At the pre-registration stage with the FCA/PRA, our Credit Union Project is coming to fruition
We hope to establish a new Credit Union, to be called the “Simple Quaker Credit Union” (SQCU).
There is a growing concern amongst a significant segment of the users of financial services that they may be financing operations through their savings which are not consistent with ethical or community values.
The purpose of this Credit Union is to combine a fully-functional, virtual, web-based institution with a management ethos where ethics are the primary consideration: one that that members can trust without reserve.
United by a Common Bond aligned to Quaker values: simplicity, equality, honesty and fairness – savers and borrowers who join the Simple Quaker Credit Union would find a home for short to medium term financing with none of these concerns.
We expect to thrive and grow by offering competitive interest rates on loans to members – particularly those with low credit ratings – while still providing acceptable returns to savers.
Mission
Our mission is to provide fair loans for honest people.
This we believe reflects our Quaker values.
Market research:
We surveyed all 465 Local Meetings of the Society of Friends, and received 39 replies all supportive, ranging from cautiously supportive to very enthusiastic, mostly on the cautious side, asking for further information. There were 2 who were not supportive. We were encouraged that over 8% replied, compared with 2-3% normally for such surveys. The 8% positive matches the calculations we have used for assessing possible numbers of members.
Products:
We intend to have a few simple products. We do not offer Insurance distribution services, including death benefit for members, or hire purchase agreements or conditional sale agreements. This reduces administration costs and training needs. In contrast to multiple complicated and confusing sets of products offered by other financial institutions, offering just two (and later, three) products is based on our marketing ourselves as the ‘Simple Quaker Credit Union’, designed to attract Friends by its simplicity and transparency.
1. Shares. We offer only straightforward non-deferred shares. We do not offer deferred, interest bearing or juvenile shares. All shares are valued at £1 and all adult members and corporate bodies are shareholders. The customer journey begins with the customer seeing an advertisement or going onto our website or word of mouth and sending an email to our address expressing interest. We then arrange a Zoom interview for mutual understanding and clearness: to understand the customer and the reasons for saving with us (Money Laundering indications especially) and to ensure the customer understands the product and conditions. If satisfactory, we ask which Area Meeting they or their relative attend, documentation to confirm UK residence, bank details, and if possible agreement to Open Banking. After the Zoom we check if the Area Meeting know this person (or their relative) and have a record of them, and check the address (in the case of a family member we check the address is the same, as they have to be in the same household) and bank. In the case of a relative of a Friend or Attender applying, we contact the Friend or Attender to confirm they are a genuine relative. If satisfactory, we register them on our software (onboarding) and request their first deposit and membership fee. Once paid, the customer then has full access via our website member’s Area to manage their account, including withdrawals, deposits and statements and closing the account.
2. Loans. We have only one loan product: a loan at 15% fixed rate of interest. We do not offer loans at differing rates of interest or variable rate loans. This is contrary to normal practice, where higher risk borrowers are charged a higher rate of interest. We treat all borrowers equally, and mitigate risk by limiting the amount of the loan where appropriate. So we publish our 15% product on our website, as part of our marketing strategy of transparency and honesty. The customer journey begins with their necessity to have been a member for at least 3 months before applying. We ensure that members fully understand all the implications of taking out a loan including the repayment period. They have to agree to Open Banking unless they do not have a bank account, in which case we investigate in more depth to ensure they are financially stable enough to merit a loan. Our Credit Committee then assess whether the amount of the loan requested is within the means of the applicant, and if not, they suggest a lower amount. In the case of severely in debt applicants we would have a special procedure whereby a very small loan (mostly to pay off some of a high interest debt) is paid if possible direct to the lender, and if the repayments are made promptly, a further slightly larger loan is arranged – and so on. At all times we respect all customers as equals, so we will not agree to direct payments by DWP out of their benefits. We also expect to make contact (with customer permission) with any agencies such a probation service or social services, who are looking after the customer. Members identified as vulnerable will be given additional guidance and support to ensure that these members can access all the credit union services and can communicate their needs with us. However, we may refuse a loan if the credit committee consider it might result in harm to the customer (for example, unrepayable debt). The full procedure for SQCU managing delinquent debt is set out in section 8.7 of our Policies and Procedures.
As a member, the borrower has full access to manage their account, so can increase (or indeed decrease) their payments, although the software system monitors repayments and may alert the management if there are matters of concern.
The full procedure for lending is set out in our Policies and Procedures section 8.
At some point we may offer:
3. Debit Card facilities. Many Credit Unions are now offering a Debit Card facility. We understand that there is little or no cost to the Credit Union, and no administration is required from the Credit Union as all transactions, including loading up the Debit Card from the member’s CU account, is done by the member using the Debit Card and our own Software. It is convenient for members in that, for example, funds may be available in their credit union account when they are not available in their bank account. However, for Quakers in particular we expect this to be popular because in the course of our research we have found that many Friends have strong opinions about the behaviour of banks, and the fact that their primary purpose is profit. Our Debit Card would provide all the main facilities of banks, including electronic transfers, direct debits and standing orders, so this would allow such members to transfer their bank current account balance to SQCU (subject to the £15,000 limit) and close their bank account.
Strategic Objectives
Our objectives over the next five years are to build a credit union with:
Quaker values:
The Credit Union will be guided by the beliefs, the approaches, principles and values sustained and evolved by Quakers. The Credit Union will do all business in the spirit of simplicity, truth, equality, peace and social and environmental justice. It will act in and from love, answering to that of God in those it encounters and so raise up the better side of human nature in those we encounter. However, appearing overly good or proud of it is a sure route to downfall and loss of reputation. Keeping to a positive, loving regard for the other, and eschewing all realities and appearances of pride and a perceived holy self esteem, difficult though it may be when trying to live our principles, is our goal.
Membership:
The most up to date recorded membership of the Society of Friends (Quakers) was for the year to the end of 2022, and was 11,491 (11,828 in 2021), a decrease of 337. During the year 157 came into membership. The membership of 170 adults was terminated and area meetings recorded 285 deaths.
The number of recorded adult attenders was 6,262 (6,479 in 2021).
Accordingly, we have based our calculations on a small decrease below these recorded figures to 11,000 members and 6,000 attenders. Based on an average of 2 people per family in addition to the member, we calculate 34,000 further people from the members’ and attenders’ own families are in our potential market.
The average penetration of members to common bond potential is 2% across England and Wales. However, Quakers have an unusually strong community spirit, confirmed by our market research into Quakers’ views on our proposal to form a Credit Union. This showed an 8% positive response. Accordingly, we believe that a matching 8% penetration is reasonable for our committed Friends and Attenders, with 4% penetration for their families.
Our objective therefore over the 5 years is to reach some 2,700 members, consisting of about 2,300 savers and 400 borrowers.
The Quaker community spirit will also we feel result in unusually high levels of members depositing a lump sum. Many members will we expect wish in principle to support their Credit Union but prefer to deposit a lump sum as it’s more convenient.
Financial Return for members:
The Simple Quaker Credit Union is founded upon a fundamental objective of the Quaker movement which is to work to create a more equitable society.
Our common bond encapsulates a set of shared values which reflect this objective.
As such, the magnitude of any financial return represents only one aspect of the reason for membership – and for some of our Membership, quite possibly of secondary importance.
We believe that the potential to actively participate in the formation of a more equitable financial services sector is also of great value to our Savers.
A ‘membership fee’ is common in models of financial services which are prevalent across both banks and Mutuals outside the UK, with users of banking services accepting the need for the institution to charge for the provision of its services.
Our Membership are aware that a system where Members do not make such a contribution is inequitable since it relies on extracting more interest from borrowers in order to fund the service.
The proposed membership fee is very modest: we anticipate that those who need to maximise the return on their savings, and for whom an additional 25 pence a week is significant, will not be amongst our membership.
We have deliberately estimated a highly conservative ratio of savers to borrowers in order to stress test our business model: clearly, as seems reasonable, should we find we have a higher ratio, we can be confident our financial model is more than sustainable.
Dividends
Our aim is to distribute a 4% dividend, and our financial model achieves this in years 3 onwards, with 3.4% and 3.5% in years 1 and 2. We have suggested 30% of surplus for dividends and 70% to go into reserves, in order to build up reserves a quickly as possible, but this would be a decision for the Board at the time.
However, in a worst case scenario, members might expect only a small dividend, and we calculate 0.1% (in year 2) to 1.8% dividend with 70% still going to reserves.
Compliance:
Our Policies and Procedures are designed to ensure full compliance and awareness at all times of those regulations applicable to Credit Unions.
The Board of Directors will appoint a person to act as Compliance Officer who will maintain a checklist of requirements in complying with its regulatory and legal requirements and report regularly to the Board with any changes to the law or regulation and how these changes may be implemented.
To assist our compliance we are already affiliated to and plan to become a full member of UK Credit Unions Ltd (UKCU) and has registered using the UKCU Model Rules.
Our compliance will include opening bank accounts with reputable banks and taking out insurance for a Fidelity Bond and Employer Liability.
The CU will be formed into a Limited Company, registered with Companies House.
Our Common Bond will comply with the relative regulations.
The CU will follow the regulations in regard to appointing Senior Managers and providing Certification for all necessary individuals working in the credit union in both voluntary and paid positions.