Meeting of the Parliament 17 September 2019
There are always junctures in life that demand we pay close attention to our finances, such as paying the bills for the summer holidays, school uniforms, and trips away. Now, as autumn approaches, shops are already stocking up for Christmas and all the increased financial pressures that that brings.
These moments provide a useful prompt to encourage us to take control of our personal finances so that we are not paying high interest rates or worrying about how to pay for Christmas. There is pressure on everyone to spend more, but the sad truth is that it is the most vulnerable in our communities who turn to unaffordable credit. That is why it is so important that this Parliament and its members continue to support the important role that is played by credit unions in our communities as providers of ethical financial services.
On 17 January this year, the Parliament celebrated the role of credit unions in Scotland’s communities in a debate. As members know, credit unions are member-owned financial co-operatives, which means that they exist only for the benefit of the people who use their services. They are not-for-profit organisations, which means that the money that they make goes right back into providing competitive rates on savings and loans. They are based on the principles of individual responsibility and mutual assistance, which means that they improve people’s lives through encouraging the wise use of credit and teaching the importance of budgeting.
Many credit unions provide complementary services in addition to savings and lending, such as business loans and mortgages. Credit unions are diverse, ranging from small community models to large organisations handling millions of pounds. However, all are driven by a singular purpose—to serve their members rather than to make profits for a select few.
More than 410,000 people in Scotland are already members of a credit union, which shows modest growth from last year. However, credit unions should be much more mainstream than they are so that more people can benefit from their ethical services. Although they provide help and support to the most vulnerable, they are not and should not be defined by that. In fact, credit unions rely on customers from all walks of life to sustain their businesses and to grow.
Although that increase in membership is welcome, there is still much more to be done. During the debate in January, I heard about some of the key challenges facing credit unions, including the need to increase payroll deductions to encourage more employees to save, which remains a key area in which we need to make progress; to use technology so that credit unions become the place to save and to borrow; and to focus on the education of young people in primary and secondary schools to develop their financial skills and promote the use of their local credit union. That is why we welcome Pauline McNeill’s amendment to the motion and intend to support it.
In June, I met key members of the credit union movement to discuss the priorities for the sector, what support might be required to ensure that the credit union movement in Scotland continues to thrive, and possible sources of support for that growth. It was clear that although our efforts to date to support and grow credit unions have had a positive impact, more determination to grow the sector is required and we need to focus not on doing things to the sector but on working alongside it.
That is why I am pleased that in this year’s programme for government we have committed to co-producing with the sector a new credit union strategy, which will enable it to grow, develop and flourish further. It is worth emphasising the importance of ensuring that co-production is at the heart of developing the strategy—an appropriate acknowledgement of the credit union principles of individual responsibility and mutual assistance. It is also important and opportune to seek members’ views at this early stage in order to help to shape the strategy for Scotland.
The credit union strategy will naturally focus on the sustainability of individual credit unions and of the sector as a whole. Typical of the wider social enterprise sector, part of the key to sustainability is ensuring that the next generation of savers and borrowers use credit unions. It is right to focus on future savers, so the strategy will look to ensure that young people are engaged with their local credit union and to identify sustainable ways of doing that.
In creating the strategy, we will explore the success of the junior savers scheme, which has engaged parents, staff and pupil volunteers in promoting a saving culture; delivered school assembly presentations and classroom discussions; and incentivised young people to become junior savers through a range of promotional activity. We have an opportunity to learn from the junior savers scheme and to work out what went well and what can be improved to ensure that we can support young people to become members of credit unions.
Affordable credit is another area that requires further attention. We know that people who are unable to access mainstream financial services have limited choices on where to go to borrow money. Some may turn to friends and family members, who unfortunately may be on low incomes, too, while others may turn to high-cost lenders and will then be exposed to exploitative practices. There is simply no other place for those people to turn to.
The Scottish Government has a responsibility to help to provide an alternative option for people in those situations so that they, like members, have access to credit that they can afford. That is why we have invested £1 million in Carnegie UK Trust’s affordable credit fund. The resource will be used by lenders over a 10-year period to provide genuine alternatives to high-cost credit lenders for people on low incomes and to work to address the financial exclusion that people face. The essence of the affordable credit fund is to help more disadvantaged and vulnerable people. The fund will also help to grow the community lending sector in Scotland through support for not-for-profit organisations. Those lenders, which include credit unions and community development finance institutions, support increased financial inclusion by providing access to debt advice, savings opportunities and banking products and services.
Fair For You was the first lender to draw down a loan from the affordable credit fund in order to expand the services that it offers in Scotland. Capital from the fund is loaned to borrowers from Fair For You so that they can buy essential household items for their homes. Fair For You’s repayment rates are affordable and are tailored to the borrower’s income. The loans are flexible, in that borrowers can pay them off faster and pay less as a result, if they can afford to do so. Our support for that sector over the next decade will be key to supporting the growth of the affordable credit sector in Scotland. Our investment in the fund will help social lenders to work with people on low incomes in order to increase their financial inclusion and contribute to tackling the poverty premium.
I know, however, that more can always be done, and I am always open to hearing suggestions on the way in which our work in the area could be improved. In the debate on the issue in Parliament at the start of the year, it was suggested that the Scottish Government should use financial transactions to boost credit unions’ regulatory reserves. We have investigated that and found that it should accelerate growth in credit union membership and support the vital services that they offer. That is why our programme for government commits to launching a new £10 million credit union investment fund in spring next year. That will provide low-cost loans to support credit unions to grow memberships and improve their systems.
It is envisaged that the fund will lead to healthier balance sheets for credit unions and in turn will allow a greater level of affordable lending. I am keen to engage with interested members from across the chamber and from the sector on the final form that the fund will take. For instance, we know that support for information technology infrastructure is a key ask from the credit union sector, and the fund will help with developing those key facilities. Given the changing attitudes to banking, particularly among younger people, that will help to ensure that credit unions remain key institutions in our communities today and, importantly, in future.