as Ward and McKillop(2005)point out,despite government intervention,the devel-opment of credit unions in low income communities was disappointing.By1998,with few exceptions,the average membership of the majority of community credit unions in England and Wales was only around200members,and it was only marginally greater in Scotland with around400(Jones,1999).Most British credit unions rving low income communities remainedfinancially weak,vulnerable and very small(Jones,1999;Goth et al.,2006).Goth’s analysis of the2001credit unionfinancial data questioned the long-term survival of at
least50%of all British credit unions (Goth et al.,2006).By the end of1990s,local and national government recognid that public investment in credit unions had not matched up to expectations(HMT,1999;LGA,1999,2001).This led some commentators(Ryder, 2002;McKillop and Wilson,2003;O’Connell,2005)to the conclusion that poor credit union growth and performance aro specifically from linking the purpo of credit unions to poverty alleviation and tackling disadvantage.McKillop et al.(2007),quoting Rossiter(1997),claimed that the circulation of the money of the poor within poor communities led inevitably to exclusion ghettos.For McKillop et al.(2007),credit unions that focud primarily on low income communities were doomed to failure.It was this same analysis that led Dayson et al.(2001)to view credit unions as limited in their potential to rve low income communities and to argue for new forms of community development finance initiatives(CDFIs)that could,in their view,tackle poverty more effectively.
2.British credit unions–reform and transformation
Faced with the challenge of poor growth,rearch recognid that credit unions had to adopt more professional and business-like approaches if they were to succeed in the low income market-place(Jones,1999).From1999onwards, the Association of British Credit Unions(ABCUL),the ctor’s largest trade association,abandoned its traditional approaches to development bad on small com
mon bonds,volunteerism and informal collective action.It recognid that this only led to the creation of weak and ineffective organisations that lacked the professionalism and capacity to rve low income communities effectively.Instead,ABCUL began to promote a business focud approach bad on robust business planning,suitable premis,introducing IT and on employing staff instead of depending upon volunteer labour.This resulted in the strengthening of a number of credit unions and in an increasing number of mergers as credit unions endeavoured to benefit from economies of scale.It was a move that received the support both of government and of local authorities(LGA,2001).
毛尖茶的功效与作用However,international rearch(Arbuckle,1994;Richardson,2000a,b;Branch and Cifuentes,2001)convinced the British movement that if credit unions were to succeed in making a real and lasting impact within low income com-munities,a much greater reform,than envisaged initially by ABCUL,would be required(Jones,2004b).International ca studies revealed that credit unions,established with the social purpo of rving poor communities,had the real possibility of becoming stable and effectivefinancial institutions,if,and only if,they adopted a radical commercial approach to organisational development.As Richardson and Lennon(2001)argued,if credit unions were to achieve social goals,theyfirst had to attend to achieving their economic ones.Contrary to Ryd
er(2002),McKillop and Wilson (2003)and O’Connell(2005),who regarded the focus on low income communities as the cau of credit union poor performance per ,the international studies saw the problem not so much arising from rving the poor but rather from the lack of realistic and effective approaches to organisational development.新郎婚礼表白
1In1999,it was estimated that£10–£15million of public investment was spent each annum on credit unions and credit union development(Jones, 1999).This was made up of£9.6million spent on credit union development agencies(established to work with the volunteers managing the credit unions)and the remainder on direct grant income from local authorities,the Single Regeneration Budge,the European Social Fund and other public sources.This grant income mainly paid for capital and material costs,accommodation,training costs and running costs.It was not,at that time, often given for credit union staff.It aimed to enable credit unions to cover the costs of operating as small community organisations.
P.A.Jones/The Journal of Socio-Economics37(2008)2141–21542143 The transformation of credit unions,as argued for in the international studies,entailed more than the adoption of basic business practices,as already recognid by ABCUL and increasingly by local and national government. It demanded a radicalfinancial,organisational and operational restructuring(Arbuckle,1994;Richardson,
2000a,b; Branch and Cifuentes,2001)that came to be known as new model credit union development(Arbuckle and Adams,2000; Richardson,2000b;Jones,2004b,2005).New model development was en as a major correction in the management and organisation of credit unions in order that they could develop the capacity and products to rve low income communities effectively.
A commitment to new model credit union development has characterid the British credit union movement since 2002when it became a central element in ABCUL’s strategic development plan(ABCUL,2005a;Jones,2005).The reform was bad on ven key elements,all of which would po significant challenges to traditional model credit unions operating in low income communities.Richardson(2000a)regarded the elements as ven“doctrines of success”.Thefirst element was to rve thefinancial needs of a wider population,rather than to focus entirely on the poor and disadvantaged.Atfirst sight,this might appear to confirm the analysis of Ryder(2002),McKillop and Wilson (2003)and O’Connell(2005)that focusing on poor communities was at the heart of the problem.However,this is not the ca.Focusing on the poor is not in itlf the problem;in fact most of the international studies concerned credit unions that primarily rved disadvantaged communities.In her Sri Lankan study,Evans(2001)argued convincingly against what she termed the middle class myth,that successful credit unions are only tho that prioriti middle-i
ncome salaried people.The paradox for credit unions was that,if they were to prioriti rving the poor,they needed also to broaden their appeal to wider ctions of the population.This is not just to generate income from larger savers and borrowers but to ensure that the less well off are not left feeling stigmatid within what could be perceived as a social welfare organisation.The poor persons’bank appeals least to the poor themlves.
The cond element of new model reform was the maximisation of savings.Traditional British anti-poverty credit unions had concentrated primarily on offering low-cost loans and only marginally promoted savings.The assumption was that the poor were unable to save and that it was more important to offer affordable credit to reduce dependence on high cost sub-prime lenders than promote savings.Combating sub-prime lending was at the heart of the anti-poverty credit union strategy.The argument was that this reduced high cost interest repayments on loans and so incread the income available to borrowers and their families.At the same time,it improved the local economy as borrowers tended to spend their income locally.The new model methodology of prioritising savings was a a change in how credit unions operated.It was bad on a fundamental understanding that it is savings,and the building of asts,that above all moves people out of poverty over the longer term.The fourth element of success was product diversification or offering a range of
financial products in respon to people’s needs and wants.This was a major challenge to credit unions as traditionally they offered a single identical savings and linked loan account to all.It was to become clear that inflexibility of being product,rather than member,led resulted in even greaterfinancial exclusion.The next three elements were operating efficiency,financial discipline and lf-governance,all of which would demand a major review of operating procedures and practices in credit unions.The venth was assimilation.By this was meant the capacity of bringing the poor“into the mainstream economy by providing them with access to comparablefinancial products and rvices”to tho found in conventionalfinancial institutions(Richardson,2000a).It was thisfinal element that challenged credit unions to rethink their role as anti-poverty initiatives and to consider how they could offer pathways to long-termfinancial inclusion to people in low income communities.The traditional credit union focus on providing low-cost loans certainly alleviated distress and raid incomes but,for the most part,left the poor and on the margins of society.
3.From tackling poverty to achievingfinancial inclusion
The importance of the shift from tackling poverty,through low-cost lending,to a more strategic approach,bad on promoting pathways tofinancial inclusion,was highlighted in a Barclays’rearch project into credit unions and loan guarantee schemes(Jones,2003).This rearch focud onfive cr
edit unions,all in low income areas,which established,mostly from grants or charitable donations,loan guarantee funds to enable them to make debt-redemption loans to people indebted to high interest lenders and unable to save to qualify for a loan.Thefindings revealed that such an ad hoc respon to poverty and debt achieved little.Loan default rates for the loan products were higher than the credit union’s traditional loan portfolio and few people subquently moved intofinancial stability.The rearch concluded that if credit unions were to rve low income consumers of high interest loans,they needed to respond
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to their multiple and multi-layered needs.The Barclays report recommended that such a holistic approach included one-to-one personal support,money advice,help with budgeting,savings facilities,financial education,in addition to access to affordable credit.
The Barclays report revealed,at least in outline,the dynamics of the interplay between poverty andfinancial exclusion in the lives of people on low incomes.With no access to,and no usage of,thefinancial rvices taken for granted by most consumers,people have no choice but to pay higher charges on transaction rvices to cash cheques and pay bills,are vulnerable to high cost sub-
prime lenders and often make poor money management decisions.Financial exclusion is a result of poverty(Collard et al.,2001;DWP,2001;Carb´o et al.,2005)but it also leads people into greater poverty and over-indebtedness.It was for this reason that the National Consumer Council argued that achieving financial inclusion was esntial to tackling poverty(NCC,2005a).
鸡丝粥的做法Considerable rearch has been undertaken into thefinancial needs of low income andfinancially excluded con-sumers(Kempson,1996,2002;Kempson and Whyley,1999;Jones,2001b;Collard et al.,2003;Collard and Kempson, 2005)which confirms the diver and multiple realities offinancial exclusion.Financial exclusion is characterid not just by a lack of affordable credit but by having no savings,no bank account,no asts,no access to money advice and no insurance(HM Treasury,1999,2004,2007a,b,c,d,e).The challenge for new model credit unions was to respond to the needs of people on low incomes by addressing each of the elements in a co-ordinated,strategic and holistic manner.
The growing realisation of the interplay between poverty andfinancial exclusion added weight to the recognition by credit unions that they required significant organisational capacity and reform if they were to contribute meaningfully to the lives of people on low incomes.The complex character offinancial exclusion demanded joined up solutions that only strengthened new model credit unions c
ould provide.This was accepted by Collard and Kempson(2005), Rossiter and Cooper(2005)and the National Consumer Council(2005a,b),and also by McKillop and Wilson(2003); all of whom concluded that the needs of thefinancially excluded were best rved within strengthened new model credit unions.This has precipitated a wave of credit union strengthening programmes throughout Britain over recent years,such as ABCUL’s West Midlands project,which,from2002to2005,saw an increa of27%in savings and 23%in loans in participating credit unions(Jones,2005).It also prompted ABCUL,with the support of Barclays, to introduce the PEARLSfinancial monitoring system into Britain(Richardson,2001;ABCUL,2005a).The result has been that an increasing number of professionally organid,quality credit unions(a term that has now replaced new model in the British context(Jones,2006))have been established that currently,or are planning soon to,offer financially excluded groups access to current accounts,flexible savings accounts,instant and accessible loans,bill payment accounts,affordable home and contents insurance and access to money advice and debt counlling rvices. Such credit union includes Southwark Credit Union in London,Hampshire Credit Union on the south coast,Capital Credit Union in Edinburgh and Hull and East Yorkshire Credit Union in Yorkshire.
The credit union move to promotefinancial inclusion was influenced by changes in government policy.
Banks and mainstreamfinancial institutions had long since withdrawn from low income communities as they refocud their business on more affluent,profitable customers(Leyshon and Thrift,1993;Sinclair,2001;Midgeley,2005).This prompted the UK government to place improving access tofinancial rvices at the heart of its attempts to provide solutions to social exclusion and to promote renewal in deprived neighbourhoods(HM Treasury,1999,2004;Kelly, 2002;Marshall,2004).Government originally conceived of creating its own universal bank(PIU,2000)which would have itlf providedfinancial rvices for people on low incomes.After,what Marshall(2004)describes as tortuous negotiations between the banks,the post office and the government,the universal banking idea was modified,in 2003,into the provision of Universal Banking Services.This was to be achieved through the development of the post office card account(POCA),through which welfare benefits could be paid to claimants,the promotion of basic bank accounts,2and the extension of the post office facility to cash personal cheques and make deposits for current account holders of a number of mainstream banks.Importantly,in2004,government strategic thinking onfinancial inclusion widened to include the expansion of money and debt advice rvices and the strengthening of the community 2A basic bank account enables the receipt of wages or benefits,deposits of cash and cheques,ATM cash withdrawals and the payment of bills by standing order or direct debit.Its most obvious limitation is th
at it does not have an overdraft facility,designed in such a way that they can be made available,in theory at least,to people who would not qualify for a traditional current account.There is no access to other credit facilities for account holders.There are no charges for day-to-day banking,but banks tend to make significant charges if there is insufficient money in the account to pay a standing order or direct debit.
P.A.Jones/The Journal of Socio-Economics37(2008)2141–21542145finance ctor(HMT,2004).It was the political decision to strengthen the communityfinance ctor that facilitated the beginnings of a new partnership between government and credit unions.Despite the earlier disappointing results of public investment in anti-poverty model credit unions,government was sufficiently convinced of the potential of new model credit unions that it initiated a ries of regulatory and legislative changes designed to strengthen them and to assist their development in the low income market(e Jones,2006;McKillop et al.,2007).Rather than develop a new solution,the government sought a new strategic partnership with credit unions to provide people with a route into financial inclusion(HMT,2004;HCTC,2006a,b)
4.The credit union path tofinancial inclusion
Despite the rervations of some commentators,as already noted above,there is significant evidence that credit unions can succeed in prioritising the low income market so long as they have a robust commercial approach to development, have effective management systems in place and offer products and rvices that are attractive both to low income and to moderate income consumers(e Branch and Cifuentes,2001;Richardson,2000b;Jones,2004a,b).International ca studies have demonstrated repeatedly the ability of credit unions to rve poor communities world-wide(Arbuckle and Adams,2000;Evans,2001;Nyirabega and Ford,2005).
Rearch undertaken by Collard et al.(2003)revealed that low income consumers,in fact,prefer to deal with locally-bad community organisations,partly becau of ea of access but also becau they mistrusted banks and mainstreamfinancial providers.However,Collard et al.(2003)stresd thatfinancially excluded people also want financial products and rvices to be delivered by established and professional providers with well-trained staff.The traditional model approach of the anti-poverty credit union,organid and operated by volunteers,often on an informal basis,offering a limited range of products and rvices,is not the kind of poor person’s bank that appeals to many people,particularly the poor.Some British credit unions have turned to the United States for models of credit union development that combine social embeddedness within a community,a professional a
pproach to product and rvice delivery and a focus on rving lower income consumers.Brown et al.(2003)have argued,for example,for the approach taken by US community development credit unions(CDCUs).One such CDCU is Alternatives Federal Credit Union, in New York,which has developed a“Credit Path”model which describes the process of moving from poverty into inclusion andfinancial stability and which is bad on a continuum of personalfinancial development through four key stages;transactor,saver,borrower and owner.Bad on this model,Alternatives FCU was able to design products and rvices to meet the different needs of low income members at various stages of their development.
Mahon and Northrup(2006)questioned the accuracy of eing the elements of the“Credit Path”as a quence as if the path tofinancial inclusion involved a progression over time from transactor to owner.In their rearch,Mahon and Northrup found that Alternative Credit Union’s members ud different products at various stages depending on their personal circumstances and not necessarily according to any particular quential pathway.Personalfinancial development was more complex than the credit path emed to indicate.However,they maintained that the four constituent elements of transaction rvices,savings accounts,affordable loans,and ast accrual(ownership of property or a business)described an effective framework for the design of products and rvices that 桃花一朵朵
assist low income members intofinancial stability.In Britain,the four elements,with the addition offinancial capability education,access to money advice and to insurance products(HMT,2004,2007a)are now regarded as fundamental elements of a path to financial inclusion that have to be provided by credit unions that endeavour to assist people intofinancial stability.For British credit unions,addressing each element effectively has entailed facing significant challenges and reform.
4.1.Basic banking and transaction accounts
Traditional anti-poverty credit unions did not offer current or transaction account rvices.They operated as local, volunteer-run,alternative savings and loans co-operatives that had little desire to offer products or rvices that rem-bled mainstream banking.Fuller and Jonas(2002)argue,for example,that traditional credit union development owes more to the concepts of social capital and community empowerment than it does to theories of economic development. Credit unions prioritid autonomy in ways that kept them apart from thefinancial mainstream.
Yet,as Alternatives FCU’s“Credit Path”demonstrates,access to transaction banking is central to the path to financial inclusion.Not only is having no bank account a barrier to employment or starting a b
usiness,it results in having to pay far higher charges for cheque cashing and for paying utility bills(Brown and Thomas,2005;Herbert
