Loans: Take Control of Your Money – Start Your Own Credit Union

When you have a low income, it is very difficult to obtain credit. And yet, most of us couldn’t make certain purchases directly, even if we got a decent wage. This is where Credit Union offers a real alternative.

Governed by a volunteer board of directors that is elected by its members, a Credit Union is basically a financial cooperative, owned and controlled by its members.

They offer affordable loans and encourage members to save. By law, the maximum a Credit Union can charge is 12.7% and this is charged on a decreasing balance, which means that each week or month you will pay less and less interest. There are no hidden fees and you will not be penalized for paying off the loan early.

Anyone can join a credit union, as long as they are part of the ‘common bond’. They can be people who live in a shared area, work for the same employer, or belong to the same association.

So how do you start your own credit union?

The average time it takes to establish a credit union is one to three years. The minimum number of members required for initial setup is 21, and the maximum number of members once set is limited to just 5,000 people.

Once you’ve secured enough members to start your syndicate, there are a number of tasks that will need to be completed.

o First, decide on a common bond: where your credit union will operate

o Assemble a group with the necessary range of skills and experience to develop a successful community business

o Conduct an engagement campaign – Find out what demand exists for a credit union in the area you want to serve and use the information gained to inform your business plan projections.

o Join the Association of British Credit Unions (ABCUL) as a study group member – for just £35 a year you get a comprehensive handbook and access to all ABCUL information services

o Discuss and investigate your plans with regulators – The Financial Services Authority (FSA) will need to approve your common bond and make sure your business plan and policies and procedures meet their standards. The FSA website http://www.fsa.gov.uk provides the regulatory requirements that credit unions must now meet to safeguard members’ money in the same way as banks and credit unions mortgage.

o Get funding and sponsorship, and include the figures in your business plan

o Elect Officers – Credit union officers and employees will need to obtain “Approved Individual Status” from FSA and will need training for their duties

o Think about marketing and promotion and how you will meet the objectives of your business plan

o Start your credit union.

Securing sponsorship from local sources such as employers, housing associations, business groups or councils is also vital, as setting up your own credit union can initially be an expensive process. ABCUL estimates the costs to be between £30,000 and £70,000 to set up a plan with premises and staff for the first three years.

Credit unions in the UK are also required to reach a statutory minimum reserve of 10 per cent of aggregate assets to protect their members. Until they reach this level, credit unions must transfer at least 20 percent of their surplus to reserves each year.

Coverage for you and your members

In the UK, a credit union has to take out insurance to protect its members’ funds against fraud and mismanagement. However, there is no industry-wide compensation scheme to protect members’ savings in the event a credit union goes bankrupt.

Before starting your credit union from scratch, consider researching whether credit unions in neighboring areas would be willing to expand their common bond to your location or workplace.

Many credit unions are expanding their common bonds to cover much larger populations, and your area may already be included in someone else’s plans. ABCUL can advise you on initiatives taking place where you are and put you in touch with the right people.

For the community at large, a Credit Union improves the general financial knowledge of its members and offers training to its volunteers who invest in local money.

It helps restore a sense of pride in disadvantaged and disaffected communities and provides a means of addressing financial exclusion.

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