Life Saving: Community Development Credit Unions

This paper argues for an institutional structure, similar to a network of credit unions in Britain, to provide small saving services to the needy. The authors recommend the regulatory agencies to initiate a program of development and support to develop a cluster of 100 Community Development Credit Unions (CDCU) and state that the goals of lifeline banking have multiple dimensions:

• Encouraging savings among Britains low income households;
• Providing localized means for the promotion of asset-based development solutions such as savings gateway and financial literacy services;
• Taking over a substantial market share of the sub-prime lenders.

The paper also provides some quantitative targets for such an initiative:

• Inject approximately £227 million GBP of affordable credit into many of the least well-off households in Britain;
• Save an additional £36 million GBP in interest payments from hard-pressed budgets;
• Bring a benefit to wider society and the taxpayer from the capital invested directly in low cost loans of £250,000, for an investment of £145,000 GBP in each credit union.

The paper concludes that the CDCU model:

• Represents a practical and positive development model for credit unions that wish to address financial exclusion and poverty;
• Offers innovative policy solutions to a government in search of ways to promote a more inclusive society.