National Traveller MABS
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National Traveller MABS |
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In
this chapter I look at the credit union movement as an alternative to
mainstream banking in addressing the needs of marginalised communities in
societies throughout the world. I
begin by detailing the philosophy of the credit union movement comparing it
to that of the mainstream banks, and then move on to present a background to
its establishment and spread to many parts of the world.
I discuss how credit unions are set up and the training involved in
order that they may be sustainable. The
financial viability of credit unions is then examined by looking at both the
positive and negative aspects of these saving and credit co-operatives.
Finally I draw out issues that
need to be addressed in chapter 3 when I propose an alternative to the
credit unions present system of charging interest on borrowing and paying
interest on savings. By
the credit union movement, I mean, community co-operative banks that fall
under the body of the World Council of Credit Unions, (WOCCU), the umbrella
organisation that advises and supports many credit unions world-wide.
It is worth noting however that informal credit and savings schemes
based on a similar philosophy to credit unions and run in a similar way,
exist and have existed in many communities world-wide external to the WOCCU.
However because I believe in the ability of the WOCCU and its affiliates to
assist in the empowerment of marginalised communities, for the purpose of
this study I have chosen to focus on the viability of developing interest
free credit unions. In keeping with this I now propose to look at the
philosophy of the credit union movement as seen by the WOCCU. The Philosophy of
the Credit Union Movement
As
was seen in Chapter one, mainstream banks have failed and are still failing
communities world-wide. Credit
unions came into being in an attempt to address this failure by allowing
access to credit for marginalised and low income groups world-wide, thereby
assisting in the improvement not only of the economic, but also the social
well being of its members. Thus
their philosophy was rooted, not in profit making as is the case in
mainstream banks, but rather in “social lending” where credit is granted
on social grounds and for the
overall well being of members and the community, (Albee and Gamage:1996, de
Stemper:1987, ILCU:1996, Mayo:1996). A
credit union is a financial co-operative where people pool their savings in
order to make loans to one another. There
are 71,000 registered credit unions world-wide, serving 95 million members,
(The Wales Co-operative Centre: undated). The WOCCU represents the credit
union movement world-wide, and works to develop, support and nurture new
credit unions globally, (ILCU:1995). Credit
unions are owned and democratically controlled by their members to benefit
themselves by meeting their financial needs, (Albee and Gamage:1996). This is in contrast to mainstream banks, as previously
discussed, where members of such institutions are customers only. Ownership
or membership of credit unions is opened to anyone over the age of sixteen,
once they fall within the common bond laid down, and pay the membership fee
which in Ireland and Britain is not more than £1, (ILCU:1995, de
Stemper:1987, Mayo:1996). A common bond is something that all members of a particular credit union have in common, (Albee and Gamage:1996, de Stemper:1987, Skully and Ho:1993, Mayo:1996). The most obvious types of bonds are:
The
existence of a common bond within a credit union is essential as it allows
that all people know and trust each other, and have the benefit of the
community and its members at heart. Such a system of operation is in
complete contrast to mainstream banking detailed in chapter 1, which see
profits as their first priority. Thus the credit union can make credit
judgments on people’s character and personal records, rather than on their
financial history or their “risk” factor. “Truth in Lending” with no
hidden costs is the policy of the credit union movement, (ILCU:1995). Common
bonds also ensure that the credit union is physically accessible to its
members, whether it is in a community, place of work, or association.
Such accessibility is not taken into account by the mainstream banks
when establishing business, unless inaccessibility will affect their
profits. By assisting the individual, the credit union ensures that it
extends its vision of social justice not only to the borrower, but also to
the community at large, who too will benefit indirectly from the improvement
in the borrower’s life. Credit
unions also place a high emphasis on the education of members for their
economic, social and cultural well-being. Building
on the philosophy of social justice, credit unions are non-profit making
organisations, and as such their main aim is the improvement in the standard
of living of their members / owners, and not the increase in profit for the
benefit of the institution. Thus
credit unions seek to empower their members by providing them with access to
capital for production purposes or simply for survival or consumption. In
keeping with the policy of “Truth in Lending” loans are made at
attractive fixed interest rates, the interest being charged to cover the
cost of interest on savings and administering the system.
Such fixed interest rates again contrast sharply with the banks.
Both the Irish League of Credit Unions (ILCU), and the Association of
British Credit Unions (ABCUL), the umbrella groups for credit unions in both
of these countries, recommend a fixed interest rate of 1% per month on a
reducing balance, or 12.6% Annual Percentage Rate on loans.
However some credit unions charge even less than this.
Loan applications are dealt with strictly on their own merits, with
repayment designed to meet each borrower’s personal needs.
Should the borrower’s circumstance change the credit union is happy
to renegotiate the terms in order to suit both parties. Credit
unions therefore promote credit. However in order for such credit to be
financed they must also address the issue of savings.
Savings are necessary to build a resource of capital for lending, or
a “loan fund”, which provides opportunities for the improvement of the
standard of living of it’s members / owners, and consequently the
community as a whole. As soon
as members begin to save, they become shareholders with each unit of money
saved adding to their overall share-holding.
For example in Ireland and Britain, £1 saved is equivalent to one
share. Each unit of currency
saved, or share added to, entitles the member / owner to a share or dividend
in the overall profit of the credit union.
In contrast, as we saw in chapter 1, very few banking accounts give
customers a return on savings. Such
dividends received from the credit union accrue from interest on members’
borrowings, and returns on credit union investments after credit union
expenses have been covered. Dividends or share profits are paid in
proportion to savings. Thus the greater the accumulated savings or loan fund within
a credit union, the bigger not only the profit-share or dividend each member
receives, but also the availability of money for lending. Should the members
agree, profits could also be used to make grants to community groups and
charities, thereby extending benefit to the community further.
This once more brings into focus the fundamental difference between
banks and credit unions, with the former focusing on increasing the power of
the institution, while the latter focuses on building and empowering the
community. Credit
unions therefore encourage members to continue saving even when they are
repaying a loan. Likewise
members are encouraged to borrow rather than withdraw their savings or
shares. This ensures that
dividends remain high and the “loan fund” does not become depleted,
thereby allowing others to continue to borrow.
Such a system of operation promotes mutual co-operation for the
benefit of all. But
how exactly is a credit union managed?
As already stated, all members who save within a credit union are
also owners. Therefore all have
a voice in the running of the credit union, unlike customers of mainstream
banks. In keeping with this
ethos of democracy, each member and not each share, is entitled to one vote
when general meetings take place and issues are addressed.
Members elect the Board of Directors and the Supervisory Committee to
oversee the running of the credit union.
Elected officials are voluntary in nature and should only receive
expenses for fulfilling their duties. Non-
elected members too are encouraged to become volunteers to help in the day
to day running of their co-operative, (Skully and Ho:1993). While one may believe that the credit unions vision of social justice ensures security of savings, most credit unions nevertheless insure members loans and savings at no extra cost to themselves, thus displaying a professionalism in banking equal to any mainstream bank. Such insurance is paid from the money generated from interest on loans. In countries where credit unions exist, laws are set down on the running of financial institutions with which the credit unions must abide. This helps secure members’ savings. Confidentiality within transactions, and regular independent external auditing help ensure that credit unions world-wide operate within strict professional guidelines. A
look at the Background and expansion of the Credit Union Movement world-wide
The
credit union movement developed out of the co-operative activities of
nineteenth century Europe, which evolved as a by-product of the Industrial
revolution and the growth of capitalism, when money and credit began to take
on an increasingly important role, (www.cu.org/cunist.htm:1998,
ILCU:1996:1). Such credit
however was inaccessible to the vast majority of the population, many of
whom lived in abject poverty. Probably
the most well known co-operative in Britain was the Rochdale Co-operative
Store, set up in 1844. Here a
group of workers bought shares weekly to accumulate capital, in order to buy
goods at less than the retail price and sell them on to members at a
savings. Members were paid
interest on their shares and received dividends at the year end.
As with today’s credit unions, rules were based on democratic
principles where each member was entitled to one vote regardless of the
quantity of shares owned, and dividends were divided according to shares
held, (ILCU:1996:1, ABCUL:1998:2). In
Europe around this time, Co-operative Credit Societies were also being set
up. In 1850, Hermann
Schulze-Delitzsch founded his first Co-operative Credit Society in a small
village, which is today part of modern Germany.
His initial capital of $140, was contributed by a group of friends. However, far from being a charitable organisation, it was
identifiable in that each borrower joined the Society and contributed a
monthly fee towards its capital. Loans
were made strictly for productive purposes for the benefit of the whole
community, and were granted on the good character of the person borrowing,
rather than on their social or financial background, (ILCU:1996:1,
ABCUL:1998:2, Douthwaite: 1996). In
this way as we will see in chapter 3, Schulzes-Delitzsch’s Co-operative
reflected the principles preached by Islamic Economist, with social lending
being the basis of all credit, and the purpose of such lending being the
enhancement of not just the individual but the community as a whole, through
the promotion of economic self-sufficiency, (Masood Khan:1985, Mannan:1989,
Qureshi:1991, Douthwaite:1996). The
years 1849 and 1854 saw the first of F.W. Raiffeisen’s credit unions in
Heddesdorfer, which is today a part of Germany.
These credit unions differed from Schulze-Delitzsch’s Credit
Co-operatives in that while Schulze-Delitzsch based his motives purely on
profit making to promote economic self-sufficiency through self-help,
Raiffeisens ideas were based on Christian charity and brotherly love born
from his distaste of moneylenders, who he believed "fastened like a
vampire on the rural population”, (Mayo:1996:10).
Today’s credit unions would tend to incorporate both motives,
(ILCU:1996:1). Raiffeisen, unlike Schulze-Delitzsch promoted the idea of
withholding dividends until a reserve fund of capital had been established,
and it was on this principle that Raiffeisen ensured his Co-operatives
economic sustainability, a sustainability that has stood fast with the
credit union movement up until the present. It was also Raiffeisen who preached the importance of a
common bond among members in order to develop a sense of mutual
co-operation. As in the Rochdale Co-operative Store, the rules of the above
co-operatives, founded by Schulze-Delitzsch and Raiffeisen, were laid down
along democratic lines, and it is this in itself which formed the backbone
of the credit union movement of today, (ILCU:1996:1).
Once the seed had been sown, the idea continued to grow and spread,
with the basic principles remaining that: (1) only people who were credit
union members could borrow, (2) loans would be made for prudent and
productive purposes, and (3) a person’s desire (character) to repay would
be considered more important than the ability (income) to repay, as they
were after all borrowing their own money and that of their friends,
(www.cu.org/cunist.htm:1998). It was from the efforts of both
Schulze-Delitzsch and Raiffeisen that credit unions began to spread
throughout Europe. By the turn
of the century they were popular not only in Germany, but also Italy, France
and Austria. The
case of Ireland deserves some mention here, as today Ireland can boast that
1 in 3 of its inhabitants are members of a credit union, (ILCU:1996:2,
Douthwaite:1996). Credit unions
were not established in Ireland until the 1950’s when the country
experienced extreme economic depression, high unemployment and mass
emigration. Moneylenders prospered from charging exorbitant interest
rates, (ILCU:1996:1). The credit union concept was introduced to Ireland by
Nora Herlihy, a teacher, (ILCU:1996:1), whose home in Dublin was used as a
campaign office to promote the idea. The
WOCCU encouraged Nora and her colleagues, Séamus MacEoin and Seán Ford in
their efforts. They held social
events to fund raise in order to cover the administrative expense of their
campaign. By 1960, when the
Credit Union League of Ireland came into being, there were only 4 credit
unions in operation in Ireland. By
the end of that year, the expansion of the credit union movement in Ireland
was being termed “an explosion” in American credit union circles,
(ILCU:1996:1:9). In 1962, Derry
Credit Union was established, its first treasure being John Hulme, (the
present leader of the SDLP political party who has played such a vital role
in the search for peace in Northern Ireland up until today).
In its first year of operation, Derry Credit Union enrolled 400
members, a number which according to the ILCU, no credit union has succeeded
in attaining since, (ILCU:1996:1). The
growth of the credit union movement did not just occur in Europe, as can be
seen by its rapid spread throughout the rest of the world. In 1900 Alphonse
Dejardins organised the first credit union in Canada, its first savings
deposit being the sum total of 10 cents.
Dejardins continued to establish many more credit unions including
the first one in the United States of America in 1909, (ILCU:1996:1,
www.cu.org/cunist.htm:1998). He
was supported strongly in the U.S.A by a Boston Merchant, Edward Filene.
Credit Union membership in North America grew steadily and its success can
be seen by the fact that no credit union defaulted during the Wall Street
Crash of 1929, (Douthwaite:1996). More
than 60 million inhabitants in the USA today
belong to credit unions, while in Canada, the number stands at 9
million, (www.cu.org/cunist.htm:1998). It is interesting to note that Edward
Filene, whose ideas on social lending were seen to be “revolutionary”
for his time, and who continued on to build a trading empire which is still
in existence today, had been introduced to credit unions when visiting rural
India in 1907, (www,cu.org/cunist.htm:1998).
I feel this is a point worth noting, in view of the fact that the
Industrialised North of which the USA is a leader very often likes to export
what it sees as its novel ideas to the so-called developing world of which
India is part. Today credit
unions, both members of the WOCCU and those existing outside it, continue to
play a prominent role in evolving community banking in the Indian
subcontinent. The latter I will
clearly show in chapter 4. In
Britain the establishment of a new credit union takes place almost weekly,
(Douthwaite:1996). The Moss
Side and Hulme Credit Union in Manchester was set up as an alternative to
the illegal moneylenders to whom many residents of this economically
marginalised community were paying interest on loans of up to 300%.
According to Reverend Malcolm Lorimer, Chairperson of the union,
their success can be attributed to the trust between members which is
promoted by a common bond, (Manchester
Evening News: 1998). In
Colombo, Sri Lanka, women’s credit unions, otherwise known as Kantha
Sahayaka, have grown rapidly since their foundation in 1989.
In 1996 they were reaching over 3,600 women.
These credit unions have been prominent in lending to assist in
improvements in housing conditions and in the setting up small
micro-enterprise projects, (Albee and Gamage:1996). In 1970 the WOCCU came
into being, and has helped spread the movement further by assisting,
supporting and developing ideas within communities world-wide,
(ILCU:1996:1). Credit unions
today exist in every continent of the world with a total of 84 countries
being affiliated with the WOCCU, (Big Issue: 1998).
The impact of credit unions has been far reaching, and it is in view
of this, that I will proceed on to reflect on the positive aspects of them. A
reflection on the positive aspects of the credit union movement
Credit
unions show great strength in their ability to organise.
They emphasis education through awareness raising for members, staff,
and thus the community at large in order to improve their economic, social
and cultural well being. Credit
unions recognise the importance of running a well regulated and lawful
business, and have therefore adopted some of the managerial traits of
mainstream banks. This is
evident from the tight administration under which credit unions operate, the
high value placed on training staff, and the security they place on savings
through insurance. Training, if
at all possible takes place locally and includes knowledge of the credit
union structure, cash handling, recording of membership, setting of
policies, and duties and responsibilities of staff, (ABCUL:1998:1)
Members of credit unions are owners unlike in mainstream banks, where
they are simply customers. They have a right to inspect the credit union
accounts and reports, to vote at the Annual General Meetings and to change
democratically the rules of the credit union, (ABCUL:1998:1).
This ownership allows members to have a voice in the running of the
credit union, through volunteering labour, by voting on resolutions and
voting for the Board of Directors and the Supervisory Committee.
This in itself promotes a unity among members in their desire to see
the credit union succeed. By
ensuring that members have a voice, credit unions are also ensuring that
empowerment through education for economic sustainability takes place. Credit
unions whenever possible ensure that their staff are by and large
volunteers. Such a system
assists in cutting costs and also helps the development of a social
conscience within the community. This
contrasts to the staff of many mainstream banks, who would feel no social
obligation to their employers. Community
development is seen as paramount to the teaching of the credit union and
this is achieved through the promotion of an understanding of their system
by freely sharing advice on savings and borrowing.
In order to attract savings, the idea of a loan fund is promoted by
credit unions. All savings are
paid into this loan fund and can then be used by other members for
borrowing. This helps promote a
sense of social responsibility. By
paying dividends on savings, credit unions further promote a sense of
community, where the more a
member saves, the higher their dividend. The
credit union policy of “Truth in Lending” as detailed above, is based on
a policy of loan applications being dealt with strictly on their own merit,
and reasonably fixed interest rates being charged regardless of how
turbulent the economy is, (Big Issue:1998, Douthwaite: 1996).
As credit unions are owned by members, they are more flexible, and
more willing to negotiate terms if a borrower finds themselves unable to pay
at the agreed rate. In some
instances, depending on profits, the credit union may even give rebates on
interest to borrowers at the year end.
Such a fair and affordable system of borrowing prompted a member of
Maleny and District Community Credit Union LTD in Australia to state that,
“the credit union is the lifeblood of the community....many of the people
who borrowed from it would have been unable to get loans from any other
source, (Douthwaite:1996:376). This
opinion is shared by members of credit unions world-wide.
I myself was a recipient of this, while a student in Ireland, when a
loan from the credit union was used to pay my tuition fees.
In a recent survey carried out among Caherdavin Credit Union members
in Limerick, for REVIEW, the ILCU’s bimonthly magazine, 40% of those
interviewed deal exclusively with the credit union in preference to other
financial institutions, (ILCU:1998:2).
Caherdavin’s Credit Union began with 11 members in 1976 and 22
years later, this figure has grown to over 11,000, (ILCU: 1998:2). Community
Development is also promoted by the implementation of “The Common Bond” in membership. Such a system that
promotes working towards economic development within a community is only
possible from the credit unions insistence of a common bond.
The common bond helps build trust within the credit union, which in
turn, Douthwaite believes, ensures a lower that average rate of bad debt
among members world-wide, (1996). Community development is also promoted
through increased accessibility for the individual to borrowing at
reasonable rates. In Ireland, credit unions work closely with government
sponsored, “Money Advice and Budgeting Services”, (MABS), in order to
relieve people from the hands of the illegal moneylender. “Special
Budgeting Accounts” are available within the credit union, for those in
debt in order that they may save weekly for the repayment of bills. With the
help of the credit unions and MABS, debtors prioritise creditors within a
repayment schedule in order to make repayment more manageable, (Hogan:1998).
The strength of credit unions in this area is evident from the findings of
Quinn and McCann; of the 100 Travellers interviewed 80 preferred to
have a credit union as their source of saving and borrowing as opposed to 8
who chose a Traveller bank, (1997). Credit
unions do not just assume that community development takes place from an
improvement in their members standards of living.
Credit unions pride themselves on their contribution to community
projects. The Caherdavin survey
mentioned above, concluded that 90% of those interviewed agreed that the
credit union is significantly involved in local community development
(ILCU:1998:2). The WOCCU and many national credit union bodies assist in the
cost of setting up new credit unions. This
can be seen in the case of South Africa, where the WOCCU and the ILCU have
donated funds at both national and local levels. The ILCU’s International
Development Foundation has played a major role in the last few years in
promoting the establishment of credit unions in many countries which are
experiencing extreme economic hardship.
This can be seen in Albania, Bukino Faso, The Gambia, Uganda, India,
and Nepal to name but a few. Very often the ILCU works in conjunction with
NGO’s and development organisations in order to assist in the successful
establishment of local initiatives (ILCU:1996:2).
In Britain many local authorities also help in meeting initial costs
for new credit unions under their jurisdiction.
Local business people and charities may also help in the
establishment of credit unions which is in itself very beneficial as it
ensures that input comes from inside and not outside the community,
(ABCUL:1998:1). Community
development however could also be promoted by credit union funding of
micro-enterprise projects. Credit
unions do not tend to promote borrowing for such enterprises.
This leads me to reflect on some negative aspects of the credit union
movement, which in turn will open the way for my discussion on the
possibility of an interest-free, profit-sharing credit union as an
alternative to the present system. A
reflection on some criticisms of the credit union movement
The lack of involvement in micro-finance projects within the communityAccording
to Douthwaite, “credit unions are not geared to lend to small businesses,
and most of their directors and members think in social-service terms,
rather than economic development terms”, (1996:128).
This lack of focus on production stifles the possibility of community
based production initiatives being developed. However the possibility of
credit unions investing in such ventures, and the effect such lending can
have on communities is evident from Tallow Credit Union in Ireland.
Tallow Credit Union has placed a particular emphasis on lending to
promote local business initiatives, and its success in doing so is evident
from the many micro-enterprises that have sprung up.
Sheila Ryan, the honorary secretary, attributes its success to its
small size and the fact that it
knows its members; “we know the seed and we know the breed, and if the
family is honest you can be fairly sure the children will be too”,
(Douthwaite:1996:131). However
Tallow credit union has not just invested in micro enterprises, but has also
invested in enterprise training, thus offering potential small scale
business people a chance to learn the skills needed to ensure
sustainability. The outcome of
such training has been the establishment of a secretarial services company,
a plastic display goods firm, and a picture framing business to name but a
few. Such an attempt at promoting community enterprise on a small
scale, is similar to the teaching of Islam, that I will look at in Chapter
3. The success of Tallow credit
union should be noted by other credit unions as it has proved the viability
of undertaking such lending. Fixed Interest Rates: a disincentive for entrepreneursThe
lack of emphasis by the credit union in lending for production, is a two
edged knife in that by focusing its attention on consumer credit, it
guarantees a fixed rate of return, regardless of the risk the borrower
takes. Sheila Ryan of Tallow Credit Union defends this fixed rate of
interest by arguing that people like to know what interests rates will be in
the future. However standard
financial institutions very often offer lower than average rates for
business / production loans. For
instance in 1994, Irish credit unions were quoting entrepreneurs twice the
rate of interest being quoted in some mainstream banks, (Douthwaite:1996). Ryan criticises the banks reduced interests rates on
production loans as she feels the risks involved in such loans are greater
than consumer loans, and therefore warrant higher interest,
(Douthwaite:1996). However I
feel this argument can be quickly nullified. Production loans do not just
benefit the producer, but have a spin off effect in the community.
If credit unions were to spend more time actually researching the
viability of business proposals, and offered loans on a profit-share basis
as will be detailed in chapter 3, rather than on interest, maybe both credit
unions and entrepreneur could work together for the benefit of both. Fixed Interest Rates: a disincentive for financiers to investigate the viability of investment projectsThe
importance of research into investment projects is clearly laid out in
chapter 3. Philip Flynn a
veteran of the Irish credit union movement believes the credit unions could
do more for economic development, and that the lack of initiative may be due
to a “lack of self-confidence, imagination, vision, and understanding”,
(Douthwaite:1996:132). This may
also be a factor in the credit unions insistence in maintaining a fixed rate
of interest. Islamic economists
as I will discuss in chapter 3, promote an alternative in the form of an
interest free profit-sharing
system. However they emphasis
that it can only succeed if both the entrepreneur and financier have weighed
up all risks thoroughly. From
this I would argue against Ryan’s fear of business loans holding a higher
risk factor. Rather, in view of
the fact that the entrepreneur will share the profit with the financier, it
stands to reason that the financier will only invest if they are quite
confident of a good return. Therefore
profit-sharing after careful research is likely to yield a far better return
for the financier, than the minimum fixed rate the credit union charges. The case of Interest on borrowing being greater than share of DividendsAs
stated earlier, credit union members earn dividends on savings rather than a
fixed rate of interest. Also
stated was the fact that most credit unions urge customers to borrow on the
strength of their savings as opposed to withdrawing their savings.
Douthwaite draws our attention to a likely situation where dividends
received are smaller than interest paid.
In such a case, a member who borrows, rather than withdraws their
savings for use, is in actual fact paying to borrow their own funds, (1996). The drawbacks of the growth of Credit UnionsThe
credit union movement’s conservative views on lending for micro-enterprise
projects, may also be due in part to their success with consumption loans,
and the corresponding growth many credit unions have experienced.
As with every success story however, there must also be some
drawbacks. In the USA and
Canada for instance, while membership of credit unions has continued to
grow, the number of credit unions has actually declined.
This is due to the merging of many small credit unions into larger
ones, (www.cu.org/cunist.htm:1998). Such
merging is not in keeping with the philosophy of a “common bond”.
Instead these larger credit unions become more impersonal and are
likely to be more bureaucratic in order to keep the union running smoothly.
How then is it possible for each loan to be granted on its own merit,
as is the teachings of the credit union?
Sadly, as credit unions expand, and members are not known to
volunteers, it is more likely that loans are granted to members on the
financial stability and history. It is worth reminding ourselves that Sheila Ryan attributes
Tallow Credit Union success in lending to its small size and community feel.
She is quoted in Douthwaite as saying that lending would be quite
difficult, “if we were in a bigger town”, (1996:130).
Drawing on my own personal experience of the shortcomings of this
expansion within credit union branches, I recall how following the death of
a family member, a request for a short term loan to cover funeral expenses
until an insurance policy was received, was refused on the basis that the
potential borrower was unemployed. Similarly,
a student friend was recently informed that she could only borrow from her
local credit union, if she had a savings of £700 with them.
Such impersonal credit unions are an issue for many marginalised
groups. Take the case of the
Travellers in Ireland. In a
study carried out by Paul Quinn and Thomas McCann, almost 44% of Travellers
interviewed when asked the reasons for not trying to open a credit union
account, stated “lack of necessary information”, 6% were “afraid of
refusal”, and 22% stated a “lack of finance”, (1997:57).
If the common bond of an credit union is geographical, and if there
are marginalised groups within this bond, then is it not up to the credit
union to make itself known to all members of the bond?
Surely such findings need to be addressed, if the credit union is to
remain a community co-operative bank, accessible to all and meeting the
needs of all. The exclusion of some members of the communityAs
will be discussed in the following chapter, the charging of interest is
forbidden in Islam. Therefore, immediately members of many communities are
excluded from partaking in the benefits of the credit union movement.
This is evident in many areas of England today where the percentage
of Muslims has increased dramatically.
Many of these are first generation immigrants and could benefit
greatly from access to credit. St.
Columbas Credit Union in Bradford was founded in the 1970's in response to
the closing down of the Trustee Savings Bank in the area.
In a telephone interview with Douthwaite, Joseph Yewdall, the Manager
of the credit union, referred to St. Columbas as a “one stop community
bank”, (1996:128). According
to Michael Smith, an estimated 10% of Bradford’s population is Muslim, (The
Guardian:1998). Therefore
quite a proportion of the said population are excluded from participating
if this credit union was founded on a geographical common bond.
However even if this was not the case, should the Association of
British Credit Unions, and all national credit union bodies, that share
boundaries with large Islamic populations, not consider an attempt at
providing some form of saving and credit scheme that would allow Muslims to
participate? By reflecting on a
process of profit-sharing instead of a fixed rate of return on lending,
credit unions could play a greater part in community development through the
investigation of projects and investment in them, while still remaining
financially viable. The criteria set down by credit union for membershipThe
credit unions demand for (1) compulsory savings (2) a pre-required sum of
savings before borrowing is allowed and (3) regular loan repayments
alongside continued savings, make membership difficult for those not assured
of a regular income. This is
evident from a survey carried out by Daly and Walsh in a north Dublin
suburb, where it was found that 44 % of those interviewed did not belong to
a credit union as they had no savings, and believed their lack of financial
security deemed it impossible for them to secure a loan.
Lack of information, poor location of the credit union and unsuitable
opening hours were also cited as reasons for non-membership, (1988).
However this does not have to be the case, as can be seen by the
cooperation of MABS and the credit union in Ireland where debt counseling,
debt renegotiation and budgeting advice is shared with members.
The Lough Credit Union for example allows debtors of illegal
moneylenders to open accounts without savings, and the credit union assists
in the renegotiation of debts to the moneylender, repaying them on a
priority basis, (Daly and Walsh:1988). Thus
it very much remains within the power of individual credit unions to meet
the needs of their communities. This
can only be achieved if credit unions make it a priority to recognise these
needs and then work to meet
them. However it is also
essential that attention be paid by national credit unions to the
development of credit unions in low-income areas, and the promotion of their
use by members of such communities. In this chapter I reflected on the establishment of credit unions, and how they came about from the recognition of a failure within mainstream banks to meet the needs of marginalised communities. Credit unions set about addressing this issue by developing a more accessible system of savings and credit. While such a system has served to meet the needs of many, its charging of interest has resulted in the continued exclusion of some, whether it be for social, religious or financial reasons. The possibility of an interest free credit union, is I feel worth exploring in order that those who remain excluded are catered for. It is with this in mind that I move on to discuss in Chapter 3, social, religious and economic arguments in favour of interest free savings and credit.
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