About Credit Unions and us

Credit Unions are great place to save and borrow money from. Don't just take our word for it, see below for all the information you need to understand who we are and what we do.

If you would like more information on the history of the Lincolnshire Credit Union click here!

Introduction

Unlike other companies, credit unions are mutuals - our members are our owners.

To be a member, you must:-

Be part of our 'common bond' (a legal necessity) for Credit Unions which unites the people we serve.
Have at least £1 in a savings account and have paid a £1 joining fee.

We don't need to focus on high profits paid to shareholders by dividends. Instead, we focus on you, our members.

Although we are a local credit union, run and managed by people committed to a better Lincolnshire economy, we are affiliated to ABCUL - a national trade association (Association of British Credit Unions Ltd.).

It is our aim for the Credit Union to become a self-sustaining financial organisation that can benefit all of the local community, whether by providing a safe and convenient method of saving, or providing loans at low interest rates without hidden charges or fees.

We currently have a central administration office in Lincoln, and a growing number of local town branches throughout Lincolnshire.

Common Bond

The main difference between a traditional local building society and a credit union, is that to become a member of a credit union you must share a “common bond” with the other members. The Lincolnshire Credit Union's common bond is people that live or work within the county of Lincolnshire.

How do credit unions work?

The members of a credit union pool their savings together; these savings then provide a pool of funds from which loans can be made. A credit union rents money from its savers and must therefore pay them a return on their money (this is known as an annual dividend). The money rented from members is lent out to other members, who pay interest on the money loaned to them.

MoneyCycle

The credit union must be successful in attracting a sufficiently large number of savers to enable it to have a sufficient liquidity level to enable it to meet its members’ demands for loans, share withdrawals and to pay operating expenses.

Who runs the Credit Union?

The credit union is managed and controlled by a volunteer Board of Directors. All officers of the credit union are members of the credit union, who are elected by the membership at the Annual General Meeting. All members of the credit union have one vote; regardless of the size of their savings.

Whilst credit unions employ staff to manage the credit union on a day to day basis, control lays firmly within the hands of the members – through their elected representatives – the Board of Directors.

How safe are credit unions?

Savings are protected in a credit union in different ways:

A group of members known as the Supervisory Committee checks that the credit union is running safely and is taking care of members’ money.
An auditor carries out an annual inspection of the Credit Union’s business.
The credit union is required by law to maintain an insurance policy (fidelity bond) to protect the credit union against fraud or theft.

As well as this, credit unions are regulated and authorised by the Financial Services Authority. The Financial Services Authority is the same regulator as banks and building societies and all other providers of financial services in Britain. Credit Unions are required to send regular financial reports to the FSA and the FSA has the power to place restrictions on a credit union’s business if they believe that members’ savings may be at risk.

In the unlikely event that a Credit Union ceases trading, the Financial Compensation Scheme guarantees to repay all of your savings.

The History of the Lincolnshire Credit Union

Where did we come from?

Until 2000 credit union activity in the county of Lincolnshire has been very modest with three community-based credit unions with ‘live or work’ common bonds viz. registered with the FSA to provide credit union services:

Gainsborough and District Credit Union Ltd (Registered office Gainsborough);
Lincup Credit Union Ltd (Registered office Lincoln); and
North Kesteven Credit Union Ltd (Registered office Sleaford)

together with three employer based credit unions with ‘work’ common bond –

Beewise Credit Union Ltd (Lincoln Co-op);
Thorne Credit Union Ltd (GMB members, based in Cheadle); and
Copperpot Credit Union Ltd (Police Officers, based in Leicestershire).

In 2000 there were no credit union services provided to the remainder of Lincolnshire. However, several steering groups were then meeting to explore catering for a considerable portion of this area.

South Kesteven (Steering Group meeting in Grantham);
Boston and South Holland (Steering Group meeting in Boston); and
Mid Linx (Steering group proposing to meet in Tattershall/ Coningsby or Spilsby).

There were large areas of Lincolnshire without any credit union activity.

Coastal strip in East Lindsey; and
Large parts of West Lindsey.

How did we all reach this point?

In 2000, with the start of the SRB6 funded project “Towards the Credit Union Network in the East Midlands” - CUNEM, the existing groups in Lincolnshire started to meet together.

To support each other;
To network;
To share joint training;
To share best practice;
To develop joint marketing products; and
To develop joint funding bids.

Over time it became clear that with the new emphasis being on increasing legislation and regulation, having researched the larger, more successful credit unions around the country, the group felt that very soon they would approach volunteer burn-out, and be unable to sustain themselves as small individual businesses.

The development of ‘New Model’ credit unions and transfer of regulation to the FSA in 2001, triggered existing and embryo credit unions to take a fresh perspective on provision of credit union facilities in the UK and in Lincolnshire in particular.

Steering Groups looking to establish small credit unions have considered the criteria put forward by Ingredients for Success outlined in John Moore’s Report, for business sustainability in the new regulatory climate post July 2001.

The Steering Groups concluded that amalgamating common bonds to create larger areas of potential membership was the most sensible and best way forward for development of credit union in rural Lincolnshire.

Amalgamating the various committees would pool the resources of the existing skills base, raise the level of relevant competency and enable shadowing of key functions and aid succession planning.
By moving to larger common bonds financial diversity would be increased i.e. the funds derived from savers in more affluent areas will provide a pool to lend to borrowers in less prosperous areas.
Merging credit unions would increase resource diversity. i.e. The gaps in one credit union can be offset by the strengths of another. Skills are shared and capacity building will increase.

Four credit unions already operating in the county of Lincolnshire then met together with interested steering groups to form a Federation for mutual advantage and agreed to form the Lincolnshire Federation of Credit Unions as a fully constituted body.

The Federation met together for two years for joint training, marketing and providing mutual support. The Federation spent time reviewing progress, made comparisons with one another re practice and performance, considered respective strengths and weaknesses of individual credit unions and compared with other larger, more successful credit unions emerging around the country.

The inescapable merits of a single credit union to cover the whole county of Lincolnshire as a single ‘live or work’ common bond became clear. Agreement was quickly reached to pursue this goal with the aim of developing credit union services across the county in partnership. The initial motion was put forward by Terry Nichols, Director and Treasurer of Gainsborough and District Credit Union Ltd in 2002.

As a consequence the idea of combining efforts began to take root and more in-depth discussions followed.

Unique problems of rural credit unions

The skills level of volunteers now expected by the FSA, who now regulate credit unions in the UK, to direct and run a credit union is such that it had proven very difficult for the steering groups to recruit and retain volunteers to serve as potential directors and in other committee positions.

Some of the older existing credit unions recognised that they had become stagnant and lacked many of the resources to develop further. Some feared actually reach a crisis point regarding compliance and volunteer resources with a real risk of failure.

The cost for volunteers to access and pay for relevant accredited training is usually beyond the reach of small groups, as they have a high unit cost. The time needed to establish a credit union service is immense and many groups have faltered in the past on this issue alone.

Many volunteers have found the training difficult. Several steering groups considered the responsibilities of office too demanding. For example, the South Kesteven steering group did not think it possible within the current number of volunteers to see its way forward to apply successfully to the FSA for registration. Other existing credit unions in the county have also struggled to grow their volunteer base beyond the minimum numbers necessary to legally run the credit union.

Credit unions have discovered that they are not viable for common bonds which just cover a deprived estate or a small town where the economy is poor. A mix of savers and borrowers from different social groups is essential on which to base a successful credit union run on sound business principles.

South Kesteven concluded that the only feasible route for them of providing credit union services in their area was to ask a neighbouring credit union to extend its common bond to include their area. To this end, both groups in South Kesteven and in Boston and South Holland started discussions with North Kesteven Credit Union Ltd, as to how they could all join together.

In view of the difficulties experienced by the then existing credit unions and steering groups, it seemed very unlikely whether other areas of rural Lincolnshire would ever be able to muster the necessary manpower and skill set to successfully launch and then run further safe, sound and sustainable credit unions. It was considered that ‘piecemeal’ development of credit unions in Lincolnshire would deny large rural areas access to credit union services in the future.

The best way forward

The Federation concluded that the most effective way forward was by establishing a single credit union for the whole of the county:

Amalgamating the various committees would pool resources of the existing skill base, raise the level of relevant competency and enable shadowing of key functions and aid succession planning.

Bringing together the administrative function into a single central 'back office' would create significant economies of scale to the benefit of members, by reducing operational costs in the areas of computerised services.

Strategy was successfully achieved by extending the common bond of one of the operating credit unions - North Kesteven Credit Union Ltd, the most recent in Lincolnshire to be registered by the FSA. Gainsborough and District Credit Union Ltd would later be included by a transfer of engagement. This proposal effectively merges with North Kesteven those credit unions and steering groups whose Boards of Directors, and management groups agree to this strategy.

A county wide credit union makes economic sense in terms of economies of scale, computerised services, a professional approach to service provision, more services to members, innovative and inspiring leadership leading to sustainability and greater economic strength. Merging several credit unions clearly increases diversity - the weaknesses of one credit union offsetting the strengths of another.

Alternative ways forward

The Federation examined alternative strategies. A realistic alternative would have been to increase incrementally the size of one of the credit unions by extending the common bond to include a neighbouring credit union/ steering group. This approach, whilst being sound, requires a fresh business plan and application to the FSA for registration every time a minor expansion is required. In the interim none of the economies and benefits of scale can be enjoyed.

The level of extra work involved would greatly outweigh and distract from the essential day-to-day business of effectively running the credit union. One significant disadvantage of this approach, and the one that caused the Federation not pursue further the alternative was that credit union services would not be made available for many years to come to many parts of the county, currently without these services, leaving the sub-prime and informal lenders an open field to continue to operate unencumbered by a fair and just alternative.

A new business approach

Each therefore took a proposal for merger to their members. All groups in Lincolnshire, except the Lincup Credit Union Ltd, made a decision by taking formal proposals to the membership, that a single credit union covering the county was the best and immediate way to move forward.

Lincup is monitoring progress of the expanding credit union and will take a view later as to whether it wished to join. In order to maintain working relationships with Lincup Credit Union, people in Lincoln enquiring about membership are advised that they are eligible to join either Lincup Credit Union or Lincolnshire Credit Union, leaving the decision to the prospective member.

Representatives from each group formed a project team and prepared a three-year development Business Plan providing a credit union service for Lincolnshire ensuring that every citizen would have access to a credit union. The growth model adopted was to first consolidate the businesses of the existing companies using common software into a single 'back office', run the business efficiently with skilled and inspired leaders, and then strive to establish active branches in a number of areas in the county with the help of a growing band of enthusiastic volunteers and support of partners. The three to five year financial projections showed that a substantial stream of funding was necessary to reach business sustainability within five years.

The completed Business Plan was submitted to the FSA in May 2004 and the Financial Services Authority approved the application and on the 8 November 2004 registered Lincolnshire Credit Union Ltd to offer credit union service to everyone who lives or works within the county.