by Kevin Hargaden and David McIlroy
This article was written following our November 2020 conference, 'Seeds of Change: Institutional reform and human flourishing post Covid-19'.
Estimates from the summer suggested that household debt had risen by at least £6bn during the pandemic. There are deep, longstanding structural inequalities in British society, and the virus has intensified these problems. A massive challenge faces us this winter: we must ensure that millions of people do not fall into a debt-spiral from which they can never escape.
Ireland as a case study
In the UK, short and medium-term lending to low-income households is dominated by for-profit lenders, offering products that cost many times more than equivalents offered in mainstream lending. However, there is an alternative. Credit unions, which are co-operatives rooted to either a particular locale or a particular community, have the capacity to lend at a much lower cost, in a more flexible fashion.
Credit unions may be few in the UK, but look across the Irish Sea and a very different situation prevails; you will search for a long time in Ireland before you find a payday lender. They can exist, but market-entry requirements have been established to dissuade them and they are heavily regulated. Every institution that charges more than 23% APR is classified as a moneylender and requires special licences and oversight. One reason why the Irish system can take such a harsh line on high cost lenders is that the credit union system flourishes to a much greater degree. In a country of less than five million people, there are more than 3 million credit union accounts. More than a third of the loans advanced in any given year are made through credit unions.
The credit union movement in Ireland does a lot more than merely meet immediate financial needs. It catalyses social cohesion. When functioning well, credit unions provide opportunities for mutual aid and services adaptive to the needs of individual households. They stand as important cultural, political, and even environmental alternatives to the intensive profit-maximisation that is the default stance for contemporary society.
The growth of the Irish credit union movement, particularly from the 1950s onwards, was closely tied to Catholic parishes. Ireland was, until recently, a notably homogenous society and the growth of the credit union movement sat atop already established forces for social cohesion. There was, therefore, a sort of social eco-system, already thriving, ready to nurture and encourage these new organisations. These foundations for replicating the Irish credit union movement in Britain cannot be quickly assembled. How then, do we can we begin to promote credit unions?
Four factors affect who a borrower will choose to borrow from: community (reaching out to those around them), capacity (whether those they know are able to lend), cost (understanding the total cost of borrowing—this requires time and ‘know-how’) and convenience (how quickly can I get the cash in hand?).
Credit unions offer lending that is cost-effective; where they need strengthening is in terms of community, capacity and convenience.
Community - Credit unions are built around ‘common bonds’. There are already credit unions associated with churches in the UK, for both ministers and congregations. Churches promoting credit unions which serve the disadvantaged in their parishes would be a significant extension of the good work already being done by churches acting as hubs for Foodbanks or Christians Against Poverty centres. Stewardship offer a helpful guide on how churches might get involved with credit unions.
Capacity – Credit unions cannot lend money they do not have. One significant feature of the credit union movement is that it encourages micro-saving, so that the poorest can build up reserves to pay for, say, repairs to the boiler. But as well as contributions from potential borrowers, credit unions also need patient capital, money deposited by those who do not expect to need to withdraw it anytime soon. Now is the time for those of us who have kept our jobs to join a credit union, to deposit the money we haven’t been spending on ourselves, and to release what the Church Fathers called our ‘superfluity’ to serve our vulnerable neighbours.
Convenience – A recent attempt to establish a universal IT platform for credit unions has failed in the UK. However, there are innovative credit unions like Lanarkshire Credit Union and Clockwise Credit Union in Leicestershire, which have invested in apps, online calculators and other ways to make their services accessible. There are tech guys ready to work with credit unions, if credit unions have the capacity to invest in new ways of connecting with their members.
Now is the time:
- For us to be prepared to lend to others interest-free (Exodus 22:25, Nehemiah 5:10, Psalm 15:5)
- For our churches to provide grants and interest-free loans to those in need in our congregations and parishes
- For us to join a credit union: many of the 450 existing credit unions in the UK are listed on the ABCUL website: abcul.org
- For us to encourage our churches to promote credit union membership and to become hubs where credit union’s services are advertised and accessed. See Stewardship’s resource for churches on Credit Unions.
For the sake of those in our communities whose jobs are the most precarious and whose needs are the greatest, we need to recognise our common bonds with our neighbours and join with them in local institutions such as credit unions that develop solidarity, encourage saving habits, and provide emergency relief in times of crisis.
Kevin Hargaden is a Social Theologian and David McIlroy is a barrister and lectures in banking law. They are members of the Jubilee Centre's post-Covid task force on debt.