Download Establishing credit unions in rural areas

Social Policy Research
88
November 1995
Establishing credit unions in
rural areas
Whilst credit unions have been flourishing in urban areas there has not been a
similar growth in rural areas. A project pioneered the development of credit
unions in the Pennines. It found that the urban model cannot be simply
transferred to rural areas; these have particular characteristics which must be
taken into account if development support is to be effective. The study found:
Rural credit unions are feasible in both areas of scattered population and
more concentrated areas, such as those based around market towns. The
project established two models in these contrasting locations.
Accessing funding for development support is a major problem in
establishing rural credit unions. Not only is there no equivalent to the
funding available for development in urban areas, rural areas also carry
additional costs.
Aspects of rural life require particular solutions: notably time and travel costs
for volunteers; the more diverse nature of the rural population; and the
scarcity of local banking facilities, which can make the collection and tranfer
of cash difficult.
Volunteers for the rural credit unions in the project differed from those in
urban ones, being generally more skilled. This meant development could be
quicker, but it might also lead to higher staff turnover and the need to rerecruit and train as the ‘initiators’ moved on.
Rural credit unions can draw on a more diverse range of individuals to both
operate and use facilities than their urban counterparts. However, marketing
needs to take into account the different motivations of volunteers and
members.
The researchers conclude that:
- Training provision needs to be flexible to accommodate both the range of
difficulties in delivering training in rural areas, such as travel and
childcare, and the range of skills and abilities that volunteers possess.
- The two national credit union organisations need to allocate resources
and redirect their services to address the particular issues associated with
rural credit union development.
Credit and debt
Background
The rural banking network has incurred severe
cutbacks in recent years, compounded by the
withdrawal of building societies and loss of village
shops and Post Offices: these trends are set to
continue. This - together with a rapid growth in the
demand for credit and its persistence as a significant
feature in the rural economy - suggests there may be
a niche for a locally run savings and credit facility
such as that provided by credit unions.
Credit unions are financial co-operatives based
on principles of open membership and democratic
control. They offer one of the cheapest sources of
credit available and are particularly attractive to
people on low incomes who have limited access to
credit or to savings facilities.
Credit unions must register with the Registry of
Friendly Societies and have to provide evidence of a
‘common bond’ between members. This may take
the form of an ‘association’ (such as involvement in a
particular church), being an employee of a particular
employer, or being part of a particular well-defined
‘community’. (Extending this to include a ‘living and
working’ common bond has been proposed. The
project was not able to use this definition; it could,
however, increase the financial viability of a rural
credit union by allowing it to draw upon a larger
potential population.)
Credit unions in urban areas are becoming more
established, but the perceived difficulty of
establishing a ‘common bond’ in a rural area has led
to an absence of credit unions in rural Britain. Rural
development is further restricted as there is no
development funding equivalent to that available to
urban areas.
However, the flourishing of rural credit unions in
Ireland, albeit over a longer timescale, illustrates the
scope for development. This project has drawn a
number of lessons from the Irish experience, and that
of Greece, to inform the development of rural credit
unions in the Pennines.
The project successfully established two models:
the first centres on a market town drawing in the
surrounding settlements which look to the town for
services. This extended hinterland generated a viable
credit union membership. The second model serves a
more scattered population, where a sense of cohesion
or ‘community’ may be more difficult to achieve.
Advantages of the rural setting
The ‘community’ common bond currently forms the
basis for rural credit union development. The
international comparisons suggest that the sense of
community is fundamental to success: if potential
members do not relate to the proposed credit union
through loyalty to the area then it will be very
difficult to recruit them. However, where this does
exist, the traditionally strong sense of community in
rural areas may be used to advantage, generating a
high level of participation and a strong feeling of
community ownership and loyalty.
Rural communities, though smaller, are generally
more heterogeneous than the more concentrated
groups served by urban credit unions. There is a
greater potential for a more mixed membership in
rural areas, including farmers, the self-employed and
relatively cash-rich commuters. This can generate a
larger pool of savings to the benefit of those
requiring loans. The mixed population may also offer
a wider range of human resources or expertise, with
implications for the recruitment and training of
volunteers to run the credit union.
Specific problems for rural areas
Funding
Awareness-raising, development and support work
are fundamental to the generation of credit unions.
Urban areas, where credit unions have flourished
under programmes of paid credit union development
workers, illustrate what might be achieved with
similar support in rural areas. The difficulty in
accessing funding has been a significant limiting
factor for rural credit union development work, not
only in terms of the national organisations but also
at the local level. Furthermore, there are additional
development costs associated with rural areas, such as
travel time and costs for workers and trainees.
For this project, two years of funding has enabled
three credit unions to be developed to the point of
registration. However, difficulties over on-going
funding have left two of those credit unions without
support as they move into their operational phase.
Handling money
The arrangements for collection, banking and
transfer of cash require careful attention in terms of
security and logistics. Getting cash to and from a
collection point can present problems where there
are no local branches of a bank.
Volunteers
Recruiting volunteers proved one of the hardest tasks:
the most frequent route was through personal
contacts of existing volunteers. The profile of
volunteers was distinctive; rural volunteers were
highly motivated by the opportunity to ‘help other
people and the community’ and drawn from a
generally small cross-section of the population.
Holding a wide range of previous experience, these
volunteers demanded an accelerated programme of
training. There was a high turnover of volunteers,
exacerbating the difficulties in achieving sufficient
numbers to operate a credit union. A broader initial
volunteer base could provide more secure long-term
management.
Marketing
‘Traditional’ credit union development has assumed
that both the volunteers who will run the credit
union and the potential members would be attracted
by the same publicity methods. This project found
that volunteer workers were motivated by different
factors from general savers and borrowers and,
perhaps, different from volunteers in urban credit
unions. For example, rural credit union volunteers
were found to differ in profile from their urban
counterparts: they were generally middle-class and
more concerned with the well-being of their
community than with their own opportunities to
learn new skills as volunteer workers or to gain access
to loans.
Training
Flexibility and responsiveness in training provision
emerged as significant factors. Difficulties of rural
transport and childcare facilities meant that
volunteers sought alternative training arrangements:
weekend and weekly sessions were found to be more
appropriate.
Conclusions
The project suggests that the following steps are
needed to assist the development of rural credit
unions:
•
Those setting up rural credit unions should aim
to secure funding for three years to undertake
development work in their early stages of
operation and to give them time to establish
their viability.
•
Different ways of working and representational
structure may be needed in areas where rural
populations are scattered to ensure that the
credit union is ‘owned’ by all ‘communities’. The
election of members to the committee structure
and the recruitment, support and training of
volunteers to run the credit union must also be
seen to represent the whole area.
•
The mixed nature of the rural population means
that marketing needs to target different groups at
different times and using different techniques.
Different facets of credit unions may have to
feature in any marketing to reflect this diverse
clientele.
•
Volunteers need to be drawn together during the
early stages to undergo training, and go on to set
up and run the credit union before members are
recruited to save and borrow. The availability of
professional training materials would assist
training, allowing more general trainers to
undertake the work or even enabling distance
learning.
•
Greater co-ordination between the national
agencies ABCUL and NFCU is needed if rural
credit union development work is to proceed.
Furthermore, the national agencies need to
allocate resources and re-orientate their services
to address the particular issues associated with
rural credit union development, such as further
assistance in awareness-raising in rural areas.
National support
Two national organisations, the Association of British
Credit Unions Limited (ABCUL) and the National
Federation of Credit Unions (NFCU), provide
training, loan protection and life savings for member
unions.
Both ABCUL and NFCU have developed their
support services in relation to the growth of credit
unions in urban areas, with little attention to the
particular needs of rural credit union development.
Limited resources have further restricted their
activities. As rural credit union development work
proceeds, inquiries and requests for support may
come from development workers with less experience
than their urban counterparts. It is important that
these issues are acted upon if development work in
rural areas is to be supported and in turn effective.
About the study
This project was undertaken by the Colne Valley
Trust with the support of the Rural Development
Commission, the European Union, the Joseph
Rowntree Foundation, Kirklees Metropolitan Council
and Calderdale Metropolitan Borough Council. A
Project Worker was employed to investigate how best
to establish credit unions in rural areas of Great
Britain. Different models for credit union
development were explored and their transferability
to rural areas assessed. The experience of credit union
development in other countries was investigated
through trans-national studies of the Republic of
Ireland and Greece. Informed by this three rural
credit unions were developed to the point of
operation in the Pennine Rural Development Area.
Further information
A full report, Credit Unions - Rural Initiatives: Credit
Unions in Rural Areas - Policy and Practical
Implications by Annabel Barker, is available at £6.50
plus p & p from the Colne Valley Trust, 21a Carr Lane,
Slaithwaite, Huddersfield, HD7 5AN, Tel: 01484
847790, Fax: 01484 845906.
Published by the
Joseph Rowntree Foundation
The Homestead, 40 Water End
York YO3 6LP
Tel: 01904 629241 Fax: 01904 620072
ISSN 0958-3815
Related Findings
The following Findings look at related issues:
47 Promoting the growth of credit unions in
Britain (Feb 94)
53 Strategies used by low-income families with
children to make ends meet (Jul 94)
62 Disadvantages in rural Scotland (Oct 94)
68 Moneylanders and their customers (Dec 94)
73 Water debt and disconnection (Mar 95)
78 Debt and disability (Apr 95)
For further information on these and other Findings,
contact Sally Corrie on 01904 654328 (direct
line/answerphone for publications queries only).
The Joseph Rowntree Foundation is an independent, non-political
body which funds programmes of research and innovative
development in the fields of housing, social care and social policy.
It supports projects of potential value to policy-makers, decisiontakers and practitioners. It publishes the findings rapidly and
widely so that they can inform current debate and practice.