AGENDA ITEM 6

BOROUGH OF POOLE

CABINET

8 NOVEMBER 2011

UPDATE ON THE COUNCIL’S INVESTMENT TO SUPPORT

THE DEVELOPMENT OF COASTAL CREDIT UNION

1 Purpose

1.1 The main purpose of this report is to:

a)  advise Cabinet of the progress made by Coastal Credit Union (CCU) in implementing an automated banking system this year, further to the Council’s unanimous decision to make CCU a preferential loan of £150k to provide them with the capital investment required to do so in determining the Budget and MTFP for 2011/12;

b)  seek Cabinet’s approval to provide further support to the CCU by supporting the operation of “shop front” premises within Poole Town Centre to facilitate viable and accessible social banking alternatives for the people of Poole.

2 Decisions required

2.1  It is recommended that Cabinet:

a)  note the progress made by the CCU to develop its service offering during 2011/12 further to the Council’s current investment;

b)  endorse the need to support the CCU in establishing visible, accessible and viable branch in Poole Town Centre enabling it to provide alternative credit and banking solutions for the people of Poole and to support the short to medium term costs of doing so in anticipation of a future bid for funding support from the DWP;

c)  delegate responsibility to Chief Finance Officer in consultation with the Leader to provide advice and practical support to the CCU in the development and implementation of robust plans to manage the successful expansion of its customer base in Poole. This is key to securing the future viability of the CCU as a successful social enterprise that is able to reinvest in the local community and is consistent with the Council’s ambitions to promote financial inclusion and help grow the local economy.

3 Background

3.1  The CCU approached the Council last summer, seeking assistance in funding the development of automated banking facilities to better support its operations and facilitate outreach across the local community. The organisation works closely with PHP and plays an important role in supporting vulnerable individuals who otherwise struggle to obtain credit in the private banking sector. The CCU was keen to develop its service offering to enable it to better attract new members. In order to do so CCU needed to purchase a nationally accredited banking system but did not have the funds needed to do so. Having considered the matter, Members agreed that the development of an automated banking solution would be to the benefit of the wider community and was entirely consistent with the strategic aims of the Council and in keeping with the spirit of the Government’s Big Society and Localism agenda.

3.2  A proposal to provide the CCU with an unsecured loan facility of £150k to cover the costs of the required investment was therefore included in the Budget and MTFP December 2010 Update report of the Chief Finance Officer. Whilst it was noted that the initiative represented some financial risk of loss to the Council this risk was reflected in the rate of interest proposed by CCU – 8% with repayments scheduled to begin in 2015. The proposal to extend this loan facility to the CCU was warmly welcomed by Members of all parties and was unanimously agreed by full Council at its meeting in December 2010.

3.3 A condition of the loan agreement was that the Council would be provided with a seat on the Board of the CCU in order to protect and assure its investment. The Council’s Chief Finance Officer was therefore formally co-opted as a Director onto the Board of the CCU in September 2011 for the remainder of the current financial year to act as the Council’s representative. Whilst this followed primarily from the proper need to safe-guard the Council’s interests, it has also enabled the CCU to add to the skills, knowledge and expertise of its governing body to the benefit of all concerned.

4  Progress to date

4.1 Sound progress has been made by CCU so far this year in taking forward their business development needs following the Council’s investment, specifically:

a)  the purchase and implementation of an automated banking solution;

b)  the development of new marketing and promotional literature to better ‘sell’ their product into the community to promote outreach and take-up. This work has been facilitated through a creative partnership with Bournemouth University in which students have been set the challenge of creating a marketing and promotions strategy and design solutions as part of their academic programme of studies;

c)  the formal launch of the new current account banking facility in October 2011 supported by elected members and dignitaries from both Borough of Poole Council and Bournemouth Borough Council;

d)  facilitating better customer access by extending opening hours in Parkstone, providing a new customer point through BoP’s customer reception at the Civic Centre and progressing plans to open new customer points in Swanage, Wimborne, and Christchurch during 2012l.

4.2 Work has also begun, with the support of the Council, to help resolve the longer term accommodation needs of the CCU and consider how a town centre branch in Poole could be achieved to enable greater outreach to the benefit of Poole residents. From early discussions with the CCU to date, it is felt that such an approach could:

a)  provide greater visibility and presence for the CCU within the community, raising the public’s awareness of the Union and encouraging greater take-up through better familiarity and ease of access to would-be investors;

b)  place the CCU on a more secure financial footing through the development of its customer base;

c)  help the CCU succeed in attracting future funding from the DWP based on the active demonstration of its operation as a successful social enterprise;

d)  provide a third sector mechanism which is able and willing to provide credit and banking facilities for local people and businesses who might otherwise struggle to obtain affordable loans and venture funding from the private banking sector in difficult economic times.

5 Next steps

5.1 It is clear that the CCU have deployed the monies made available to it by the Council in keeping with the agreement reached last year. It is equally clear that the on-going financial climate and sustained downturn in the economy make credit and banking alternatives of the kind offered by CCU increasingly relevant to more and more people across our communities.

5.2 The Government has clearly signalled its belief that Credit Unions can play an important part in providing financial stability and awareness to many customers who may have previously been excluded from having bank accounts or have sought loans from ‘non-high street’ lenders. To that end the DWP has provided funding to some credit union organisations to help them develop their business activities. In 2011 an additional £73M was initially allocated to further support this process and it was hoped that CCU might seek funding support from the DWP to do likewise further to the Council’s initial investment of £150k. However, it is now understood that the DWP have temporarily suspended the Fund pending a report to a Government steering group on the outcomes of the Department’s investment to date and the likely feasibility of credit unions per se in the future. It is officers’ understanding that the Department is currently of the view that credit unions must be established as commercially viable, financially self sufficient and professional bodies to be truly sustainable and successful. It is further understood that future bids for DWP investment funding will only succeed if supported by a credible business plans that clearly demonstrate the commercial viability of the credit union in question and the positive social outcomes and benefits that would follow from DWP investment in their business activities. Clearly therefore, providing practical support and assistance to the CCU in the on-going development of their own business planning arrangements to support the expansion and future success of their business model now, will help to support the submission of a successful bid for funding to the DWP in the future.

5.4 Whilst the CCU maintains a healthy balance sheet its operating position is vulnerable and it needs to increase its trading position by expanding its customer base in order to move it onto a firmer financial footing and avoid reliance on subsidies to support day to day operations. The CCU’s investment in its automated banking system and current account facility have created the infrastructure needed in the first instance to allow the CCU to provide a better business offering to potential customers. Promoting take-up and customer growth now requires high street presence and is essential to the implementation of a robust business model and the on-going development of the CCU as a successful social enterprise in Poole.

5.5 As Welfare Reforms are introduced the Government intends to make Universal Credit payments direct to claimants and they will then be required to allocate funds accordingly to meet their needs. The Local Authority will also take responsibility for Crisis Loans and be required to support ‘local needs’ with Discretionary Housing Payments. Being able to assist our residents in setting up bank accounts and directing them to the CCU as a trusted ‘partner’ organisation that can help them to set up and repay loans is a key service that the CCU is now technically well placed to deliver given the Council’s previous investment in the development of automated banking systems. Meeting this important need for many of our residents, customers and tenants will be helped significantly in practice by establishing a successful high street branch of the CCU in Poole. This will in turn avoid the need for the Council itself to invest in the kind of direct provision of necessary support services to the community that would otherwise be required in future years.

6 Suitable Accomodation

6.1 At present two suitable premises are available within Poole Town Centre. One of these (Kingland Road) lends itself ideally to business needs of the CCU and may also be of assistance to the Council in providing identified accomodation needs through the current accomodation review. The property is suitably placed for ease of access to customers and is very visible. As the previous occupiers were a banking sector business the accomodation is appropriately set out for the activities of the CCU and will allow the Benefit Service to locate customer surgeries to within the CCU environment.

6.2 The property concerned has ground floor and first floor office accommodation. Whilst the CCU will only require the ground floor accommodation, Property Services are of the view that the Council could usefully lease the whole building thereby enabling the Council to meet its own wider accommodation needs further to the current review of accommodation currently on-going.

6.3 With a “shop front” easily accessible to customers, visible to pedestrians, vehicles and from the main bus station the CCU would have arguably excellent placement to promote their activities and assist our residents.

7 Financial Implications

7.1 The costs to the Council of supporting the shop rental detailed above would amount to approximately £7K for the remainder of the current financial year. It is expected that any costs incurred by the Council in respect of any accomodation solution in the short to medium term will be seen as a loan to CCU that will be re-funded through future income receipts or by any supportive funding for the accomodation that is received through DWP funding or Grant.

7.2 Based upon the CCU Business Case the loan to assist in sourcing the appropriate premises for trading activity would be established with appropriate exit clauses in any form of lease agreement to minimise the Council’s exposure to costs should this prove necessary in any point in the future.

7.3 The premises suggested will also support the Council’s own wider accommodation needs, allowing it to realise savings elsewhere in its estate to help deliver targeted efficiency savings as set out in the Efficiency Review Project for Admin Accommodation as identified by Property Services.

8 Equalities Implications

8.1 The business objectives of CCU in providing banking facilities to our residents is an essential requirement for the Council in giving fair access to services and preparing ourselves and our customers for Universal Credit and associated Welfare Reforms which will impact on all areas of Council service.

8.2 Further development of the objectives of CCU will help address current inequalities in the access of affordable credit for more vulnerable members of the local community

8.3 The proposed location if benefit surgeries are incorporated at the site will enable the booking of appointments for translation / interpretation services to take place on a regular basis which could be fully accessible and booked with officers from all departments as the need arises.

9 Risk Implications

9.1 The Council determined its original investment in the CCU in the full knowledge that of the risks associated with any future inability of the CCU to meet its loan repayment obligations. Similar risks clearly apply to any decision to fund the short term accommodation costs to enable the CCU to establish itself in suitable premises in Poole. However, it is expected that these costs will be re-funded through the successful development of the CCU’s business activities and/or from a future bid to the DWP. The risk of any default should also be weighed carefully against the risk of failing to take the opportunity to help the CCU move itself onto a firmer financial footing, thereby mitigating the risk of default on the Council’s investment in 2015.