Plans under way for Scottish rural credit union
A study into the feasibility of creating a rural credit union to provide finance for Scottish agriculture has been launched by Scotland’s co-operative umbrella organisation, SAOS.
The go-ahead for the study has been given by the SAOS board and follows a workshop at the recent SAOS conference which unanimously approved the proposal.
The move follows a change in legislation which has removed many of the impediments to the development of larger scale credit unions and dissatisfaction with the service provided by banks.
“Both new and existing borrowers are having great difficulty financing new projects and the total cost of borrowing – including time, fees and interest – is high,” said SAOS deputy chief executive Bob Yule.
“Service levels from the banks have dropped considerably and savers are receiving poor returns.”
Credit unions – member-owned financial co-ops, which provide credit at competitive rates to members – have traditionally operated on a local basis in the UK and have focused on anti-poverty and the use of volunteers.
But they are big business in agriculture in many parts of the world, including North America where they account for 45% of farm borrowing in both USA and Canada.Changes in legislation in the UK now allow businesses and partnerships as well as individuals to be members of a credit union. Membership is restricted to a “common bond”, such as working for the same company, or living in the same community, with savings from members with surplus cash creating the pot from which loans are made.
“The scope of the ‘common bond’ is now much broader which would allow a credit union to operate on a national scale in Scotland,” said Mr Yule.
Money invested in a credit union is protected by the Financial Services Compensation Scheme up to £85,000 for individuals and smaller companies and co-ops. As from next month, credit unions will be dual regulated by the Prudential Regulatory Authority and Financial Control Conduct Authority, who will take over from the Financial Services Authority.
Credit unions are required to maintain a capital-to-assets ratio of at least 3% and the maximum individual loan is limited to 25% of capital. Savings are limited to £15,000 or 1.5% of total shareholding, whichever is the greater.
Under the new legislation, credit unions are allowed to operate more like retail banks, issuing cheques and credit cards. It is likely that the proposed Scottish credit union would operate on the internet and without the need for a branch structure to keep overhead costs to a minimum.
Mr Yule has close connections with the credit union movement in Canada where he gained a masters degree a few years ago studying co-ops and credit unions. It is expected that the feasibility study will be completed by the end of the year.
Gemma Mackenzie on G+