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Over the last decade, British credit unions have experienced substantive growth. Total assets, total capital and members have more than doubled since 2005. Credit unions now penetrate approximately 3% of the British population with Scotland leading the way at circa 6% and England lagging behind at 1.5%.

Alongside this growth, the sector’s legislation has been changed repeatedly. The relaxation of the requirements for the common bond enables credit unions to draw in members more easily.  A two-tier regulatory approach seeks to reduce restrictions on operations in exchange for holding higher capital. The government has also become more interested in providing a sustainable future for the sector through granting ABCUL £38 million to develop support and infrastructure for the sector.

Yet the credit union sector in the UK remains marginal, particularly compared with other systems, including the US, Ireland and Australia. Moreover, there is some evidence that the future of credit unions may not be as rosy as these figures might suggest at first glance.

First, consolidation, whilst required to serve customer needs and create financially sustainable credit unions, continues to reduce the number of credit unions active in the UK. The sector is also increasingly being split into large credit unions that offer bank-like service and those, and substantially smaller ones that retain the initial savings and loan model locally.

Second, whilst savings increase, credit unions find it increasingly difficult to lend money to customers as evidenced in the declining loans as % of assets ratio which stood at 73% in 2005 and declined to 56% in 2014. Part of this, it is argued, is linked to the restrictions imposed on the type of lending that is available to credit unions, others suggest that it is the type of customer that is problematic – cash-rich savers, in particular (soon-to-be) pensioners against younger customers with limited credit needs and/or on limited income.

Third, the number of loans in arrears has increased substantially in England (from 7% in 2004 to over 12% in 2012) since the expansion period started, casting doubts over how sustainable this development is in the long run. Thus the lack of sustainable lending opportunities will effectively hold back credit union in the short run.

Fourth, whilst the public profile of credit unions has been rising in the recent past, media coverage also adds to the confusion of the future of the sector. Since the Archbishop of Canterbury announced his ambitions to move credit unions at the forefront of fighting high-cost lending, the media has positioned credit unions alongside discussions of Wonga. Thus, not only is there a danger that credit unions are increasingly associated with low-income customers, but the move also pushes credit unions into engaging in lending activities they may be ill prepared for.

The important question on credit unions remains: to what extent can credit unions cater for an increasingly polarised society in which the number of the working poor continuous to increase despite record level employment?

All of these findings, good and problematic, raises questions as to what the future will hold for credit unions. In particular, it is questionable how credit unions can finance the growth in savings sustainably given the lack of income opportunities. And to what extent can a shift into payday lending benefit credit unions to fill this gap?

Ainsworth (2013) highlighted that “serious growth will take ten years” – but what will this growth look like? Will it be growth for a few credit unions or will growth benefit the movement more generally? What can credit unions do to not be left behind and what support do they need from associations and regulators?

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ESRC grant reference ES/M006433/1