Credit Unions are non-profit
making financial co-operatives run by their members under a common
bond. Members own the credit union as each �1 saved buys one share in
the C.U. Members save and borrow.
All money a C.U. has comes from members' shares, joining fees, and
possibly some sponsorship. The running costs are met essentially by
"profit" made by interest charges on loans. C.U.s do not pay any
"interest" on savings but as they become more successful a dividend can
be paid proportionate to the amount of shares a member has.
Watford Credit Union Ltd is registered under the Industrial and
Provident Societies Act (Register No 685C), is authorised by the
Prudential Regulation Authority (Firm No 214302) and is regulated by
the Financial Conduct Authority and the Prudential Regulation
The C.U. is run by the members who have obligations to elect a
management structure and who have a right to vote at the AGM in return.
The Credit Union is run by Volunteers.
Credit Unions work on trust and within the community.
Credit Unions provide a viable alternative for saving and borrowing.
The cost of borrowing is a maximum interest of 3% per month
(42.6% APR) on the decreasing balance. However Watford Credit Union interest rate is 1% per month (12.7%) on the decreasing balance.
Members are encouraged to save whilst repaying loans so they can
increase their shareholding by the end of their loan period.
All C.U.s are run as a limited company and under business principles.
(We have a responsibility to keep money safe for all who invest in the
Credit Unions are affiliated to an umbrella organisation. In our case
we are affiliated to ABCUL (the Association of British Credit Unions
The Common Bond (The Factor that Unites the Members) The concept of a
common bond is that within a community people share a common purpose or
affinity and it is this factor that binds the members together.
The bond can be defined as:
. Members of a community such as major centres of population.
. Employees within a company (a group of employees clearly have a
. A member of an association or organisation such as a trades union or
The important thing is that people are known by the group either in a
community or workplace and that there is basis of trust. After all the
community is using its own member's money.
The UK Credit Unions
In the UK there are about 660 Credit Unions with approximately 200,000
members. These are community and emplovee based. They have around �1OOm
assets with some �90m out on loan. Community based C.U.s rely on the
local resident population within a common bond area for their
membership. The employee based C.U.s rely on employers agreeing to
setting up of a workplace C.U. in which their employees can
Credit Unions do not discriminate due to:
- Race, creed, sex, social standing,
- Past loan history
- Lack of credit record
- Living on income support
- Living in blacklisted areas
- Insecure employment
- Lack of loan history e.g. return from working abroad
However as we must look after our members' assets, the granting of
loans has to be business based. We have a Credit Committee that
interviews applicants to assess their credit worthiness and
"trustability", and importantly their ability to repay. Before a loan
is granted members must save regularly with us for 13 weeks. The value
of loans is determined by the WCU Current Loans Policy, the amount of
time the member has belonged to the C.U., any past loans they have had,
and their ability to repay. In line with our community service mandate,
small emergency loans are also available, but they too must follow the
"trustability" and repayment rules.
Given that we are running essentially a members' co�operative, WCU can
give a better deal than bank loans, Provident cheques and loan sharks.
It is important to note that credit unions are not able to offer
instant relief from poverty, more to encourage financial well being
over a period of time.
How Safe is Members' Money?
Credit Unions operate under, and comply with, Acts of Parliament, are
regulated by the Financial Services Authority (no. 214302), and are run
under business principles. We have many legal and internal safeguards
and have developed a substantial set of policies and procedures, which
are designed to ensure the sound and profitable running of our Credit
Union. We are insured against fraud and theft and are audited
The Financial Cycle
Credit Unions are funded by money that they get from member's
contributions in shares, joining fees, and sponsorship. The Credit
Union earns money by charging interest on the loans to members which is
currently limited to a maximum of 1 % per month on a decreasing loan
balance (12.7% APR). The C.U. charges 1% per month for any loan amount
allowed under our rules and bylaw. The loan interest earned by the C.U.
goes towards servicing the needs of the C.U. in terms of paying its
running costs and if there is any surplus to return money to the
shareholders. Running costs are administration, rent, rates,
telephones, stamps etc and an amount required by law to be put into
reserves to cover bad debts.
The money cycle is: . Money from the members' savings goes into the
common pot - from this pot loans are made. . Repayments of loans plus
interest are paid back into the pot and any "profit" is used for
running the Credit Union. . If there is any surplus after all the
running costs are accounted for then this can be paid out in the form
of a dividend to the members proportionate to the member's
shareholding. . Some small income is also earned by prudent investment
of member's money.
C.U. officers and volunteers do not get paid other than to cover out of
pocket expenses. (There is a small payment allowed in the rules to the
C.U. Treasurer). However paid staff may be employed.
The payment of a dividend, if at all, depends on the amount of surplus
money available. Details are decided after the end of each financial
year at the AGM, in the light of a recommendation by the Board of
Directors. By law, the maximum allowable dividend is 8%, but they are
often much less, even zero, especially for new credit unions.
The Management Structure
The members elect a volunteer Board of Directors (including a Treasurer
and Secretary) who are responsible for the day to day running of the
C.U., ensuring that proper business decisions are made and who are
accountable to the members. WCU has 7 Directors, who are elected at the
annual AGM. The AGM also elects a Credit Committee of up to 6 people
who process loan applications and ensure as far as possible that loans
are made with minimum risk. The Credit Committee follows up loan
repayments that fall into default and if necessary start a process of
legal action. An essential part of all C.U.'s is the Supervisory
Committee. This is a committee of 3 people. They act as an internal
audit function, constantly checking that all procedures are correctly
followed, that members' interests are protected and that we comply with
legal requirements. We also have a Money Laundering Reporting Officer
who looks out for illegal money transactions. All C.U. members can be
eligible for any of the jobs, and many volunteers in C.U.'s take the
opportunity to learn new skills. All volunteers are all committed to
teach other volunteers often to pass on skills that are useful in the
outside world, such as book keeping or computing skills.