12
AGENDA ITEM NO
REPORT TO: Corporate Governance and Policy Scrutiny Committee
REPORT NO: EDM/16/09S
DATE: 7 October 2009
REPORTING OFFICER: Rebeccah Lowry – Divisional Manager
(Social Inclusion) Economic Development department
CONTACT OFFICER: Rebeccah Lowry (292455)
Gary Brown (292450)
SUBJECT: Credit Union
1. PURPOSE OF THE REPORT
1.1 To inform Members of the continued development of Wrexham’s Credit Union since its launch in September 2007, the plans to ensure its sustainability beyond the Council’s current funding agreement (1st April 2007 - 31 March 2010); and to consider the Councils arrangements for continued support beyond the current arrangements.
2. SUMMARY
2.1 Wrexham’s Credit Union is now considered to be performing effectively in its contribution to improving financial inclusion within the County Borough: Its membership levels have continued to rise and are now ahead of it business plan forecasts; the services it provides are considered to be widely accessible to the general public; and there is evidence of appropriate targeting of people experiencing the highest levels of financial exclusion across the County Borough.
2.2 As an independent entity the Credit Union has a responsibility to the Financial Services Authority (FSA) to continually monitor its ongoing and forecast viability. This is in addition to the monitoring arrangements in place with the Councils as part of the Entrustment Contract. The Council’s funding arrangement ends in March 2010, the Credit Unions Business Plan forecasts identify that some additional external funding will be required from external sources for a period of one year (2010/11) before they become sustainable. The Credit Union is in discussions with the Welsh Assembly Government and the Department for Work and Pensions to identify opportunities of support in addressing this funding gap.
2.3 Having enabled the development of the Wrexham County Borough Credit Union Ltd, the Council has an interest in ensuring its long term sustainability. The provision of ongoing ‘in kind’ support such as internal networking/championing; payroll deductions and cash handling services; and reduced rental premises provision would assist the Credit Union in its ability to achieve sustainability during 2010/11.
2.4 Consideration will need to be given to the ongoing monitoring and reporting arrangements to review the Credit Unions progress towards sustainability and the need to consider ongoing ‘in kind’ support.
3. RECOMMENDATIONS
3.1 It is recommended that Members:
(i) Note the progress being made by the Credit Union in delivering its services in Wrexham County Borough;
(ii) note the Credit Union’s current efforts to secure external funding; and
(iii) consider and recommend to the Council’s Executive Board the principle of providing ‘in-kind’ support valued at £7,555 per annum to Wrexham County Borough Credit Union from 1 April 2010, to be reviewed and agreed annually thereafter.
4. INFORMATION
(a) Introduction
4.1 Wrexham County Borough Credit Union Ltd was launched in September 2007 as an independent Credit Union. Its initial operating period is being supported by funding from the Council with a total value of £214,137 over the three year period from 1 April 2007. This arrangement ends on 31 March 2010.
4.2 A progress report was submitted to the Corporate Governance and Policy Scrutiny Committee in October 2008 (CEDO/28/08/S) where Members agreed ‘That the report be noted and that a progress report be submitted to this Committee in twelve months, highlighting in particular any request for additional funding from the Council.’
(b) Background
4.3 The Wrexham ‘live or work’ Credit Union was established in Wrexham following extensive work by the Council in exploring and developing the concept through an internal Officer and Member ‘Study Group’; this work dates back to 2000. The developments gathered pace from 2004 onwards with the appointment of a dedicated Credit Union development officer.
4.4 Issues relating to State Aid delayed the process during 2005 and 2006, during which time efforts to progress the Credit Union’s development were put on hold (CEDO/12/05). The State Aid issue was resolved in early 2006 by agreeing that ‘Services of General Economic Interest’ could be procured by the Council in the form of a third-party Credit Union and that the relationship between the two parties could be described in an Entrustment Contract. Until this point progress had been made on the assumption that the Credit Union would be delivered directly by the Council.
4.5 Members of Executive Board agreed in April 2006 (CEDO/04/06) to a total of £210,000 to procure the services of a Credit Union over a three-year period to commence April 2007. The resulting tender exercise, conducted in the summer of 2006, led to the appointment of the purposely-created Wrexham County Borough Credit Union Ltd. This organisation drew its directors from the existing Council-based Study Group, and its initial work focussed on the production of a business plan to support both the Council’s Entrustment Contract and the Credit Union’s registration with the Financial Services Authority (FSA).
4.6 Further refinements to the Business Plan in the initial stages of development identified a need for a small increase in the contract value to cover ICT support costs omitted from the original proposal of £4,137, taking the total three-year contract value to £214,137; this was approved by Members in April 2007 (CEDO/20/07). Registration with the FSA soon followed, as did the recruitment of its two core staff.
4.7 Wrexham County Borough Credit Union Ltd was launched to the general public in September 2007 five months into its first contractual year.
(c) Progress to date
4.8 The Council has three objectives in supporting the development of a Credit Union in Wrexham:
(i) to ensure that the Credit Union progresses towards becoming financially self-sufficient in the long term;
(ii) to ensure that residents and workers of the county borough have access to the services of a Credit Union; and
(iii) to ensure that these services are targeted appropriately to derive the greatest benefit in terms of financial inclusion.
(i) Self sufficiency
4.9 In relation to the first objective, the financial model used by the Credit Union is based on the following principle:
‘more members = more savings = more funds to loan out =
more interest earned = greater financial independence and viability
The last element of the above is particularly significant: The original 2006 business plan and Entrustment Contract respectively require and give financial support over the first 3 years only, covering the financial years 2007/8, 2008/9 and 2009/10. They anticipated the Credit Union’s self-sustainability from year 4 onwards. In October 2008 the Credit Union revised its business plan to reflect lower membership levels but higher average savings levels, and higher proportions of savings being loaned out. As a result self-sustainability will not be achievable within the time period predicted in the original Business Plan. This is discussed briefly at appendix 1.
4.10 Despite a slow start and achieving 154 new members in its first operational year (2007/8), membership steadily grew during the first half of 2008/9, reaching 237 by September 2008. Since then, membership has grown rapidly to reach 650 by the end of August 2009, a pattern stimulated by increased marketing efforts, increased levels of outreach work, and the current economic climate. This figure exceeds the revised business plan’s target of 520 for the same period.
4.11 Membership amongst Council staff and Elected Members remains relatively low – of the current members less than 20% (117) are from within WCBC compared to the 600+ pledges in 2002/03. Officers from both the Credit Union and the Economic Development department are continuing to develop ways of encouraging membership amongst the Council’s employees. This has included the establishment in February 2009 of a cross departmental Credit Union Champions group to support the response to ongoing internal marketing efforts such as roadshows, open days, staff emails, intranet and staff magazine articles, and payslip messages. The group met again in June and is scheduled to meet in mid October.
4.12 Beyond the potential market for members that exists within the Council the Credit Union is also working proactively with other major employers including Glyndwr University and the NHS Trust with the result that non-Council memberships have now exceeded targets.
4.13 Due to the need to attract a core base of savers the Credit Union’s Board of Directors have prioritised the need to attract further members.
4.14 Credit Unions do not pay interest per se to savers, but annually consider their ability to pay all members a dividend based on the value of individuals’ levels of savings. At the second Annual General Meeting, the Board announced its intention to pay a dividend of 3% to ensure that the Wrexham Credit Union was indeed an attractive saving option. Credit Union members received this during December. The Credit Union Board is currently determining this year’s dividend.
4.15 By June 2009 the value of savings had increased to exceed the targets of the revised business plan. The Credit Union is now working to increase the proportion of its savings base that are loaned out and during the summer of 2009 has been promoting the availability of accessible loans to its members, both through its outreach work and to its payroll members.
4.16 The Credit Union’s current Business Plan (summarised in Appendix 1) makes reference to the need to secure an additional £52,750 to underpin its sustainability over the three year period 2010 to 2012; £48,212 of this is required during the 2010/11 financial year. This value is beyond the existing agreement with the Council. The Credit Union will be endeavouring to secure funding to cover this ‘gap’, and this is discussed further below at (f).
4.17 The funding shortfall has arisen through a number of factors – the delay in launching, the slower than anticipated membership growth and the initially slow take up of loans. The shortfall is attributable to lower income levels than planned rather than excessive expenditure. The achievement of self sustainability within five years from launch is seen as the national benchmark for new credit unions in the UK, and although there is a short term requirement for funding to address the deficit in 2010/11 Wrexham’s Credit Union is on-track to meet this measure and to be self sustaining from 2012 onwards.
(ii) Customer awareness and access
4.18 The Credit Union is continuing to generate regular press and website articles and leaflets, and those which it publishes itself are now being produced in both English and Welsh. The Credit Union has retained its office presence in Chester Street with expanded opening hours including Saturday mornings, and has recruited a growing number of volunteers.
4.19 The Credit Union makes use of the facilities offered by the Council’s Housing Estate Offices and Cash Offices, where payments into members accounts can be made. It has linked with the nationwide PayPoint system so that members can make deposits at any shop with this facility. The process of saving has also been made easier through continued work to develop payroll deduction arrangements with local employers.
4.20 The Credit Union’s community outreach work has seen the establishment of volunteering, collection and information points in several of the County Borough’s most deprived areas, where the need for access to affordable loans and the scope for improving residents’ personal financial management are considered to be the greatest. These include Plas Madoc, Brynteg, Hightown, Caia Park, Cefn Mawr and Rhos, all of which have weekly 2hourly drop in sessions, and the Credit Union is looking at extending these services to other areas across the County Borough.
4.21 The outreach work has been enhanced by the Credit Union’s success in obtaining funding from the Department of Work and Pensions to employ a part time loans officer who started in July 2008.
(iii) Appropriate targeting
4.22 Access to affordable loans by those who are most financially and socially disadvantaged is one of the founding drivers for the Credit Union and the Council’s interest in it. The Credit Union’s loans are typically less than £500 and are repaid over a matter of weeks and months rather than years with interest rates in the range of 10% to 27%. These are capped and closely monitored by the Financial Services Authority. In this respect the Credit Union is a significantly better source of short term finance than the door step lenders that target those who are most financially excluded.
4.23 The Credit Union is using the Council’s Community Regeneration Strategy to guide its geographical targeting of outreach work, particularly that which is supported by the loans officer, and hence the initial choice of areas above. Additionally, targeting at the individual level is being aided by successful collaborative work between the Credit Union and service departments including Adult Social Care and Housing and Public Protection as well as external partner agencies.
4.24 The combination of these approaches is helping to ensure that those who need support the most can access it. Additional loan capital has been made available as a result of the Credit Union’s success in accessing the Department of Work and Pensions’ ‘Growth Fund’.
(d) Performance monitoring
4.25 The Entrustment Contract mirrors the department’s need to provide quarterly performance information. The indicators used until late 2008 focussed on membership levels and promotional activity as well as limited financial information. A revised set of indicators have been devised which have been included in the Council’s performance monitoring system from April 2009 onwards. The revised indicators were reported to Corporate Governance Scrutiny Committee in October 2008 (CEDO/28/08/S). The revised indicators are listed at Appendix 2.
4.26 Performance over the last three quarters against the ten most significant indicators is shown in Table 1 below. The top portion of the table suggests that performance is above or significantly above target for 4 of 6 key performance indicators. The items which are below target are partly due to the overachievement of savings balances – the funds are not being lent out as quickly as they are coming in.
Table 1 – Credit Union performance 2009
Activity / Target / Actual / Target / Actual / Target / Actual / CommentsJan-Mar / Jan-Mar / Apr -Jun / Apr-Jun / Jul-Sep / Jul-Sep
1 / Recruitment of Members / 409 / 430 / 484 / 535 / 559 / 650 / Consistently above target
2 / Value of loans to members / £25,920 / £29,045 / £37,425 / £33,877 / £57,152 / £45,500 / Below target
3 / Value of members’ savings / £64,801 / £76,096 / £93,562 / £110,271 / £127,004 / £131,300 / Consistently above target
4 / Loan to share ratio / 40% / 38% / 40% / 36% / 45% / 35% / Below target
5 / Qtr Income / £1,552 / £1,757 / £1,552 / £2,275 / £3,013 / £2,600 / Above target
6 / Qtr Expenditure / £16,820 / £15,620 / £16,820 / £16,439 / £18,960 / £18,200 / Above target
Geographical targeting / % of total Members
7 / No. of members in CRS areas / N/A / 225 / N/A / 261 / N/A / 350 / 54
8 / No. of members in non-CRS areas / N/A / 205 / N/A / 274 / N/A / 300 / 46
% of total loans
9 / No. of loans in CRS areas / N/A / 53 / N/A / 74 / N/A / 83 / 70
10 / No. of loans in non-CRS areas / N/A / 17 / N/A / 35 / N/A / 35 / 30
4.27 The lower portion of the table provides an indication of the extent to which the Credit Union is targeting its efforts on the areas of Wrexham where financial exclusion is highest. Financial inclusion is related to multiple deprivation and the Council’s Community Regeneration Strategy (CRS) seeks to support efforts in those areas of Wrexham that feature amongst the most deprived 30% in Wales. These areas account for 25 of Wrexham’s 85 sub-ward level ‘Lower Super Output Areas’, and so without any specific focus these areas would be expected to have 29% of Credit Union members and 29% loans. The figures in the table suggest the targeting efforts are effective.