Do credit unions work?

Banks, some say, are like someone who lends you an umbrella when the weather is fine, only to demand it back at the first sign of rain. Bad news, then, for those whose finances seem to be under a perpetual cloud, such as the unemployed, those on low incomes or on state benefits.

Many have to turn to loan sharks and pawnbrokers, and the massive rates of interest they demand. But some are finding they have another option: credit unions. The idea behind them is simple. Members save regular small sums of money and are allowed to take out loans at rates of interest that amount to 1 per cent of the loan still outstanding. No security is required.

This means a credit union member pays APR of 12.68 per cent on a loan, compared with about 17.4 per cent on unsecured personal clearing bank loans. The Aston community bank planned in Birmingham expects its rates to be in line with those charged by Mercury Provident social bank, about APR 10 per cent. Building societies charge about APR 15.9 per cent.

Some credit unions, such as Dalmuir Credit Union in Scotland, enable members to consolidate their debts. They can borrow from the credit union to pay off credit card borrowings (APR 22.3 per cent), loans from pawnbrokers (APR 65 per cent) or borrowings from loan sharks, who have been known to demand 600 per cent. Then members can gradually pay back the cheaper credit union loan, saving hundreds or thousands of pounds.

The law demands that members of a credit union must have a common bond. They must live in the same area or work together. Taxi drivers, council employees and the police are among groups that have set up their own credit unions.

"We are not just a poor man's bank," says Rose Dorman, founder of the Dalmuir Credit Union, the biggest community-based group of its type in Britain. Mrs Dorman, a 64-year-old widow, set up the credit union 17 years ago. It now has 4,000 members in the town of Clydebank, near Glasgow, an area where the demise of traditional industries on the Clyde has resulted in high unemployment. Last year Mrs Dorman's credit union, from its office in an old school hut, took deposits of £1.5m from its members and gavethe lot back to them as low-cost loans.

Those who benefited include Isabel Somerville, a lone parent whose part-time cleaning job pays her £1.75 an hour. She borrowed, and repaid, a total of £1,500, which she spent on her children's Christmas presents and summer holiday. "It's brilliant. I have a friend who says she doesn't know what she would do without it, and she is right."

She is only one of 40,000 people who are now members of Britain's 150 credit unions. Many who would otherwise have no access to credit are able to borrow money for such things as weddings, furniture and holidays.

Jim Dearlove of the Birmingham Credit Union Development Agency says that instead of criticising the banks for refusing to extend their services to large sections of the community, it is better to devise ways of helping those who have no access to bankingfacilities. For instance, in Birmingham, bank cutbacks have led to a shortage of outlets where customers can pay their bills. So credit unions are setting up a pilot bill-paying scheme that will handle members' payments to the local utility companies. "There is no point in just slagging off the banks," Mr Dearlove says. "The message of the credit union is that you've got to learn to help yourself."

Arts and Entertainment

game of thrones reviewWarning: spoilers

Arts and Entertainment
The original Star Wars trio of Harrison Ford, Carrie Fisher and Mark Hamill

George Osborne confirms Star Wars 8 will film at Pinewood Studios in time for 4 May


Arts and Entertainment
Haunted looks: Matthew Macfadyen and Timothy Spall star in ‘The Enfield Haunting’

North London meets The Exorcist in eerie suburban drama


Arts and Entertainment

Filming to begin on two new series due to be aired on Dave from next year


Arts and Entertainment
Kit Harington plays MI5 agent Will Holloway in Spooks: The Greater Good

'You can't count on anyone making it out alive'film
Have you tried new the Independent Digital Edition apps?
Arts and Entertainment

ebooksNow available in paperback
Arts and Entertainment

  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?

ES Rentals

    Independent Dating

    By clicking 'Search' you
    are agreeing to our
    Terms of Use.

    Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

    Fishing is on Nigel Farage's mind

    Ukip leader casts a line to the disaffected
    Who is bombing whom in the Middle East? It's amazing they don't all hit each other

    Who is bombing whom in the Middle East?

    Robert Fisk untangles the countries and factions
    China's influence on fashion: At the top of the game both creatively and commercially

    China's influence on fashion

    At the top of the game both creatively and commercially
    Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

    The man known as GOD has a reputation for getting the job done

    Lord O'Donnell's three principles of rule
    Rainbow shades: It's all bright on the night

    Rainbow shades

    It's all bright on the night
    'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

    Bread from heaven

    Dutch survivors thank RAF for World War II drop that saved millions
    Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

    How 'the Axe' helped Labour

    UK will be 'run for the wealthy and powerful' if Tories retain power
    Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

    The price to be paid for challenging the rule of extremists

    A revolution now 'consuming its own children'
    Welcome to the world of Megagames

    Welcome to the world of Megagames

    300 players take part in Watch the Skies! board game in London
    'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

    Charlotte Gainsbourg on 'Nymphomaniac'

    Starring in one of the most explicit films ever
    Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

    Robert Fisk in Abu Dhabi

    The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
    Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

    Vince Cable exclusive interview

    Charging fees for employment tribunals was 'a very bad move'
    Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

    Iwan Rheon is returning to his Welsh roots

    Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
    Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

    It's time for my close-up

    Meet the man who films great whites for a living
    Increasing numbers of homeless people in America keep their mobile phones on the streets

    Homeless people keep mobile phones

    A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before