The creation of a sustainable credit union in Lambeth, to provide -
- Full banking service for those on low incomes
- Access to affordable loans
- Education of those unfamiliar with financial and budgetary practices ('financial literacy')
- a wider programme of financial literacy amongst low income groups
- A sustainable and growing credit union in Lambeth
- Over 2600 new Lambeth Credit Union Members
(Update: as at June 2013, 4518 Lambeth members)
- Over 1500 Credit Union Current Accounts
(Update: as at June 2013, 2000 current accounts)
- Lambeth residents saved £1.395m (estimate) in borrowing from the credit union rather than borrowing from doorstep lenders
(Update: Payday Loan service introduced February 2013; over 500 such loans to Lambeth residents totaling over £200,000; total Lambeth member CU savings £2.1M)
Issues raised by this project
- The risks involved in such a venture
- The need for flexible and responsive crisis management
- The demands on staff and trustee time
- Grant maker as partnership broker and problem-solver
- The value of a volunteer skilled specialist
A challenge for any charitable foundation with roots in the 17th century is how to realise its historic aims in today’s context. It is easy to stick to traditional models of benevolence. For foundations and charities concerned with the ‘relief of the poor’ the challenge becomes sharper. The ‘poor of the parish’ look very different today from how they did – in our case – in the Lambeth of the 1670s.
In recent years the Walcot Foundation has increased the sum it sets aside for grant making and, at the same time, has sharpened its focus. Today, our activity is concerned with long term and sustainable change, expressed in our strapline ‘a hand up, not a hand out’.
We have taken the familiar proverb which claims that to ‘give someone a fish and you feed them for the day, teach them to fish and you have fed them for a lifetime’ and applied it to our grant making model for the relief of poverty. We believe that the best way of relieving poverty and financial need is to equip people to become financially self-sufficient. In this way we hope to break cycles which otherwise run the risk of repeating through generations.
Our entire grant making has this focus: long term, sustainable improvement in the lives of our beneficiaries. Its overriding aim, in various ways and by various routes, is to enable people to increase the likelihood of getting, and retaining, employment.
Not all the activity we fund addresses that goal directly. For example, we have long shared the concern many feel over the unregulated provision of loans at obscenely high rates of interest – as high as 2000%. Such ‘services’ are aimed at those who may lack even basic financial acumen, and who may be forced by economic circumstance and desperate need into borrowing money on catastrophic, debt-enlarging terms. We asked ourselves if there was anything the Foundation could to do to foster a culture of responsible saving and borrowing for those living hand-to-mouth and who were clueless about the ways and means of money management.
We looked at the role of credit unions in the provision, by and for local communities, of measured and modest saving and borrowing. Many of the poorest of our communities are not made welcome by the high street banks. Credit Unions came into being to provide trustworthy and non-exploitative means of saving, planning and borrowing. Credit unions are commonplace in the USA yet have a curiously low profile here in the UK.
At the time, Lambeth, our ‘area of benefit’ – had no established credit union, but it did have an embryonic one. After careful inquiry, Governors on the Grants Committee decided to propose a series of awards to help it grow. The sums proposed were to add up to the largest single award in the Foundation’s history, spread over three years and targeted at various elements including basic running costs, the creation of a current account and debit card facility, and a programme of financial literacy training to help spread an understanding of money and its management in both adults and school children.
The proposal carried risk. To consider it further, special meetings of the entire trustee board took place. The detail and the supporting data were complex. Broadly speaking, there was serious but cautious interest amongst our Governors in this new approach to realising the Foundation’s charitable object of relieving poverty. We were excited by the prospect of playing a vital part in the creation of a sustainable credit union for Lambeth, serving those groups in the population who are our special concern. As with all our grantmaking, the aim was short-term support leading to long-term sustainability.
Things did not go smoothly. The award was agreed in November 2008. In September 2009, the accounts of the credit union were ‘qualified’ and revealed that it was insolvent. Liabilities were in excess of assets and savers would have lost their money were it not for the fact that deposits are guaranteed. The organisation could not go on trading.
The Foundation immediately turned its attention to exploring the possibility of a rescue, so as not to lose the original aim of providing low-income Lambeth citizens with access to responsible saving and borrowing. We acted as broker between the credit union, the FSA and the local authority. Amongst possible solutions, we urgently explored the possibility of a merger with another credit union. We did not wish to see the project fail and for Lambeth to lose such an important local provision.
The Foundation’s Governors took a close interest in these developments, and wanted to fully explore every option for achieving their original aim. For some time the outcome was uncertain, but then a way forward emerged. An FSA-approved merger took place, but required the Foundation’s help in supporting it. We were also able to work with Lambeth Council to secure a more prominent shop-front location for the credit union in central Brixton, which increased footfall and new accounts.
As part of managing the risk, we advertised for someone with appropriate experience to be the Governors’ ‘eyes and ears’ by attending Board meetings of the revived, transformed, credit union. We found an ideal candidate in Andrew Fletcher. This was a voluntary role, and has run for three years. Andrew fitted the bill perfectly: his experience and technical knowledge were relevant to the role; he won the confidence of the credit union Board and our own Governors. His assessments and reports were concise and clear.
This project took us into quite new territory. The size of the award, the complexity of the issues, the level of risk and the amount of extra work for our Governors and staff were all new – and at times testing. Some Governors had doubts, others second thoughts. Was this the kind of thing a grant making trust such as ours should be doing? What if it all went belly-up? We held on to our original aims: access to ‘fair’ banking and borrowing for those segments of society – mainly the poorest – who were most in need of it; and the inculcation of ‘financial literacy’, so crucial for those who never have a cash cushion to rely on. By these aims we hoped to ‘relieve poverty’ by breaking the cycle of living from hand to mouth via short term loans at exorbitant rates which made any hope of modest and incremental saving sheer fantasy for many. Credit unions encourage people in these groups into ways of regular saving; it does so without bamboozling them; it goes out of its way to reach out to those who are most vulnerable to the sharks.
Our programme of support to this fledging enterprise ended in the summer of 2012. Credit union provision in Lambeth has reached a point of self-sufficiency and growth without needing our continued support. It has plans for further expansion across other London boroughs. As an organisation, the credit union has reached the stage we hope for each of our beneficiaries – a sustainable and brighter future. We cannot measure the long-term impact on our target beneficiaries of this grant, but we think this claim gives an indication: the credit union estimates a value to Lambeth residents of £1,395,000 between March 2010 and June 2012 as a result of borrowing from it rather than from doorstep lenders.
ANDREW FLETCHER: THE ‘EYES AND EARS’ OF OUR GOVERNORS AND
‘CRITICAL FRIEND’ TO THE CREDIT UNION
“It is a challenge for grant making trusts to make their funds go further. The idea of providing grants to help establish a credit union is an innovative idea that, if successful, will provide long term benefits to the community in Lambeth and help to eradicate the most pernicious aspects of so called ‘door step lending’. It is for these reasons that I was pleased to take on the role as the Walcot Governors’ observer at CU Board meetings.
The journey became more challenging than either the Governors or I had expected when the embryonic Lambeth credit union failed. It would have been easy to give up at that time, but the belief in the long term value of the project kept everybody working for the ultimate goal. In hindsight, the merger with a neighbouring credit union proved a blessing. It was a much longer established credit union, well managed and financed.
The merger has enabled the growth of a credit union in Lambeth to some 2,000 members, growing at about 100 a month. Current account facilities are available to members, allowing them to benefit from direct payments into their accounts and the financial savings that are available for those paying utility bills by direct debit.
The credit union is planning to introduce its own version of PayDay loans, looking to help members achieve a longer term solution for their finances at ‘fair’ rates of interest. The Walcot Foundation’s support in the establishment of a strong, growing and self-financing credit union in Lambeth has gone a long way in helping those Lambeth residents of special concern to the Foundation manage their financial affairs in a sustainable way.”
THE VIEW OF THE CREDIT UNION
From the Chief Executive
- The Board and I would like to thank the Governors for having the confidence and giving us the support to allow us to build a sustainable credit union in Lambeth. We hope that you will agree that the project has been a success and want to assure you that we will continue to expand the membership and offer ethical and affordable financial services to Lambeth residents in the future. We are planning to work with Lambeth Council on a number of DWP welfare reform projects and anticipate opening high volumes of new accounts over the next few years.
We are glad to share our expereince with other funders and projects. Please get in touch with either Hugh Valentine or Daniel Chapman