Money: Both a borrower and a lender be

You - and 21 others - can start a credit union. Paul Gosling continues our series on ethical finance
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The Independent Online
British Airways' credit union, Planesavers, has taken off very successfully. It has 2,500 members, pounds 2m in assets and receives a quarter of a million pounds in deposits each month. The operation symbolises the growth of credit unions among the middle classes.

"Far from being a poor person's bank, they are an affluent person's bank as well," says Graham Tomlin, president of Planesavers. "Everyone gets the benefit. You need people who can afford to save, and people who are desperate to borrow. Ours has taken off particularly well with our white- collar sections, where we are growing most quickly."

A credit union is a financial co-operative, owned and managed by its own members - though larger unions, like Planesavers, employ people to keep the books and answer the telephones. Unions continue to spring up and grow despite the conversion of many of their fellow mutuals, the building societies. Their chief aim is to provide credit facilities for the less well-off who might otherwise not qualify to borrow, at potentially better rates than the usual institutions.

The credit union movement believes it will grow even faster, as long as it is not stereotyped as a service only for poorer people. "The credit union movement has not grown as it could because it is seen as being for low earners, but it is just as relevant for high earners," says Jo Havell, a retired head teacher and the company secretary of Britain's newest credit union, that for the Shropshire villages of Broseley and Much Wenlock. "Some people who are joining are on a considerable amount of money."

Broseley and Much Wenlock Credit Union was launched last weekend, and already has 50 members. But it took a group of 26 people three years to reach that stage, after being trained, organising a bank account for the union for deposits waiting to be loaned out, gaining sponsorship and persuading local people to support it. The local vicar is involved, and in a recent sermon he urged his parishioners to support the credit union.

Behind all credit unions is the principle that it is possible to undercut the big financial institutions while paying good rates of interest on deposits and charging low rates on loans. Interest rates are governed by act of parliament: to savers, a maximum of 8 per cent - though it will be lower than that until the credit union is profitable - while the rate charged to borrowers is one per cent per month, an APR (annual percentage rate) of 12.68 per cent. The maximum amount that can be loaned to a member is also set by law: it is typically pounds 5,000 plus the value of a person's deposit, if any.

"We won't lend until people have established 13 weeks' minimum savings," says Mrs Havell. "Their credit rating is established by them making regular deposits." No other credit check is carried out.

Credit unions would like to expand into other areas of banking, as they have in America. Planesavers hopes to offer credit cards in the next six months, and in the longer term wants to provide cash cards, and maybe home mortgages - if the law is changed to allow it to do so. It believes it could secure a strong niche through mortgages with a stable repayment rate that would not be affected by the regular changes in base interest rates.

There are risks in any small organisation run by volunteers, and there have been instances of treasurers running off with credit unions' funds. But all credit unions must, by law, take out a fidelity bond, which insures the union in full against fraud or other wrongdoing by committee members or employees.

The Association of British Credit Unions is finalising a share protection scheme to give members additional protection against loss where a union goes bankrupt. The position at the moment is that members' deposits are not returnable if the union becomes insolvent in a case where dishonesty is not involved - a lack of security of which all savers should be aware.