Alan Clawley writes:

As a founder member and currently Treasurer of Small Heath Credit Union (registered 1990) I welcome the Archbishop of Canterbury’s proposition that credit unions should compete with payday loan companies such as Wonga.

But I recognise the limitations imposed on credit unions that don’t apply to privately-owned lenders. The legal restriction of the ‘Common Bond’, designed to preserve the local face-to-face character of credit unions, has been relaxed over the last 20 years but this has made some credit unions more remote from their members. The big Irish credit unions actually look like high street banks but seem to have managed to retain a local presence. However, the internet may yet make face-to-face transactions less important for all financial institutions.

In Birmingham, the community-based credit unions founded in the 1990s have, with the exception of Small Heath, been closed and merged into a few large ones, but the recent failure of South Birmingham Credit Union suggests that mergers alone do not guarantee survival. The City Council’s Credit Union, ‘Citysave’, which is open to anyone living in Birmingham as well as its own employees will almost certainly take over its business thus making it even bigger than it is already.

The credit union movement is dominated by the expansionist tendency and the small volunteer-run credit unions such as Small Heath (population 30,000) are seen to be lacking in ambition and not helping enough people. Nevertheless, Small Heath has survived when bigger ones have failed. We have maintained a band of volunteers, kept overheads to a minimum by using premises provided free by the Anglican church and a housing association, and adopted a conservative loans policy, especially for new borrowers. Inquirers who are looking for a quick loan soon lose interest when they are told they must save for 3 months before they can borrow even a small amount using only their savings as security. We also enforce our Common Bond that requires members to live in Small Heath as defined on a map.

No doubt these policies have limited our membership to 250 whilst that of others runs into thousands. One problem with being small is that overheads such as the cost of the annual audit – now over £3000 – is much the same for a big credit union. The main income of all credit unions is interest from loans to members. We have kept our interest rate at 1% per month on the outstanding amount and, although legally we can now increase it, we feel that to do so would reduce the number of loans without raising much income.

At present we just make ends meet but cannot reward members with an annual dividend on their savings. This is very disappointing and doesn’t encourage members to ‘save before you borrow’. The cost of loan defaults has to be met by the members whereas Wonga can charge huge interest rates knowing full well that many of its borrowers will never be able to repay their loans.

To find your nearest credit union, go to the ABCUL site: