Towards Financial InclusionThe expansion of credit union financial services for low-income households in Northern Ireland

Paul A Jones PhDResearch Unit for Financial Inclusion

Belfast, 1st May 2013

Swansea, 21st June

A collaborative and action-oriented study• Research aims

– How credit unions serve low-income households– Their appetite and potential for future expansion

in the low-income market

• Research methodology– The consultation group– Survey, interviews, discussions and seminars– Case studies:

• Slemish n tha Braid and Derry Credit Unions

A commitment to community

• The main purpose of a credit union:– to serve the needs of the local community– Noted by 66% of credit union respondents

• Strong sense of localism – Embedded in local social and family networks

• Focus on inclusivity and entire community – Unlike often in GB, not a primary focus on

serving the financially excluded

Serving the unserved

• Evidence to suggest that certain sections of Northern Irish society are not being reached by credit unions

• Little evidence of rigorous market analysis and segmentation

• Yet serving people on low to modest incomes is fundamental to credit union purpose and rationale

Credit unions and low-income households• Historic commitment to tackling poverty

• Operating in low-income market– Over 50% of survey respondents saw sub-

prime credit providers as main competitors.13% said illegal lenders

– Large numbers of small savers and low loan value borrowers

– 42 credit unions in the 12 highest ranked wards in the Index of Multiple Deprivation

Exploring need and demand

• Six focus groups on social housing estates– Importance of access to credit– The need for savings accounts– Around 50% of participants: current accounts

and bill payment and budgeting account– Standardisation of products and services– Ease of access – noted barriers to membership

• Joining procedures ( e.g. nomination)• Saving before borrowing

CU services for low-income households• 70% of survey respondents said that the financial

needs and wants were distinct– Promotion of saving central to product offer– Offer of low-value loans at 12.68% APR– Also some examples of transaction banking; budgeting and bill-

payment accounts; money and debt advice and financial education

• Over 50% of respondents keen to develop new products and services– Only five of the 48 respondents to the credit union survey were entirely

satisfied with the current range of products and services

Expanding product and service offer1. Money and debt advice

2. Benefit direct accounts

3. A current account with debit or ATM card

4. SMS alerts to members- reminders to repay loans.

5. Budgeting and bill payment accounts

6. Pre-paid debit cards

7. Bulk buying schemes for home heating oil

8. Internet access to account manager for members

9. Christmas saving schemes (locked-in savings)

10. Loans not linked to savings balances (instant loans)

11. Home contents insurance

(Savings accounts with an annual dividend, and loans for oil)

Reaching the hard-to-reach• Those outside CU social and community networks • 68% of respondents indentified importance of working

through partner agencies• Little evidence of working strategically with others to

reach marginalised groups (except in schools)• Credit unions want to develop partnership working with:-

• Debt and money advice agencies 77%• Community centres and organisations 72%• Other voluntary organisations 60%• Charities 51%• Local councils 47%• Housing Associations and The Northern Ireland Housing Executive 45%

Limitations and constraints

• Legislation

• Managing risk

• Operational capacity– Electronic deposit and payment channels

• Financial costs

• External financial support

Future development • Credit unions in a strong position to reach

out further within low-income and financially-excluded communities– A strategic approach to marketing – Modernisation of infrastructure and delivery

channels– Reconsideration of pricing for risk and cost

• Potential to be a major strategic partner with NI Executive and other agencies.