Scottish Government

Main Findings

• The typical credit union survey respondent was middle aged or older, female, White Scottish in ethnic origin, an owner occupier and in work;
• Very few members were under 30, from other ethnic minority backgrounds, unemployed or permanently sick or disabled;
• A quarter lived within areas designated as being deprived;
• 14% were in receipt of some form of means tested benefit;
• Members joined their credit union primarily to save or to take out loans rather than for any ethical reasons;
• Other than savings and loans, few members made use of the financial products and services offered by the larger unions;
• Most members made use of other financial products and services provided by the mainstream banks and building societies;
• The financial services and products that members would like to see their union offer included more ways to deposit money, cash machines, the provision of debt and money advice, telephone and internet banking and savings products that paid more over time; and
• A third of survey respondents gave examples of things they disliked about their union. The main ones were the amount that could be borrowed being based on the amount saved and the need to save before being allowed to borrow.

Credit Union Members and Financial Exclusion

Between 12% and 20% of credit union members would lack access to financial products and services but for membership of a credit union. These percentages are roughly comparable to the percentage of the Scottish population that is financially excluded. Those members who, but for credit union membership, would be financially excluded, differed from other members in that they were 3 times more likely to be unemployed, sick or disabled and receiving Income Support. They were also more likely to have been refused a loan by mainstream financial institutions because their income was low and insecure.

There was little evidence from the survey that members had joined the credit union as they were unable to gain access to financial products and services elsewhere. However, for a small number of members being able to obtain a credit union loan had enabled them to avoid making use of higher cost sources of credit.

Proportionally more of the financially excluded were members of residential credit unions with bonds covering designated areas of deprivation. However, significant percentages were members of unions having other types of bond and lived in areas that did not have designated deprivation status. Given this, targeting people who are financially excluded through residential unions or geography may not be justified.

Overall our conclusion was that credit unions were making a relatively modest contribution to tackling financial exclusion in Scotland.

Relationships Between Sub-Groups of Survey Respondents

The differences in survey responses according to such things as the types of credit union bond and trade association memberships were explored. Generally there were relatively few significant, strong relationships. These tended to be predictable. For example, the longer someone had been a union member then the more savings they had whilst members of employee based unions had larger loans, were more likely to be in work and were less likely to live in designated areas of deprivation.

Business Plan Analysis

The business plan analysis found that the majority of the unions were receiving some form of public support, often to pay for premises. Half of the unions whose plans were analysed were not financially viable, in that they could not survive without public support.

Marketing efforts concentrated upon word-of-mouth, leaflets and posters. However, few unions had undertaken market research to identify what their members wanted. Often there was a mismatch between the services currently offered and those that the survey had found members wanted.

Key Player Interviews

Interviewees felt there was a need for market research to identify what members and non-members wanted from their credit unions. If unions were to grow then they needed to have business plans that included clear and feasible targets.

Non-Member Research

Exploratory research amongst non-members, half of whom were under 25, in 2 localities found that few identified credit unions as being "poor person's banks". What would make joining a credit union attractive to them would be competitive loan and interest rates, rather than stressing the credit unions' ethical background.

Suggestions for Change

If credit unions are to make a greater contribution to fighting financial exclusion then they need to be more flexible in their lending practices, in particular relaxing their rule that members can only borrow after they have first saved. However, if this is done then the risk of bad debts is likely to increase. Accordingly it is proposed that loan guarantee funds be considered to underwrite loans, thereby offering protection to the credit unions while increasing availability of loans to people who are financially excluded.

Given that new members attracted by loan availability may have financial problems there may be a need for debt and money advice. Credit unions should develop partnership arrangements with the appropriate specialist agencies to provide this. This is also something that will be popular with existing members.

If unions want to increase their memberships then it is suggested that they make use of their existing membership base, offering incentives if new members are recruited. To do this members should be offered training in marketing and should be made aware of the range of financial products and services offered by their union.

Credit unions should undertake market research to identify the financial products and services that their members want and those factors that they dislike about their union. This should be set within the context of a business plan.

Although the credit union membership survey identified a desire to see new products and services offered unions should initially concentrate upon increasing the uptake of the services that they currently provide.

Access to credit union services was a concern. Accordingly unions should ensure that the financial products and services they offer are readily accessible to members. This might involve modifying or extending office opening hours and making use of PayPoint or electronic banking.

Research Methods

The study involved:-

• A postal survey of 1,591 members from 29 Scottish credit unions;
• Analysis of 24 credit union business plans and health checks;
• Interviews with 14 credit union activists; and
• Non-member research to explore perceptions of credit unions.