New credit union is 'payday loan alternative'

The newest credit union in the UK, Mycommunitybank, has promised to offer its savers a viable alternative to high-cost credit providers such as Wonga.

Mycommunitybank is the first credit union to take advantage of new rules which lift a host of restrictions; as a result it is not tied to a specific geographic area and can take deposits and hand out loans nationwide.

However, members of the union will have to be associated with the UK's large South Asian community.

That linkage allows Mycommunity bank to offer loans of between £500 to £3,000 for a short six-month period.

Mohsin Mehdi, the Mycommunitybank chief executive, explains: "The cultural uniqueness of the South Asian community, our very individual credit scoring techniques and personal service should mean default rates are lower on loans than would certainly be the case with a payday lender, which means we can be very competitive on rates for savings and shorter-term loans."

Mycommunitybank will, however, avoid very short-term loans and focus on six months and above. "You can't get on your feet again with a loan which lasts a week," Mr Mehdi said.