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setting up for success

Sustainable Credit Union

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How To Create A Sustainable Credit Union

Success

ABCUL

Setting up for

How To CreateA Sustainable Credit Union

ASSOCIATION OF BRITISH CREDIT UNIONS

Setting up for Success pdf 23/5/0 1:02 pm

ASSOCIATION

OF BRITISH

CREDIT UNIONS

© A s s o c i a t i o n o f B r i t i s h C r e d i t U n i o n s L t d - O c t o b e r 1 9 9 9


What is a credit union? page 3

The credit union difference page 3The case for credit unions page 4

What is ABCUL? page 5

How ABCUL can help you start a credit union page 6

Towards sustainable credit union development page 7

A vision for growth page 7Leadership page 8Diverse common bond page 8Sponsorship page 9Premises page 9Staff page 11

Ten steps to setting up a credit union page 12

Getting an organising group together page 13Gaining the support page 13Developing a business plan page 14Deciding on a common bond page 16Obtaining sponsorship page 18Organising training and support page 18Writing the policy and procedures manual page 19Deciding on your officers page 20Getting registered page 21Launching the credit union difference page 21

Next steps page 22

Reading List page 23

Credit union related organisations page 24

contents

s e t t i n g u p f o r s u c c e s s

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What is a

credit union?

The credit union difference

page 3

A credit union is a financial co-operativethat is owned and controlled by its individual members. It provides themwith accessible savings, low cost loans,and other financial services.

Credit unions operate in Britain under theprovisions of the Credit Unions Act 1979.They are regulated and supervised by theFinancial Services Authority (FSA), whichis also responsible for the oversight of allother financial services providers in thecountry.1

Credit union members are encouraged to save their money by purchasing‘shares’ in the credit union which buildup a pool of funds from which loans to members can be made. The interest onloans is limited by law to no more than1% a month on the reducing balance(12.68% APR).2

Members can receive a return on their

credit union savings. After operatingexpenses are paid and a portion set aside as reserves, the credit union’s net earnings are returned to members as dividends on their shares.

Credit unions also provide members with free life assurance, which pays outan amount equal to the member’s shares at death, up to a limit set by the credit union. Likewise, if the member dies with a loan outstanding,loan protection insurance purchased bythe credit union pays off the loan, up to a certain limit. Other financial servicesoffered by some credit unions includeadditional insurance programmes andbill-paying services.

British credit unions are part of a world-wide movement covering over 80 countries, with nearly 40,000 creditunions and an estimated 100 million individual members.

Credit unions differ from other financialservice providers in a number of ways:

1. The objects of a credit union are setout in the 1979 Act. They are:

i. The promotion of thrift amongst itsmembers by the accumulation of theirsavings;

ii. The creation of sources of credit for the benefit of its members at a fair and reasonable rate of interest;

iii. The use and control of members savings for their mutual benefit

iv. The training and education of members in the wise use of money and inthe management of their financial affairs.

2. All credit unions operate within a common bond. It is the common bondwhich binds the members of the creditunion together. Credit unions operatewithin one of the following commonbonds:

i. Live or work - all members must live orwork within a defined geographical area.

ii. Employment - all members must work for the same employer or group of employers, or carry out the same occupation.

iii. Residential - all members live within a defined geographical area. The area will be defined by a line drawn on a map. The existence of natural dividing


The case for credit unions


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boundaries such as roads, railway lines orrivers will help to form the common bondboundary.

iv. Associational - all members mustbelong to the same association - thiscould be a trade union, housing association or religious group.

3. Credit unions are democratic, mutuallyowned organisations. They are overseenby a board of directors who are elected from the membership by the membership. Each member of the credit

union has one vote, regardless of howmany shares held in the credit union. The board of directors are all volunteersand receive no compensation for theirservices.

4. Credit unions are for service ratherthan profit. The interest charged on loans pays for the running costs, andmembers may receive a dividend on their shareholding out of any surplus remaining, after a contribution has beenmade to reserves. The dividend may not,by law, exceed a rate of 8% per annum.

There are many other financial institutions operating in this country.Banks and building societies serve about 80% of the adult population. Theremaining 20% do not have bank orbuilding society accounts, either becausethey lack access to a local branch, theyhave difficulty maintaining savings, orthey would not be viewed as “credit worthy” for a loan.

The alternatives for consumer savings are few and far between. Post officeaccounts used to be seen as accessible to people on a low income, but they have increased their minimum depositsbeyond the reach of many. The optionsfor credit are more varied, but the alternatives to banks and building societies often charge high interest ratesand impose extra charges. In the worst

case scenario, consumers face the dangerof being preyed on by unauthorisedmoneylenders.

Over the past few years, many building societies have demutualised,meaning that profits and control go to shareholders rather than members. Banks have been criticised over their handling of third world debt, their treatment of small businesses and theirclosure of branches.

For many people, credit unions remain the only locally owned, mutualand ethical alternative to mainstream financial service providers. Unlike theother alternatives, credit unions offerlow-cost, accessible credit and a friendly,convenient place to save and obtain other financial services.

1At present, the Registrar of Friendly Societies is legally responsible for the registration and regulation of credit unions. Since January 1999,however, the Registrar’s supervisory responsibility has been delegated to the FSA, and the complete transfer to FSA of all responsibility for registering and regulating credit unions is expected to be completed by the end of 2000. In this document, the term “Regulator” is usedto refer to both the FSA and the Registrar.

2For example, £1000 borrowed over 12 months would cost around £1065 in total repayments.


What is

ABCUL?

The Organisation of ABCUL

page 5

ABCUL is the Association of British CreditUnions Limited - the principal nationaltrade body for credit unions in England,Scotland and Wales. At October 1999over two-thirds of all credit unionsbelonged to ABCUL, and those creditunions represented over 80% of the individual members of all credit unionsin the country. ABCUL is itself a non-profit making co-operative organisation, which is registered as an Industrial andProvident Society.

ABCUL provides a full range of supportservices to its member credit unions,including technical support, advice andtraining, stationery and forms. Membersreceive regular information throughABCUL’s Credit Union News, TechnicalBulletins and regular mailings. ABCUL’sinsurance programme provides memberswith the Fidelity Bond required by law,and with Life Savings, Loan Protectionand other insurance services.

ABCUL represents credit unions at anational level in Westminster, Edinburghand Cardiff through regular contacts with Government, Members of UK-wideParliaments (including the Scottish

Parliament and the Welsh Assembly), theFinancial Services Authority, the newsmedia and other organisations that are interested in credit unions. ABCULalso represents British credit unions at an international level through its membership of the World Council ofCredit Unions (WOCCU).

ABCUL is a co-operative organisationowned and controlled by its membercredit unions. The members elect a boardof directors which is responsible fordirecting the association. ABCUL employsa number of staff for the delivery of services to members and to study groups.ABCUL’s head office is in Manchester,with other offices in Glasgow, Londonand Worcester.

Credit unions are also organised intoChapters. A Chapter is a regional grouping of credit unions which is part of the structure of ABCUL. Chapters hold regular meetings where membercredit unions can discuss issues of interest and share information. Chaptersalso arrange training and will oftenorganise social events for credit unionmembers to attend.

SUPERVISORY COMMITTEEOversees the running of ABCUL

BOARD OF DIRECTORSEmploys Staff

Responsible for Policy

ABCUL STAFF

REGULATORY AFFAIRS COMMITTEE

POLICY AND RESOURCESCOMMITTEE

DEVELOPMENT AND EDUCATION COMMITTEE

STANDING ORDERS COMMITTEEAGM responsibilities

CHAPTEROfficers elected from member

credit unionsMEMBERS

Elect Committees



page 6

ABCUL offers a Study Group MembershipPack for groups working to start up a new credit union. The programme isdesigned so that your group can receivethe right information throughout theplanning and registration process.

For a nominal fee you receive a packageof information that explains the processand all the terms and people you willcome across. You will also receive up to date information through regular mailings from ABCUL. Technical advice isavailable through a telephone help-line,and by e-mail, fax and post.

Our staff will also help you through theregistration process and assist you in

liaising with the Regulator. Every newcredit union must adopt a set of “Rules”to govern its operation, and those rulesmust be approved by the Regulator. By using ABCUL’s pre-approved Model Rules, your group can register at a muchreduced fee, with the knowledge that it is using an organisational structure thathas worked well for hundreds of creditunions.

Professional, high quality training is critical to starting a successful creditunion. ABCUL can advise you on the best way to obtain the training yourdirectors and staff will require.

How ABCUL can help you start a credit union

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Successful credit unions start out with avision for growth. From the beginningthey strive to achieve a significant impact as ethically based, democratically controlled, community-owned financial

institutions. They aim tobring the credit unionadvantage to all who canbenefit from credit unionmembership within thecommunity or workplacethey serve.

Even the largest and most successful credit unionsare small by banking standards. Because theyexist to serve their membersrather than make a profit,

and because they are local institutionscontrolled by their members, credit unionsbring an entirely different dimension to the provision of financial services. But only by reaching a membership of several hundred, if not several thousand,can a credit union achieve long-term self-sustainability and thereby make a

Towards sustainable credit union

development

page 7

What makes for a successful creditunion? How can its social goals best beachieved? How can a group of volunteerscreate a new credit union that providesaccessible, low-cost financial services to a significant number of people? What are the key elements required for a credit union to grow and become self-sustaining over time?

Research carried out by a team fromLiverpool John Moores University, ABCULand other organisations, set out to findwhat makes a credit union successful andsustainable3. The results of that research

confirmed what many credit unionactivists have long realised: to succeed inachieving its social goals, a credit unionmust also have a vision for growth and itmust be founded on principles of soundbusiness planning, with the resources and sponsorship neededto project itself as a credible, reliable financialinstitution.

Specifically, there are six keys to creating a successful, sustainablecredit union.

1. A vision for growthsignificant positive impact on its community.

At the same time, a credit union mustemploy the principles of sound businessplanning to ensure that it will be a safeand reliable provider of financial servicesto its members. Successful credit unionsrecognise that they are custodians oftheir members’ savings, and that theymust operate in a safe and secure fashion. They realise that their socialgoals can only be achieved if they followsound commercial practice, with propermanagement procedures and financialcontrols.

By contrast, if a credit union fails to grow,the number of people it can help will beminimal. If all the members of the creditunion can only save a small amount andare likely to need loans or withdrawals,the credit union will not be able to grow,or help all those who need its services. If it is not operated with proper management controls and procedures, itputs its members’ savings at risk. A poorcredit union cannot help poor people.

3Jones P “Towards Sustainable Credit Union Development “ ABCUL 1999


and marketing skills are all useful ingredients in building a team of officers.But without leadership, the project maylack the drive and direction to succeed.

Leadership has to come from within the group. People areneeded with the enthusiasm and commitment to keep the organising group motivated andto earn the respect of potentialmembers in the local community.The group needs to be able tosell the idea of a credit union topotential members and sponsors.

2. Leadership


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The officers of a credit union are notlegally required to possess any particularqualifications, although the Regulatordoes require that all officers receive training in how to run and direct a credit union. What is needed to createand sustain a successful credit union, however, is a committed group of volunteers who come from a variety ofbackgrounds and who possess a varietyof skills.

Accountancy, computer, bookkeeping,management, supervisory, communitydevelopment, counselling, committee

3. Diverse common bondFor a credit union to make a difference, it needs to have some members who will be ‘net savers’ as well as people whoare attracted to the credit union as asource for low-cost loans. A credit unionwhose common bond contains a mix ofincome groups and ages has a betterchance of becoming sustainable. Creditunions are not only for people excludedfrom mainstream banking services. They provide an ethical, democratic, goodvalue service for anyone seeking an alternative to the banks and buildingsocieties.

An age mix within the membership is also important. This helps ensure a sourceof new volunteers, and it provides a

diversity of ideas and skills that can complement each other. Moreover, whilstolder members are more likely to be netsavers, younger members are more likelyto need loans.

A ‘live or work’ common bond can adddiversity to the potential membership. If there is a large employer in your area it may be possible to obtain a payroll deduction agreement with them. Supporting a credit union is anexcellent way for an employer to contribute to its community. A town centre collection point may also attractowners of small local businesses to jointhe credit union. This can add greatly tothe credit union’s growth.

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5. Premises

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There are two sorts of sponsorship which are necessary, especially for a credit union in its early stages. Firstly, sponsorship can provide the resourcesnecessary to start a financially sustainablecredit union. Secondly, sponsorship can provide credibility.

It can cost from £30-70,000 to set up a credit union with premises and staff for the first 3 years, after which time itshould be self-sustaining. Funds cancome from a variety of sources. For example, the involvement of an employercan be of mutual benefit to the employerand the community. A local employer canprovide financial assistance or help ‘inkind’, such as by seconding a worker tohelp with setting up or running the credit union, or by providing office space,equipment or other resources, such asprinting, photocopying or stationery.

You could also approach your local council, which may be able to providegrants or loans to help in setting up.Local government may also help you tapinto other sources of money.

Local councils, employers, housing associations, respected individuals orcommunity groups can all lend weight

to the idea of a credit union and help it develop a respected image. Their sponsorship imparts an image of stability,security and safety and assures potentialmembers of the credit union’s reliability.Many people do not know what a creditunion is, or they believe it is not for them.If organisations or people they alreadyrespect are behind the idea, otherprospective members are more likely tobe persuaded.

In some areas, housing associations haveprovided sponsorship. Tenants associations,trade unions, churches, charities andother voluntary organisations could beuseful groups with which to form partnership links. The trick is to be creative and persuasive. Being involved in a growing thriving credit union whichis a part of a young and dynamic movement can be an exciting challengeand can benefit individuals, organisationsand companies who will be seen to beactively supporting and participating intheir community. They will be adding realvalue to the lives of members of the community. Selling this idea and visionwill bring real benefits for the sponsorand the community, as well as to thecredit union.

If a credit union is toattract a diverse rangeand a large number ofmembers, it needs to project the right imageand be accessible. If anew bank were to set up

in a dingy backstreet office, away fromwhere people usually carry out their dailybusiness, and open only at inconvenienttimes, it would be unlikely to attractmuch business. The same is true for acredit union.

Premises for community creditunions

People who use a community centre for other activities may also join a creditunion if it set up there, but if the centre isout of the way, it is likely that non-userswould be discouraged from joining. The same may be true for a church.Regular attendees would be obvious candidates for membership, but peoplefrom another religious group would be unlikely to pop in. In some areas, suchpremises may attract enough members to make the credit union viable, but in

4. Sponsorship



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most areas, a visible, high profile office,where people gather, will be more likelyto attract business.

If the common bond you wish to servehas a natural centre, then this would bethe best place to situate an office. Peopleare more likely to stop in and make adeposit or talk about a loan if the creditunion is near the post office or the supermarket. If they have to walk over tothe other side of town, to an estate theywould normally have no reason to visit,they are likely to stay away.

The credit union needs to be an attractiveproposition to people who can accessmainstream financial services. For thesepeople, joining a credit union may be anethical choice. A successful credit unionwill also give savers a better return thenthey can get from a bank or building society. Savers are essential to a creditunion’s viability. Without their money,loans cannot be made to the memberswho need them. If a business does notlook as if it will stay around, then peopleare unlikely to trust it to look after theirmoney.

This doesn’t mean that a credit union hasto have plush seating and expensivedecor, but it does have to present a goodimage to its potential investors. Thereneeds to be private space where members can discuss loans and financialproblems and a welcoming atmosphere.A shop front rather than an office hasadded advantages as the window provides a good advert and the premiseswill seem more accessible.

In a large, rural common bond, there maybe naturally more than one centre towhich people travel. If this is so, satellitecollection points may be necessary. Onlythe local knowledge of your group andyour research will be able to tell you thebest place to establish the business centre.Sponsors can be invaluable here, eitherproviding the cash to obtain your ownpremises, by leasing or purchase, or by providing space in property they own at

little or no charge.

Perhaps a sponsor such as a housingassociation or local council already hascash offices around the common bondarea where they may be willing to collectdeposits for you.

However, there is no point in having welllocated premises, with a good image andan individual identity if it is closed for themajority of the week. In most communitycredit unions, volunteers have traditionallycarried out all of the duties; this obviouslylimits the amount of time when the creditunion can open for business. If a creditunion is to be open at convenient timesfor its potential membership, it will needto employ staff.

Premises for industrial and associational credit unions

Credit unions with an employment orassociational common bond will usuallyeither have a potential membershipspread over a large geographical area, orwill have their common bond centred onone or two workplaces. In either case, thehigh street premises mentioned abovewill probably have little relevance.

In a workplace credit union, the sponsoring employer may be able to provide office space at a subsidy or freeof charge. Depending on the wishes ofthe membership, this may be close toplaces where people gather, such as thegeneral office or canteen, or it may bebetter in a discrete location, where moreprivacy is offered. Again, only yourresearch can tell you where the best location is.

If the credit union has a more widespreadpotential membership, most of the business may be carried out by phone.However, it should be remembered that a lot of people prefer to talk face to face,so you may wish to consider whether a system of representatives or agents in different locations is appropriate. Ho

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6. StaffCredit unions are member controlled andvolunteer led. This does not change ifstaff are employed. The development ofpolicies within the credit union and theoverall control of it stay with the electedboard of directors, no matter how manystaff the credit union employs. Staffenable the credit union to provide a morecomprehensive service to the members,allowing the officers to concentrate onother aspects of running and developingthe business.

The research undertaken by John MooresUniversity identified volunteer burnout as one of the major factors in the failureof community credit unions to grow. The day to day tasks involved in runninga credit union (such as book keeping, dealing with transactions and generaladministration) require a lot of commitment and time. These jobs do not carry with them the status and recognition which attract many volunteers and recruitment of volunteersis therefore often difficult. Moreover, the amount of work increases as the level of membership and transactions

grows. A credit union will find it hard toincrease its opening hours if it cannotprovide the human resources to servicethe credit union. It is unrealistic to expectunpaid volunteers to take on such aheavy workload. Paid staff are therefore necessary.

A credit union can create good jobswhich will benefit the local community.Officers of the credit union will then befree to plan the development of the credit union. The largest credit unions willemploy a number of staff, including anoverall manager - but always responsibleto the board of directors.

Staff and premises used to be seen as aluxury that only the largest credit unionscould aspire to. That is no longer thecase. If a credit union wants to becomesustainable and provide a good service toits members, it will need these resourcesfrom the start. Many existing creditunions are reviewing their progress andfinding ways of putting these resourcesinto place.


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Ten steps to setting up a

credit unionFor simplicity, the process of setting up a credit union has been divided into 10 steps. As with any enterprise, the business plan is the most important itemin the planning, marketing and operatingstages. All the other stages affect or are

affected by the business plan in one wayor another. The timescale for completionof the steps is dependent on the plan set by the group. A self starting entrepreneurial group could be registeredwithin 6-9 months.

These ten steps are not set out to be followed in strict chronological order.Many of the tasks may be carried out in tandem, although some must be completed before others can be started.A small group of people may be sufficientfor the initial stages. But as the first steps are completed, this initial group

of organisers should develop into thestudy group which will eventually registerand direct the credit union until its first general membership meeting, atwhich the board of directors is elected.The ABCUL Study Group MembershipPack contains more information on eachof these steps.

Launching yourcredit union -

and putting yourbusiness plan

into action

Gaining more support - and building the

figures into yourbusiness plan togrow your credit

union

Get sponsorship- and build the

figures into yourbusiness plan

Getting a grouptogether - to

formulate yourbusiness plan

Get training andsupport - to help

you formulate your business

plan and otherdocuments

Decide on a common bond -

and build the statistics intoyour business

plan

Getting registered -

and discussingyour businessplan with the

regulators

Deciding on yourofficers - andhow they will

make your business plan

succeed

Writing yourbusiness plan

and other policydocuments

BUSINESSPLAN


2. Gaining support

You will need a group of at least 15-20people as your steering group. These willbe the people who will do the businessplanning and set in place the policies ofthe credit union. They will also becomethe credit union’s first officers.

When any group of volunteers comestogether to perform a task, there willinevitably be some who drop out during

the process. So the larger the groupat the beginning, the more likelythere will be enough to fill all thenecessary positions.

People with different skills will also be needed. Although trainingwill be undertaken, there are many and varied tasks involved in the running of a credit union and the groundwork beforehand.Individuals with skills in computers,

accountancy and bookkeeping,management, research and marketing,counselling and committee work will allbe important additions to your group.

If your common bond is spread over alarge area, it makes sense to have peoplefrom different parts of the town, or different branches of the companyinvolved in the group. This may haveimplications for travel expenses, but thiswill then need to be built into the business plan.

Don’t forget the importance of team-building among your volunteersand the value of having fun together. A group of individuals who enjoy beingtogether will find it a lot easier to contribute to the hard work of running acredit union.

You may think that a credit union is justwhat is needed in your area, but whatabout the people you hope will join?Before you start, you need to know ifpeople in your proposed common bondreally want a credit union, and you needto know what services they would expectfrom it. Doing this research early on willconfirm whether your efforts are likely tosucceed. It will also give you valuableinformation for other parts of the settingup process.

Asking local people to fill in non-bindingpledge forms has been found to be thebest way of ascertaining the amount ofsupport that exists for a credit union.People are asked to fill in a pledge formstating how much they would open anaccount with, and how much they wouldsave on a regular basis. People may alsobe asked where they would like a creditunion to be based and at what times theywould be likely to use it. You can also askpeople if they would be willing to act as

volunteers for the credit union, either inthe setting up stages or when the creditunion is up and running.

You should aim to collect 500 - 1000pledges. This will provide you with the initial membership mailing list fromwhich to develop support for the proposed credit union.

Pledges can be collected on an individualbasis, at public meetings set up by thesteering group, at presentations given tocommunity or workplace groups or atstalls set up at local information points ormarkets. A postal survey could be carriedout, but face to face contact is likely toproduce a far better response.

Collecting pledges from local people isvaluable for a number of reasons:

◗ It lets the steering group know if there is a demand for a credit union. If insufficient people give their support, the

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1. Getting an organised group together



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group should reconsider their plans. Ifother services would solve the problemsthat people have, then perhaps it is not a credit union that is needed. If you discover this at any time during your setting up process, don’t be disheartened, you have done a good jobby finding this out. If there are only a few people interested but there is a neighbouring credit union, the best ideamay be to ask the neighbouring creditunion to consider extending its commonbond to cover your area.

◗ This research provides the group withan opportunity to sell the idea of a credit union to local individuals andpotential sponsors. By the time you haveset up your credit union, the members of your group will have become veryadept at selling the credit union vision.Presentations to local groups, employersand public meetings will be vital to getthis message across. By collecting pledgesat the same time, you are keeping a useful record of people you can contactwhen the credit union is due to launch.

◗ It provides excellent material withwhich to start your business plan. A

business plan looking 3 years into thefuture is by its nature a speculative document. If you have pledges from people, then those figures can be used todevelop your projected share and loanfigures.

◗ It can help you plan what services you will be offering to your members.Asking potential members what timesthey would use a credit union can helpyou to plan your opening hours. Wherepotential members live can help you planthe location of your premises. Having anidea of what people would use loans forcan also help in planning your marketingstrategy.

◗ The decision on your common bond will be easier to make after your pledgedrive. Knowing which parts of a company, organisation or community theinterested people come from may help toinform you where the common bondstarts and ends. You may be pleasantlysurprised by the results.

More detailed information on the use ofthe Pledge system is available in theABCUL Study Group Membership Pack.

The process of developing a business planis probably at least as important as thedocument that you end up with. Duringthe planning process, the team will beable to develop a shared vision of whatthey want the credit union to look like.This will reap benefits when members ofthe group are selling that vision to potential members and sponsors.

The business plan will give estimates ofthe expected levels of income and expenditure for the first three years afterregistration. Examples of what it shouldinclude are:

◗ The initial start up costs and how theyare to be financed◗ The expenses of operating the creditunion for each of the first three years◗ The income and financial support tothe credit union in the first three years◗ The anticipated share and loan balances, cash and reserves at each yearend

Start up costs to be included

The following is not an exhaustive list,and start up costs will vary from creditunion to credit union.

3. Developing a Business Plan


◗ Registration fees◗ Fidelity Bond - to insure against fraud ordishonesty affecting your credit union◗ General insurance - including public liability and employer’s liability insurance 4

◗ Launch costs◗ Publicity costs◗ The costs of setting up your premises◗ Computer hardware and software costs◗ Training costs

Some of these costs might be coveredthrough donations in kind from sponsors.

Operating expenses

The on-going costs of operating yourcredit union are likely to include:

◗ Premises costs◗ Staffing costs◗ Computerisation◗ Volunteer expenses◗ Publicity material◗ Stationery◗ Photocopying/printing◗ Corporation Tax (on interest earnedfrom bank deposits)◗ Annual Return fees - payable to theRegulator once yearly, currently £25◗ Training budget◗ Audit fees ◗ Loan Protection and Life SavingsInsurance premiums◗ Fidelity Bond insurance◗ General Insurance

Income

Income to the credit union will be derivedfrom:

◗ Membership fees◗ Bank interest◗ Interest on loans ◗ Fund raising◗ Grants - these must be supported bywritten confirmation of intent

Balance sheet

Your pledge drive should provide youwith the basic material to estimate yourmembership, share and loan figures.

You will need to discount the figures thatyou have collected through your pledgedrive, in order to take human behaviourinto account.

You may therefore assume, for example: ◗ That it will take 6 or 9 months for membership to grow to the number ofpeople who signed pledge forms◗ That the average opening balance ofan account will be one third, or one halfof the amount pledged◗ The average monthly savings will beone half or one third of the amountpledged.◗ That 10% of the shares saved will bewithdrawn each year

All your figures in the business plan mustbe backed up by assumptions. Your marketing plan will need to fit into thebusiness plan. If, for example, your membership is expected to grow after 6 months because you are able toincrease your opening hours, then youmust explain this.

You should also explore the services youwish to offer in your business plan. Yourpledge information will again prove useful here. Development of new serviceswill affect your income and expenditure,so should be built into the balance sheetand explained in full.

The number of members, the percentageof assets out on loan, and the amount of accumulated reserves are the mostimportant figures in the business plan.These figures should be viewed as targetswhich need to be achieved in order todevelop a sustainable credit union.

4Even if you do not employ any paid staff, you will need employer’s liability insurance. Your volunteers and officers count as employees.



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You must be able to convince theRegulator that your proposed membershipshare a common bond.

Depending on the type of common bondyou are wishing to start, this may be a relatively painless process or it mayrequire a more considerable effort. Youshould keep in mind that the commonbond should contain a diverse mix ofpeople. You should also find out if thereare any other credit unions in your area, and make your common bond fit accordingly. The Regulator will also wishto know about other credit unions in yourarea.

The first official contact you will makewith the Regulator will be to ask for the approval of your common bond in principle. You will need to provide evidence that this common bond exists.

Part of this evidence can now be in the form of a statutory declaration. A statutory declaration is a written declaration made before a magistrate orcommissioner for oaths. In this case, the statutory declaration will declare that a common bond exists between the potential members of the credit union. If you choose not to submit a statutory declaration, you will have to providedetailed evidence of interaction, to provethat you have a common bond. In anycase, you will also need to provide detailsof the total size of population, and those‘eligible’ members between the ages of16 and 65.

Associational

A typical wording for an associationalcommon bond may be:

“The qualification for admission to membership of the credit union shall behaving a continuous and active associationwith [XYZ church/trade union/association/club/etc] so that in consequence thereofthere shall be a common bond betweenall the members.”

Membership of a trade union, activeassociation with a church or communityassociation or membership of a tradebody are fairly easy qualifications to justify.If an association covers a wide area, youmay need to consider whether to coverthe whole area or a smaller region.

Industrial

If you work for a large employer with asingle site, then deciding on your common bond will again be a relativelysimple task. If your employer has severalsites over the country, then you will needto decide how much of the total company to include in your commonbond. This may depend on how muchcontact people in different parts of thecompany have with each other and how many employees there are in total. If you work for a smaller employer, it may be better to team together withother organisations or companies to form one common bond. Differentgroups of employees in the same sectormay choose to form one common bond -e.g. local authority, further education,hospitals, transportation, etc. Anotheralternative might be to form a live orwork credit union instead.

A typical wording for an industrial common bond could be:

“The qualification for admission to membership of the credit union shall bebeing currently in receipt of a continuingand regular contractual payment arisingfrom employment by XYZ Company (orits successors) so that in consequencethereof there shall be a common bondbetween all the members.”

This qualification allows retired employeeson a pension to continue in membershipof the credit union.

Alternatively, if there is more than oneemployer in a defined area which share acommon bond, the following qualificationcould be used:

4. Deciding on a common bond


“5(a) The qualification for admission tomembership of the credit union shall bebeing currently in receipt of a continuingand regular contractual payment arisingfrom employment by a particular employer in the Anytown area as listed inparagraph (b) of this rule.

(b) For the Purposes of Rule 5(a), the particular employers are: XYZ CompanyXYZ CouncilXYZ Hospital Trust Etc. (or their successors) so that in consequence thereof thereshall be a common bond between all the members.”

If a local authority wants to establish acredit union and include councillors asmembers, the following common bondqualification can be used:

“The qualification for admission to membership of the credit union shall beassociation with XYZ Council (or its successors)

Membership of the credit union shall berestricted to

(i) those who are currently in receipt of acontinuing and regular contractual payment arising from employment byXYZ Council, or(ii) elected councillors of XYZ Council so that in consequence thereof thereshall be a common bond between all themembers.”

It is normal for the Regulator to requirethat payroll deductions to the creditunion must be available for a member toqualify for membership. The Regulatorwill require an undertaking from theemployer that payroll deductions will be made available to the credit union fora period of at least three years, with oneyears notice of termination. Any help inkind or financial assistance will also need to be pledged and confirmed.Notice periods for withdrawal of thisassistance after the pledged period

will need to be set out.

Community or Live or Work

Under the Deregulation (Credit Unions)Order 1996, a new qualification wasintroduced, that of a ‘live or work’ common bond. Whilst this is not suitablefor every area setting up a communitycredit union, it should always be considered, as the inclusion of employerscan easily add diversity to a commonbond. The area of a community creditunion will depend on a number of factors. In the past, many credit unionshave been set up in very small areas, perhaps covering one housing estate.This does not offer much opportunity toobtain a diverse common bond.

Credit unions are now encouraged tolook larger, to town boundaries or otheradministrative boundaries. People from awide area will usually shop in the sameareas, belong to the same clubs and usethe same educational establishments. If a population of 100,000 use the sameshops, leisure facilities and counciloffices, they can use the same creditunion.

A typical wording for a community common bond may be:

“The qualification for admission to membership of the credit union shall beresidence in the Anytown area as delineated in red on the attached map sothat in consequence thereof there shallbe a common bond between all themembers.”

A typical wording for a ‘live or work’common bond may be:

“The qualification for admission to membership of the credit union shall beresiding in, or being employed in, theAnytown area as delineated in red on theattached map so that in consequencethereof there shall be a common bondbetween all the members.”



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The legislation allows volunteers or students to be included in the work partof a live or work common bond. It is upto each individual credit union how theyinterpret this and what other limits theymay place on admission. A group may,for example, wish to exclude temporaryor seasonal workers, or volunteers who

do not have a written agreement.

It is recommended that community creditunions adopt a “live or work” commonbond and actively seek to include thelocal employees in membership and theiremployer in sponsorship of a credit unionfor the community.

5. Obtaining sponsorship

6. Organising training and support

Sponsorship will give your project credibility and the image of stability andsafety that is needed if people are goingto entrust their savings to you. It can alsoprovide the necessary start up costs toget you through the first 3 years, bywhich time you should be sustainable.

When you are collecting pledges fromindividuals, it also makes sense to startlooking at sources of sponsorship.Tentative approaches can be made in theearly stages, but some organisations mayrequire you to wait until you have completed your business plan, or at leastcollected enough pledges to make a good case for yourselves. You will ofcourse need to build your pledges of sponsorship - which you should ensureare in writing - into your business plan.

A preliminary business plan will be important in obtaining sponsorshipand/or funding, since it will show how

much money you will need and how youarrived at that conclusion. You can thenrefine the preliminary plan, to produce a business plan that will satisfy theRegulator’s requirements and serve as theblueprint for launching and operatingyour credit union.

Non-financial sponsorship will be easierto secure in the early stages. It will alsoprove useful in collecting pledges. If youare approaching, say, a trade union,church or community group and youalready have their leadership behind you, you are more likely to be able to persuade that audience. Newslettersfrom such groups, or from local councilsor employers can also be a good place toget your message across and promote thecredit union. In an industrial credit union,you will need to get the support of youremployer before the Regulator will acceptyour common bond application.

Once you have organised a steeringgroup together, established that there isa need and desire to use the services of acredit union in your area and decidedwhere it is going to be located, you will

need to obtain support for your groupand start training.

As described above, ABCUL’s Study GroupMembership Pack is designed so that


5A Guidance Note for New Credit Unions - Registry of Friendly Societies March 1997

page 19

your group can receive the right information throughout the registrationprocess. Professional, high quality training is likely to cost in the region of£300-£350 per day for the group. ABCULcan assist in identifying the training that will be most appropriate for you.

The Registrar’s ‘Guidance Note for NewCredit Unions’ sets out a list of subjectson which study groups should receivetraining.5 The subjects that you will needto cover include:

◗ Philosophy and history of credit unions◗ Legislation◗ The membership◗ Collections◗ Accounting system◗ Powers and limits◗ Board of Directors◗ Internal Control◗ Supervisory Committee◗ Credit Committee◗ Loans granting◗ Administration◗ Financial Management

◗ Insurance ◗ Money laundering prevention

A large part of preparing to register acredit union is getting together a comprehensive policy manual and business plan. These documents need tobe the work of the group, as it is thegroup who decide how the credit unionwill be run. The writing of the documentscan be delegated to staff who will makerecommendations on policy for theBoard’s acceptance. It is fine to seekadvice on how they should be prepared,but if they are copied wholesale fromother credit unions, the group will notown the document, and the documentswill not reflect the unique nature of theindividual credit union and its resources.Nor will the group have benefited fromthe process of developing the policy documents. The training therefore willaim to develop these documents over the period of the course, with extra work carrying on after the training. The training should of course be tailored tothe needs of your group.

7. Writing the policy and procedures manual

Your policy document will set out howyour credit union is run. Among otherthings it will include the policies on whocan be a member, how cash is handledand who can have a loan and for howmuch. It should not contradict legislationor the rules of the credit union (both of which are useful points of referencewhen drawing up a policy manual).

Written policies and procedures are

required by the Regulator, they confirmBoard decisions and give understandingand direction to decisions. This manualwill be the main source of training fornew volunteers, and all subjects will becovered by the initial group in their training.

The main things that will be covered inthe policy document are: -


8. Deciding on your officers


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◗ Membership policy, members accounts,member services◗ The Board of Directors◗ Credit Committee◗ Supervisory Committee/Internal Audit ◗ Annual General Meeting and election ofofficers◗ Cash handling/collection points/banking◗ Petty cash and expenses◗ Share withdrawals and share transfers

◗ Loan policy (including emergency loanpolicy and loans to officers)◗ Delinquent loan policy / credit control◗ Money Laundering Prevention Policy◗ Training policy◗ Disaster recovery policy◗ Sub Branch or area committee policy ifmore than one collection point is to beused◗ Detailed accounting arrangements

The ABCUL model rules require that thenumber of directors of the credit unionshould be an odd number between 5 and 15. Officers of the board of directors- who will have overall control of the credit union - will include a chair or president, treasurer, secretary and vicechair. You will also need between 3 and 6 members of the credit committee - who will consider and decide upon the application of the loans policy and maintain an eye on credit control. (NB:the role of Loans Officer could be delegated to a member of staff). Thesupervisory committee must contain 3members. The supervisory committeeshall ensure that the duties of the officersof the credit union are properly carriedout, and should not hold any other position in the credit union.

The officers will come in the first instance from your original steeringgroup, who have gone through trainingand developed the business plan and policy manual. At the first AGM of thecredit union, the officers will be directlyelected by the membership.

The law does not allow anyone who is anundischarged bankrupt, or anyone whohas ever been convicted of fraud or dishonesty to:

◗ Sign an application form for registration of a credit union◗ Act as a member of the committee ofa credit union◗ Directly or indirectly take part or be concerned in the management of a credit union◗ Permit his or her name to be put forward for election or appointment toany office in a credit union.

It is also important that family membersdo not occupy two or more key postswithin the credit union.

Much more detail about the duties andobligations of credit union officers will be covered throughout your training and within the ABCUL Study GroupMembership Pack.


10. Launching the credit union difference

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Once you have completed your trainingand your policy manual and businessplan, you should contact the Regulator torequest a Pre-Registration Visit. A visit will be made to every prospective creditunion before registration to determinethe capability of the steering group todirect a credit union.

At least 2 weeks before the visit, youshould submit your policy manual andbusiness plan to the Regulator. Thesedocuments will form the basis for discussion during the visit.

After the meeting, the credit union willbe assessed by the Regulator and a lettersent covering any points that need

further work. You may need to makesome adjustments to your business planand policy documents before the creditunion is accepted for registration.

The Regulator will then give you approval to submit a formal applicationfor registration. As an ABCUL memberyou are entitled to use our approvedmodel rulebook at a reduced registrationfee. ABCUL will be able to guide youthrough the registration process.

From getting a group together to gettingregistered could take anything from 6 to 18 months. The timescale is dependent on the completion of the plans set by thegroup themselves.

9. Getting registered

Now the hard work really begins! Thepledges need to be turned into members,and the financial forecasts need to beturned into loans to members and cash inthe bank.

The marketing of the credit union willnow start in earnest. Your launch is agood springboard to let the communityor employees know that you are here.Contact people who pledged their support and invite them to the launch.Make sure you have lots of volunteers onhand to sign up members. Also ensurethat you involve your sponsors too, theywill provide the credibility you need and will appreciate the publicity forthemselves as well.

You can take pride in knowing that youhave helped to establish a co-operativefinancial institution for your community,colleagues or associates. You now needto ensure that all of the hard work doesnot go to waste, and that your creditunion becomes financially self sufficientand sustainable.

A credit union has social aims, but inorder to fulfil these aims for the benefitof the community, workplace or association it serves, it must be run as aviable, sustainable business. A creditunion that is run efficiently, with goodmarketing, will be able to provide a better service to more people.


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Next

stepsThis booklet has only provided briefdetails about the setting up and runningof a credit union, but it gives a taste ofwhat is to come, so that you and yourgroup can decide if it is for you.

If you need any further informationbefore you decide whether to start theprocess, please contact ABCUL at theaddress on the back page, and we will doour best to help.

If you decide it would be a good idea toset up a credit union, it would be advisable to begin to canvas local supportfor the proposed credit union. Do other

people also think it is a good idea? Willthey become part of the initial organisinggroup to get the idea off the ground.

The ABCUL Study Group MembershipPack will provide your group with a stepby step detailed guide on developingyour credit union.

Please contact ABCUL to purchase a copyof the ABCUL Study Group MembershipPack.

You may also wish to consult some of thepublications contained in the ReadingList.


AVAILBLE FROM

ABCUL

ABCUL

Local GovernmentAssociation

ABCUL

HMSO

HMSO

Registry of FriendlySocieties



Oak Tree Press, Dublin,

Irish League of CreditUnions

Reading

list

page 23

TITLE

Towards Sustainable Credit Union Development

ABCUL Study Group Membership Pack

Sustainable Credit Unions - GuidanceNotes for Local Authorities

ABCUL Model Rule Book

Credit Unions Act 1979

Deregulation (Credit Unions) Order1996

A Guidance Note for New CreditUnions

Management and Systems: AGuidance Note for Credit Unions

Money Laundering

Credit Unions in Ireland

Effective Management for CreditUnions

AUTHOR AND DATE

Paul Jones, John MooresUniversity, 1999

ABCUL, 1999

Local GovernmentAssociation, 1999

ABCUL, 1998

HMSO, 1979

HMSO, 1996

Registry of FriendlySocieties, 1997



Anthony P Quinn, 1994

Brian Sherry,1994


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ABCUL - Association of British Credit Unions Limited - 0161-832-3694Holyoake House, Hanover Street, Manchester, M60 0AS. [email protected]

Leading trade association, providing technical help and advice, and through a number ofregional organisations of credit unions, known as Chapters. It also provides training to newand established credit unions. ABCUL represents credit unions at a national level through contacts with Government, Members of Parliament, Members of Scottish Parliament, WelshAssembly Members and the Financial Services Authority and other organisations interested incredit unions. ABCUL employ a number of staff who provide a support service to membercredit unions including provision of business and technical advice. ABCUL also promotesresearch into credit union development. Internationally ABCUL represents British credit unionsat the World Council of Credit Unions (WOCCU).

CUNA Mutual Insurance Society - 0121-359-0221The Business and Innovation Centre, Aston Science Park, Love Lane, Birmingham, B7 4BJ[name of individual]@uk.cunamutual.com

A mutual insurance company owned by credit unions that offers insurance programmes tailored to the needs of credit union members around the world.

FSA - Financial Services Authority - 0171-676-1000Credit Unions Team, 25 The North Colonnade, Canary Wharf, London, E14 5HS[name of individual]@fsa.gov.uk

The Credit Unions Team of the FSA is the government appointed body that regulates and monitors credit unions.

WOCCU - World Council of Credit Unions. http://www.woccu.org

WOCCU is concerned with the organisation, development and improvement of the creditunion system internationally. It is based in Madison, Wisconsin, USA.

Credit Union related

organisations


setting up for success

SuccessSetting up for

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ABCULHolyoake HouseHanover Street

ManchesterM60 0AS

Tel: 0161 832 3694Fax: 0161 832 3706

e-mail: [email protected] site: www.abcul.org

For further information contact:

ABCUL is a member of the World Council of Credit Unions


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