Food for Thought: Credit Unions, Crisis and Carpe Diemfood for thought cloud

Jonathan Moore, formerly CEO of Stockport Credit Union, reflects on crisis and opportunity for British credit unions. Jonathan will expand on these ideas on a forthcoming Reflections paper from Swoboda.

The storm clouds that have been gathering over the British economy for several years are today looking truly menacing. For many of our members the storm has already begun. Brexit, the pandemic, and Putin’s invasion of Ukraine all playing a part in unleashing a maelstrom of misery and financial hardship.

Flowing from all these difficult factors (as well as from recent political turbulence) is November’s fiscal statement which will result in the double misery of reduced government spending and higher taxes. Nobody is going to escape completely unscathed by the recession, so why talk about it in a credit union context?

The reality is that economic hardship never affects everyone equally. Those with more resources, whether financial or in other ways such as better education, more economically resilient employment, or better connections, always weather the storm better than those with fewer resources.

Credit Unions have traditionally served demographic cohorts that typically experience low to moderate incomes and on this occasion as on many previous ones, our members are disproportionally impacted. A headline rate of inflation of 11% masks the reality that our members, who must spend a higher proportion of their income on the basics, are likely to have far higher personal rates of inflation. Further, richer people have savings to draw on in hard times: our members are likely to have far lower levels (if any) of savings to smooth out the troughs from the peaks (indeed, many of them never experience the peaks).

Over the coming months (and maybe years) we can expect to see lower borrowing levels as members cut back on discretionary purchases, and as the deterioration of their credit files leaves some incapable of borrowing. Strain on household budgets will negatively impact affordability calculations meaning that more will be declined. We can also anticipate an outflow of savings, as members withdraw what reserves they have, to make ends meet. We will of course also expect to see a deterioration in the credit quality of our loan books. Far more members than a year or two ago will struggle to make their contractual loan payments.

All these undesired outturns have the potential to be devastating for many of our members and may well come to pose an existential threat to some of the individual credit unions within the sector. Our sector may be diminished at the very time that our members need us the most.

What then should be our response? How can we protect members, and how can we minimise the negative impact on our sector? We can of course do all the usual things: we can work with our members to provide signposting when we can’t lend, we can encourage our members to save and find new ways to help them do this, and we can be sympathetic when our members struggle to make repayments, and work with them to tailor support packages to help them through. All these things are a given; they come with the territory, and we already excel at them. We’ve been doing them for years.

Are these routine things enough though? My view is that they are not, and in an upcoming reflections piece to be published by the Swoboda Research Centre, I will call for radical change and articulate a bold new vision for how we can protect the future of the sector, do more to protect our members, and work to bring about better futures for all. I believe that in this time of crisis, we have a golden opportunity to create a different future and thereby move the sector forward and achieve different and better outcomes for our members. I look forward to sharing it with you.

Jonathan was CEO of Stockport Credit Union from 2019 to 2022. Under his leadership the credit union undertook a far-reaching modernisation and digitalisation programme which culminated in a near doubling of the loan book and a strengthened reach within its community. Prior to this he was on the board of directors at Salford Credit Union between 2017 and 2020. Jonathan has a three-decade career relationship with the mutual sector, having been employed by three building societies, culminating in a role as Head of Credit, which encompassed a range of responsibilities including business development, product development, and mortgage lending. Today, Jonathan pursues a portfolio career with a broad range of interests and activities which includes being a Non-Executive Director at the Fair Credit Charity, which advocates for financial inclusion and the expansion of the affordable credit market. He continues his link with the mutual sector by being a trustee of the Leek Building Society Charitable Foundation.