Credit where it’s due?
Bubble — By Adam Higgitt on January 22, 2010 2:09 pmPlaid-led Wales is forging ahead with Credit Unions, while Labour-run England lags behind. That’s the fairly clear implication of Plaid blogger Welsh Ramblings in this post of yesterday.
True? That is not easy to say for sure. The BBC report cited by Ramblings suggests Welsh membership of Credit Unions has increased “five-fold since 2000, when there were just 10,000 members”. By contrast, membership of all Credit Unions in Britain has merely doubled over the same period, from 325,000 to “over three quarters of a million” according to the Association of British Credit Unions (ACBUL). Now, bearing in mind that these latter figures include the CUs in Wales, they are not directly comparable. Nevertheless, in terms of proportional increase, and given that we know the relative populations of Wales, England and Scotland it is clear that Wales has experienced a far faster growth rate than England. Game, set and match to the Ramblings analysis, right?
Not quite. For this Assembly-commissioned research of 2009 shows that the vast bulk of the increase in membership of Welsh Credit Unions took place in the period 2000-2007, before Plaid Cymru entered government. In fact, given that membership rose from “11,000 in 2000 to 42,000 in 2007″ and in the subsequent two years has only risen to 50,000 the rate of growth under Plaid has actually slowed very markedly: while the Lab/Lib and Labour administrations of 2000-2007 managed an average growth rate of around 40%, this dropped to under 10% in the first two years of the Lab/Plaid administration.
So, it’s a blow to the Ramblings claim that “The evidence is that the Welsh Government’s different approach to credit unions has been amplified by Plaid Cymru being in government”. In fact the evidence appears to point firmly in the opposite direction.
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7 Comments
I agree with Adam Higgitt on this.
Neither Plaid (nor Labour) have forged ahead with a ‘different’ approach. All activity on the Credit Union front (so far) has been in support of outdated Victorian era penny-ante models that are useless in a modern financial economy. On the other hand, there are small signs that the newer generation of Plaid are beginning to understand that Credit Unions can be made to work but they must use a US -style model. If this can be adopted then we can begin to see proper ‘locality based’ business finance emerge and that will help the underlying social and business environment.
On the whole I think that Credit Unions are a good idea, but where would you get the money and customers to establish American style Credit Unions?
This is a complicated subject and I can’t pretend to be an expert. Nevertheless, having worked (and had a business) in the US I just know that nobody in business (in their right minds) ever goes to a high street bank for business finance. High street banks really are not an appropriate vehicle for this as we have found out to our ever spiralling cost. It is only in the UK that businesses flock lemming-like (or are pushed) into dealing with high street banks. Why the US model is so much better is the subject of a long article. In any case, I have been calling for the WAG for some time now to at least set up a study group on this and at least send a delegation to the US to find out more. Trying to patch up the UK existing model is classic silk purse out of sow’s ear activity.
As to how the credit unions are funded the answer to this is by so-called ‘money flow’ . A simple example of this is; if a county council were to channel its entire monthly wage payments through a local credit union who then disperses it to the staff who have to have a credit union account as a condition of employment then you can quickly see that a professional banking staff can use that money held in its accounts even for a day to earn money on the money markets (most people don’t realise that Somerfield supermarkets don’t make any profit from selling you stuff to put in your trolley, they make it by virtue of having a vast cash flow through their tills which are computer linked to the global money markets). Multiply this to all the the county council and public sector organisations in Wales and you can see that there is a huge ‘flow of money’ flowing every month through a credit union and like a watermill this can be leveraged to generate money to fund the operations of the CU and also to be used for loan purposes.
How do businesses benefit from this? Well to give you a very simple example. If you take out a loan from the CU then you make a committment that the entire business turnover must go through the credit union. The credit union then makes a deal with you that says in essence if there is no money going through the account (because you are having a bad month) then they won’t take their principal or interest payment that month. If you have a better month and money is going through the account they will then take an agreed percentage towards paying down the loan. Compare that system to the normal banks who expect to be paid every month on the dot come what may or else…
Believe me, this system works and is regulated properly in the US.
I’m tempted to end this spiel with the word … ‘simples’ … but it ain’t that simples and requires careful study and adaptation to the Welsh situation which is markedly different. But that’s not my job, it should be the job of the politicians and the WAG who should look up and out from time to time from their cosy public sector desks.
As with most things the Irish have already cottoned on to this, so if WAG can’t (won’t) afford to go to the US they can at least drive down to Fishguard and get on a ferry to Rhoslare. But please please don’t send someone gormless!
It’s a shame that I can’t post a picture in a comment, but figure 1.4 on page 14 of the report Adam linked to shows that after 2004 the rate of CU membership in Wales began to decline markedly, falling by 8% in 2005 and by another 4% in 2006. Member assets did not grow at all between 2004 and 2006 (table 1.6). Taken together, these clearly show that momentum was being lost after 2004.
No comparable figures are available after 2006, but research data shows that growth has since gone back up by 10% to 19%. I’m pleased that things seem to have picked up again since some time after 2006. I’ll leave it to others to comment on why this might be so.
I don’t want to make this into a Plaid vs Labour issue. I think the intentions of both parties are good and we should spur each other on to develop them more.
I have mentioned CUs on Syniadau, and some time ago I saw a Scottish programme on the Grameen Bank, which pioneers microcredit to poor people wanting to start up small scale community based businesses. I uploaded it, intending to write something, but got rather stuck about what to say … because one of the problems was that it worked “against” the benefits system, meaning that it wasn’t attractive as a way of helping people on benefits break out of poverty. So I wondered just how relevant it would be to Wales, since we have no way of adjusting the benefits rules to allow for enterprise of this sort.
The programme is here if anyone wants to watch it.
I don’t know how Grameen compares with the US/Irish models mentioned by CP. Perhaps those that know more than I do can give an objective comparison.
Thanks, MH. All useful detail which adds to the basic figs presented in my post.
I noticed in chapter 7 of the the One Wales agreement there is plan to establish Credit Unions.
“We will establish credit unions –
as a form of social enterprise – in
all parts of Wales.
• We will, against the background
of universal coverage ensure
access to a credit union for every
secondary school in Wales by
2011.
• We will further develop the ability
of Welsh credit unions to take
deposits of Child Trust Fund accounts”
will this actually happen? I dont see why this should be a a disagreement between Plaid and Labour since you have already agreed to it in your joint agreement. just get on with it.
I appreciate CPs contribution but however from my experience living in the US (for nearly 20 years) that getting loans from them can be as hard as the banks.
I think the Grammeen bank is better for small loans.
Michael Cridland.
Yes it is as hard to get a loan from a US credit union as it is from a bank and they still charge interest and this is as it should be . And yet business still prefers to deal with a credit union than a bank and there are inumerable reasons why this is so and which requires a long and complex answer that would try the patience of the WalesHome editors. The fact remains that the CU system we have in Wales and which is proposed in the one Wales agreement is not ‘fit for (business) purpose’ whereas the more highly evolved system in the US is.
Your comment doesn’t negate my call for the WAG to study this further and to justify continuation with a ‘Welsh’ solution that will not solve the problems we face or encourage the formation of a proper financial framework to underpin the real economy.
Nothing wrong with the Grammeen bank either or the Irish CU movement we need to think bigger and more focused on business requirements.