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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.