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Credit Unions: Fiftieth Anniversary

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Iain Ramsay

http://www.kent.ac.uk/law/people/academic/Ramsay,_Iain.html

The Guardian notes that it  is the fiftieth anniversary of the establishment of the first credit union in England. Developed primarily in West Indian communities as a response to discrimination by the mainstream financial sector they drew on the ‘partner’ model of saving which existed in Jamaica and other Caribbean countries. It was not until 1979 that a proper legal framework was introduced. Although the Credit Unions Act 1979 was described by the Observer as ‘an acorn from which a veritable grove of credit union trees will grow’ credit unions remained a tiny part of the lending landscape in England and Wales. The Griffiths Commission in 2006 indicated that most credit unions have less than 200 members, lacked modern management skills and  suffered from the image of being the ‘poor man’s bank’. Legal restrictions on the scope of membership (the requirement of a common bond) limited their growth and in 2012 there were only about 400 credit unions in the UK serving under 1 million individuals.

Legislative reforms  have made it easier for credit unions to grow and the Coalition government is committed to promoting the growth of the mutual credit sector hoping that it might provide an alternative to the high-cost loan market. Credit Unions however continue to represent a very small part of the UK credit market. There is also the paradox that if credit unions grow to become more ‘modern’ they may lose their community and social orientation and become more like mainstream financial institutions.

A good question is why mutual credit institutions did not take root in England when they did in countries such as Germany, Ireland and Canada. The Crowther Committee  on Consumer Credit reported in 1970 that ‘the principle of mutual aid has never taken such strong roots in the credit field in Britain as it has in other countries’.

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