With the £2bn gap in the provision of affordable credit across the country, and a well-recognised need to encourage savings, the need for fair and affordable financial products for people in financially vulnerable circumstances has never been greater. 

Fair4All Finance sees a critical role for credit unions in delivering solutions to a wide range of people, including those from lower income households, as well as encouraging a savings habit, and ultimately improving their financial resilience. We agree with the Government’s ambition for a doubling in the Coop and Mutuals sector.

The headwinds facing credit unions in the UK have been significant – an increasing need for loans coupled with rising arrears, macro-economic challenges, increasing customer expectations around technology, higher operational costs and wider interest rates that impact share retention.

Fair4All Finance asked Swoboda to investigate the current position among credit unions on the challenges they face on capital, liquidity and attracting and retaining shares. This was motivated by several credit unions approaching us seeking subordinated debt to support liquidity and capital adequacy.

With thanks to the Swoboda team and the credit unions that participated. Please find the final report here.

The report suggests that there are liquidity challenges, but these are not universal. It comments from a survey of 45 credit unions that 61% had seen an increase in loan demand and 69% had seen an increase in savings withdrawal (often the only source of capital to meet loan demand). If this trajectory of lower savings capital and increased loan demand were to continue, then there are potential challenges ahead for credit unions.

Whilst not conclusive in absolute terms, the report contains some very interesting insights which we are keen to explore further. For example, the majority of credit unions surveyed did not have an appetite for offering interest-bearing savings, preferring to stick with offering an annual dividend return. This is a surprise considering competition from the high street and the Help to Save and auto-enrolled saving schemes under active consideration. 

We would welcome hearing from credit unions on the issues raised by this research, in particular:

• What options is your credit union exploring to attract and retain savers?
• If your credit union’s loan book is expected to grow, how do you expect to finance this growth?
• If your credit union is looking to grow, what, if any, financial support would be beneficial to this?

Please do get in touch with us directly (vince@fair4allfinance.org.uk) with your perspectives on this research.