I've been banging on about the need to provide alternatives to the big banks. Ever since the banking crisis broke I have argued for local alternative-preferably mutually owned-that is owned by their savers and acting in their interest rather than by a PLC.
Last week a report was released by think-tank Civitas. Civitas have suggested that credit unions should be allowed to take bigger deposits if they are to become a viable alternative to high-cost lenders. Credit unions are financial co-operatives or Mutuals that operate in local areas, offering small loans to members.
The big banks have let many people down. They do not provide a service for those seeking small loans. Some people are driven into the arms of payday loan companies and loan sharks who charge enormous rates of interests. Credit Unions are part of the solution to this problem. We used to have local banks and mutual savings schemes. Walk along
Lord Street and you
can see their names carved into the stonework. The picture shows me outside the former Preston Bank-written above the door..The destruction of those local
financial institutions was one of the biggest acts of economic vandalism of
recent years. Bodies like the Trustee Savings Bank and many local Building
Societies have been swallowed up by unresponsive mega banks.
The government has been encouraging growth in the sector as an alternative to expensive payday lenders. From April next year, the maximum interest rate that can be charged by the unions on loans will be increased from 2% to 3% a month.
Currently credit unions often make a loss on loans under £1,000 because of the admin fees involved. Iain is supporting recommendations in the Civitas report like removing the £10,000 cap on the amount of money that businesses can place with credit unions, by doing that they can attract bigger deposits and allow them to help and support more people on low incomes.
There is a possibilities that with the correct regulations these institutions can grow and offer finance not just to individual member but to local small businesses. As the Civitas report says:
' The supply of finance to SMEs and individuals is still falling dramatically short of
demand. ‘Mind the Financing Gap: Evidencing Demand for Community Finance’ estimates £1.3 billion of unmet business demand with nearly 103,000 under-served business customers. For personal finance it found 8 million individuals are in need of better access to affordable credit.
The Department for Work and Pensions (DWP) reports a similar failure in commercial finance, estimating that 850,000 people a year incur inancially crippling levels of bank charges because they need help to manage their money, and up to 7 million people use sources of high cost credit e.g. home credit, pay day lenders and pawnbrokers.'